Hayek

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Early Days and Libertarian Love

It is early, but already we see the shape of the next few years. It’s going to be ugly. Trump’s cabinet is taking on the look of an antithetical. Practically every choice so far turns out to be a near negation of the mission of the department they are nominated to run. And if not a negation, then they are a mockery. The choice of Price to oversee health matters is particularly striking: he has a long history of opposition to anything remotely social. Libertarians everywhere, no doubt, will love him as he smashes away at Obamacare, Medicare, and Medicaid. After all, as our dear leader Margaret Thatcher so famously said: there is no such thing as “society”.

Ah those libertarians.

For them there is no such thing as society — it smacks of the horrors of socialism, which is of course communism, which is of course Marxism, which is of course the Soviet Union, and we all know how that worked out. As Hayek famously taught us: to put even a single toe in the waters of social action is to slide, inevitably, down the slope to totalitarianism.

But whereas the collective known as society is non-existent, the collective known as the “market” lives strong and free in the minds of the libertarian right. Or should I say righteous libertarians, since their beliefs are articles of faith not grounded in empirical reality but in the supernatural of a highly specific form of liberty. So it is not an objection to collectivism that so vexes libertarians, but any form of collectivism that has something called “planning” in it.

This is deeply Hayekian.

That early twentieth century influx into the west of Austrian thinkers, refugees from the collapsing Hapsburg Empire and the far right politics and the wickedness of racial and discriminatory oppression that followed in its wake, has had a profound impact on subsequent thought. It has denuded much social thought of a recourse to social cooperation. It has put upon an unwarranted pedestal the so-called efficacy totally unplanned and highly decentralized action. Why? Because all those refugees piled the blame for their native home’s chaos on either the impossibility of the promises made by leftist politicians or on the unsuccessful and meddlesome intrusions of the declining autocracy they left behind.

So either the erstwhile planned efforts of the leftists, which ran afoul of events, or the brutality of government, whose ineptitude caused those events, was to blame for the loss of civil society and prosperity those refugees experienced firsthand. These survivors of that collapse spent their lives building dreamworld schemes that needed neither planning nor government to produce peace, prosperity, and the lifting of all citizens to better lives. They, more than anyone else, produced the heritage that we now experience as neoliberalism and the canard that “a rising tide lifts all boats”.

Their thinking is irrefutable within the limits of its own walled in assumptions and worldview. The libertarian pipe dream seduces even the most sophisticated thinkers. And it provides a useful elixir with which to intoxicate voters.

What the libertarians omit from their thinking — deliberately I ought add — is the concept of democracy. Democracy, that is, as an organized social expression of citizenship and collective responsibility. That is to say there are responsibilities that go with those vaunted rights the libertarians so ardently advocate.

Liberalism — and I count myself as a liberal — used to combine a healthy skepticism of government with an equal amount of advocacy of egalitarian social thought. We liberals advocate for the rights of all. Not just for a few. But the modern roots of liberalism are to be found in the turmoil of the 1600’s and 1700’s, before modern democracy was a method for expression of those rights. The Austrian thinkers were simply late to the table. Their homeland had not yet caught up with the liberalism if other western nations and, indeed, its decay came exactly at a time when much of the intellectual premiss of liberalism was under attack: the Great Depression, the Great War, and the rise of the Soviet version of authoritarian Marxism all seemed to be existential threats to western liberalism. The Austrian led counter-attack, which really took hold only after World War II, and which found its most fertile home here in the US, was founded on a peculiar mix of anti-democratic thought and neoliberal adaptation of the old school liberalism that had already been surpassed in the west.

Surpassed by what?

By a more socially aware democracy.

The steady incorporation of working people into the voting class, and the extension of the franchise which was painfully slow in even the most liberal of nations, saw the development of precisely the counterpoint to the old nemesis of autocratic government that the libertarians so desired. Yet they missed it altogether. Instead they conflated all forms of government into one: the evil version they wanted to eliminate. So libertarians have never been able to separate autocracy from democracy. In their minds government is government, no matter what ground it sits on.

So when voters elect governments to redistribute a nation’s wealth in order to preserve a semblance of egalitarian citizenship old time liberals once idealized — read the literature of America’s founding fathers for their opinions on how more equal society was so worth their praise — libertarians are reduced to a dogmatic objection: since all government is a form of oppression in their minds, they have no tool to ensure egalitarian citizenship. They deprive the voters of a voice. They stifle an essential freedom in pursuit of a more abstract version. And they signal a deep resentment towards democratic government.

Why is this important?

Because contemporary economic theory sits squarely on a libertarian foundation. It begins with a set of assumptions that denigrates government, a priori, as in inefficient intrusion. What the voters want is of no interest to economists. What the market wants is all that matters. This is because economists have so constructed their theories that market activity is always going to prove to be better than any other. The theory is rigged to ensure that outcome, because it suits the deep intellectually contrived worldview that infected economics way back when. Yet this so-called “proof” is so empirically laughable that no respectable science would advocate it. The contortions necessary to arrive at the “correct” result — i.e. that markets are superior to all other forms of resource allocation devices — are so wild and ridiculous that no one operating in the real world could sensible believe them. The disproof of economics is all around us: as Coase noted long ago, all business firms are centrally planned economic activities and thus deny by their very existence economic theory. Yet it plods along spreading its pernicious anti-democratic viewpoint and provides a cover for the libertarian attack on the provision of social services and corrections to the extreme consequences of unbridled market action.

Hence we now arrive in a political moment that has many scratching their heads: how come liberal democracy is such a tizzy? How is it that our military institutions are adored, yet our civil institutions are so despised? How is it that so-called “strong man” politicians can rise to power? How is it that governments everywhere are falling into the hands of people who so dislike government?

Because it has become second nature on the political right to hurl abuse at government, society, civil action, and all forms of liberal democracy. It began in earnest with Reagan. It has reached fever pitch with Trump. The straight line of libertarian utopian nonsense underlies the whole process.

Yes, I call myself a liberal. Yet I see libertarian idealism for what it is. I understand the profound ability of democracy to express the will of the people on an equal footing with the expression of those same people in market activity. Neither one nor the other ought dominate. Our future resides in learning the art of balancing the two: market action sufficient to generate wealth; social action sufficient to prevent the dominance of one class of citizens over another.

Modern liberals comprehend the need for that balance. Modern liberals advocate freedom as expressed in the marketplace and as at the ballot box. Indeed, from my point of view, being able to so advocate is the logical end result and the triumph of centuries of liberal advance.

Trump is a denial of all that.

As I said, its going to be rough few years.

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The Paradox of People

Yesterday I stirred up a certain curiosity as to why I had lumped Peter Drucker into the same bag as both von Mises and Hayek.

Well, simply put, the three of them, along with Karl Popper and Joesph Schumpeter, had an enormous, even oversized, impact on modern economics. Yes economics. Let’s not fall into the same trap as economists do when they, with a sweep of their hands, dismiss business theory as not an aspect of economics. Of course it is. After all if business is not an aspect of the economy, what is?

In any case, the general point is that there is a distinct Austrian flavor to modern economic/business theory that can be traced back to the work of that group. More importantly, the influence of that group, particularly Hayek, was to emphasize the terrors and the tyranny of socialism to a degree that precludes social democracy as well. In the hands of their various followers that emphasis became exaggerated eventually emerging as doctrinaire anti-government theory.

We thus end up with a profound ideological stance as we enter economic thought: anything the government does almost invariably dilutes or pollutes the so-called perfection of the market. So deeply is this stance accepted that most economists fail to realize its political import: that the democratic expression of the people’s will through their elected representatives is viewed negatively automatically in economic thinking. What economists are saying is that the people are entirely rational in their economic dealings, thus producing the perfection of markets, but are irrational in their political dealings thus mucking up that same perfection. The contradiction is exquisite. The paradox unresolved.

This paradox of people sits as testimony to the gulf between what would be a holistic social science and the much more limited study of allocation and/or choice that economics has opened up for itself. Since it is my belief that economies are first and foremost social phenomenon and are thus enmeshed in the political, institutional, cultural, and historical milieu of general social activity, the limitations of economics and its ability to discuss real economies is rather glaring. In fact it can’t contribute much at all other than its over-developed enquiry into choice under a highly restrictive set of assumptions which seem entirely designed to eliminate any connection to the larger milieu just referenced.

The emergence of the of the paradox of people can be traced, substantially, back to the personal biases and histories of the group of Austrians I mentioned yesterday. Let me give you a lengthy quote from Tony Judt on the topic:

“… We live in the long shadow of a debate with which most people are unfamiliar. If we ask who exercised the greatest influence over contemporary Anglophone economic thought, five foreign-born thinkers spring to mind: Ludwig von Mises, Friedrich Hayek, Joseph Schumpeter, Karl Popper, and Peter Drucker. The first two were the outstanding “grandfathers” of the Chicago School of free-market macroeconomics. Schumpeter is best known for his enthusiastic description of the “creative destructive” powers of capitalism, Popper for his defense of the “open society” and his theory of totalitarianism. As for Drucker, his writings on management exercised enormous influence over the theory and practice of business in the prosperous decades of the postwar boom. … All were forced into exile … and all — Hayek in particular — were to cast their writings and teachings in the shadow of the central question of their lifetime: Why had liberal society collapsed and given away — at least in the Austrian case — to Fascism? Their answer: the unsuccessful attempts of the (Marxist) left to introduce into post-1918 Austria state-directed planning, municipally owned services, and collectivized economic activity and not only proven delusionary, but had led directly to a counterattack.” — “What is Living and What is Dead in Social Democracy?” Tony Judt, a public lecture at NYU, October 2009

A long shadow indeed.

Judt is correct. Much of modern economics thought, indeed much of the underpinnings of neoliberalism generally, is directly attributable to the lifetime experiences of a small group of emigre Austrian thinkers who managed to exert an outsized influence. Why? because their fears fit well within those of the postwar West: the dark cloud of Marxist authoritarianism hanging over the West during the early Cold War years made the Austrian experience appear a lot more relevant than it is.

And, as I have already said, one consequence is that modern economics has no theory of government that is democratic. It assumes tyranny from the outset. It dresses this as tampering with “freedom”. With freedom exclusively expressed as the kind of libertarianism advocated by the likes of Milton Friedman.

I make no apology for agreeing with Judt on this issue. Hayek and the others built considerable theories based on their personal, albeit profound, experiences of tyranny. They made the error of transferring the ills of far-left Marxist politics onto all forms of social action. They became blind to the subtleties of democracy, and especially blind to the crucial role democracy plays in balancing or mitigating against capitalism. Instead, in various ways, they preferred to believe that impersonal individual action could somehow accrete into perfect collective action as expressed through a market. Moreover such expression was always preferable to any other expression including, for example, that through the ballot box.

But why was the government always a source of tyranny for these thinkers?

Because once instantiated it becomes a self interested agent with goals of its own that are not wholly those of the voters. Government by the people for the people thus becomes government by an agent of the people for the people, introducing along the way all the issues of agency that economists love to wrestle with. Since economics has no theory of politics within it, other than the Hayekian version, it has great difficulty squaring the economic and political motivations of the people. Indeed it doesn’t really try.

What we end up with is a modern economics that not only harkens back to its roots as an effort to wrest the economic sphere away from post-medieval monarchic interference, but also is now infused with a deeply anti-democratic vision built on the more recent conflicts inside the decaying Hapsburg Empire and its immediate successor state.

For anyone advocating democracy that’s a pretty potent one-two punch. Until economics incorporates a modern post-marxist theory of politics it will always appear to be resolutely opposed to the popular will. This is despite its purported advocacy of radical individualism accumulated into the collective known as the market.

The paradox of people lives on. With an Austrian twist no less.

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Trump, Denial and The End of Normal

Shocking is an understatement. Donald Trump is unfit for public office, be it town clerk or president of the US. He’s an unbalanced egomaniac. He’s a racist. He’s an immature misogynist. He’s many other awful things. Presidential, he is not.

How did we get here?

Failure. But a particular kind of failure. Failure dressed as success. A success so sweeping and deep that we hardly recognize the extent of the change that it wrought. Naturally I am speaking of the victory of neoliberal thought. Perhaps you were thinking of something else.

For a brief moment after World War II, for a generation and a bit, the western world basked in a quiescence of steady growth, political solidarity, industrial calm, and rising living standards. That much of this was an illusion, or rather a reflection of the prior chaos of the spasmodic ending of the elongated nineteenth century, we ignored. Instead we imagined that a new normal had emerged. Economic depressions had been defeated. Western Europe had settled its ancient scores. And America had emerged as a beacon of democratic freedom, albeit one willing to exert quasi-imperial tendencies in its foreign dealings. Compared with the authoritarian alternative of the Marxist east, America’s heavy hand was tolerable for a generation able to recall the terrors of 1914 through 1945.

This period, though, was bound to end. Within its fabric was an unrest bound to tear at the fragility of the apparent unity.

That unrest was the desire of many to return to the chaos of a more unfettered way of life. They disliked the growing tendency of post-war governments to intrude into spheres of life and activities that previously had been private domains. They especially regarded such intrusions as obstacles to personal enrichment.

They questioned social democracy as if it were Marxist authoritarianism. They asked: Where was the private incentive? Where was the opportunity? What was the intellectual footing upon which those intrusions stood? And: were those footings not insecure against the tide of uncertainty best dealt with by private initiative?

The rebellion, when it finally burst into open life, swept away the temporary stability of that generation and a bit. And like all movements recapturing some imagined version of a glorious past it was even more radical than the original. It preached ideas producing an ever growing insecurity, constantly accelerating change, wrenching social re-aligments, and loss of opportunity for anyone incapable of being the kind of calculating insensitive and morally ambiguous trooper in its corporate divisions.

At its core the rebellion has one theme: liberty. A return to an idealized version of liberty such as that taught by the likes of Hayek and his most potent student Milton Friedman. Others, like von Mises, Peter Drucker, as well as Hayek were members of what the essayist Tony Judt so eloquently called the Austrian cabal. They all grew up within the fetid declining years of the old Hapsburg Empire. They all misunderstood the causes of that decline. They all witnessed the horror of demagoguery of Hitler. They all feared the repression of Marxism, Lenin and Stalin. So they all overcompensated.

Their error, as they built the intellectual features of neoliberalism, was to mistake democracy as a form of socialism. In this they echoed the fears of their intellectual ancestors. The founders of the American republic were just as fearful of the people. The phrase “we the people” refers to a select few: those entitled to participate. It does not refer to the vast mass who were thought unfit to participate.

By making this error Hayek and his ilk debauched liberalism. No: they tore it in two. They ripped away any references to equality or the dignity of community, leaving only the much rawer individuality to stand alone as a beacon of freedom. This primitive liberalism was then packaged as economic and political theory to stand against any attempts to leaven it with those lost, yet appropriate, features of mature liberalism.

So that’s how we arrived here.

The consequences of the neoliberal rebellion are all around us. Trump. Brett. La Pen. Haider. Berlusconi. The people’s reaction to insecurity, austerity, globalization, deregulation, and the decay of social cohesion wrought by the single minded pursuit of the individual ideal.

With respect to Brexit, let me quote at length from Jonathan Freedland’s essay in the New York review of Books:

“There is an overlap here with those white working-class voters in the US who are backing Donald Trump. In both cases, they are often people who once enjoyed secure, relatively well-paid work and who have seen their jobs, and their factories, shipped eastward. Working low-status jobs on zero-hours contracts, they live in places that have been hollowed out and left behind … While London and other major cities gleam and sparkle with investment and regeneration, many of these English towns — post-mining, post-industrial, post-their-best — are still reeling from the Thatcher-era policy of privatization, which saw the state shut down industries it had once propped up. They have grown derelict. In each wave of change — Thatcherism, globalization, automatization [sic] — they have lost out.

It meant that the Remain campaign’s central argument — that Brexit risked Britain’s prosperity — cut no ice with these voters, because they had no prosperity to risk.”

A little later Freedland quotes a Conservative minister, Michael Gove, as saying:

“I think people in this country have had enough of experts.”

And that’s also why we are where we are.

The experts blew it.

The elite. The center. The experts.

They are the people who brought us rising inequality, globalization, shareholder value, austerity, infrastructure neglect, rotting schools, dilapidated cities, insecurity in retirement, health, and personal finances, stagnant wages, and all the other ailments of an economy and society run solely in the name of private profit.

Worse still: those experts are scarcely attached to democracy because they, like Hayek and his confreres, believe that popular will is akin to a chaos imposed by an unwashed undereducated mob. Those experts believe that they alone understand the so-called “national interest”.

But why is it in the national interest for almost half the population to live perilously close to poverty?

As it turns out, that fleeting glimpse of normal back in the immediate post-war years was no illusion. It was simply a threat to the old establishment and to big business. It was a democratic moment that had to be ended not extended. It had to be ended so profits could be made as they had back in the Golden Era. So ended it was.

Which is why we are where we are.

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Market Reflex

There are a few thoughts or words in a normal economics discourse that trigger what I call my ‘market reflex’.  Asad Zaman just triggered it. Of course he didn’t mean to, and the sentence in question is in an article I agree with. Further, the sentence, on the surface, looks and sounds so innocuous. Here it is:

“Free market economists believe that markets work best when left alone, and any type of government intervention to help the economy can only have harmful effects”

See what I mean? Innocuous. Asad is totally correct, they do think that. Worse: they mean it. And even more worse: they teach it.

Which gets me truly bothered.

The entire enterprise of contemporary economics, aside from its fringes, is built on this shady and unsubstantiated premiss.  It’s shady because it is laden with ideological bias, and it’s unsubstantiated because, well, its unsubstantiated.

Which gets me even more annoyed.

The supremacy of markets sitting at the heart of contemporary economics is a faith based notion not an empirically based fact. It is the result of economists of a certain ilk having vivid imaginations and strong biases. When you push a little on the idea you find that it relies on a set of thought experiments rather than on research of the real world. It requires superhuman and distinctly otherworldly computational skills, flows of information, and ironclad willpower, not to mention a total lack of real choice on the part of the denizens of this imaginary market, for it to work smoothly and to find its way to the happy land called a utility maximizing equilibrium. Only within such ridiculous constraints is the so-called superiority ever exhibited.

The rest of the time stuff happens and who knows what’s best?

It is the obsession with sanitizing the economy and thus rendering it unreal that has led economics astray over the years. And this article of faith about free markets working best when left alone, is sheer tosh.

Just to press my point further: for the dream land of economists to display such a characteristic it would have to be inhabited by two sets of parallel and never interesting people. One would be the superb calculating machines of the erstwhile free market. The other would be the foolish idiots of the political system.

You see, and this bugs me most of all, the ‘agents’ of the economy that economists model and who, in those models, produce such startling efficiency – so startling that it cannot be improved upon – are the same ‘voters’ who support government intervention to soften the edges of the economic machine. Apparently economists are oblivious to this rather salient fact. I suspect they are oblivious on purpose. For to acknowledge the reality of democracy and voter involvement in government treads heavily on the pristine ground economists have carved out for themselves. By separating the economy, or, rather, the ‘market system’ from society as a whole they can pretend that it is a self-enclosed entity bereft of outside influences that might muddy their simple models. And it means that they can indulge in anti-democratic theorizing without actually being anti-democratic: democracy is a dirty government thing, it isn’t part of the market system.

I remember reading Hayek’s famous paper on knowledge in the economy in which he lays out the argument about central planning being a hopeless adventure and asking myself how, if the world is that complex, anyone can know whether any system is better than any other. You can’t. If the information is so difficult to gather and compete for a centrally planned system, on what basis do we have to conclude that a decent rally planned system cannot be improved upon?

Well, it turns out, we can make that determination if we rig the model and the calculations upon which we rest our argument.

Which is what Friedman and the other followers of Hayek have done.

They have no ‘proof’ other than an artificial test tube model that they created especially to produce their proof. Garbage in, garbage out.

Or, as Friedman so famously argued, it really doesn’t matter how insane your assumptions are as long as they produce the ‘right’ results. Friedman, of course, knew what result he wanted:

Free market economists believe that markets work best when left alone, and any type of government intervention to help the economy can only have harmful effects.

So there.

Scientists at work.

Not.

 

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New York Stops The Revolution in Economics Too?

Yesterday’s election result in New York State effectively ended Bernie Sander’s tilt at the Democratic windmill. Here’s what I wrote to a friend who was intent on parsing the numbers:

And, the point is?

We can analyze all we want. It doesn’t alter the result. It provides nice fodder for coffee shop talk, but doesn’t help anyone.

It’s time to move on. Bernie will keep going. Clinton will become even more annoyingly patronizing. Her surrogates [like Krugman] will gloat. She will likely win in November. And America will struggle on regardless.

Clearly 2016 is not the year of change. It is a year of upheaval on the right, complacency in the center, and only the beginnings of rebirth on the left.

I never imagined that the Democrats would be the party of centrist corporate establishment thought. Or that it would be the Democrats enforcing the wishes of big business over and above those of the working people. But that’s where we are.

I suppose none of this is a surprise. The total dominance of social/cultural issues as a defining line in politics has obscured the equally powerful dominance of right wing economics across the board. Neoliberalism is the monotone ideology of both parties.

The revolution will have to wait.

Buried in there is my attitude towards economics. By enabling neoliberal ideology, and following the lead of Hayek and Friedman, economics debases the role of liberal democracy and representative government. This casts a long dark shadow across the subject.

Never has it been more clear to me that, notwithstanding the professed personal positions of individual economists, contemporary economics has become a profoundly anti-democratic project.

This is ironic only with respect to longer history.

The 1930’s were critical in the demise of the democratic tradition within economics. The setting into concrete of its severe limitation as a subject dealing primarily with the mathematics of choice and allocation was masked only temporarily by the superficial victory of Keynesian macroeconomics. The intellectual catastrophe of the 1970’s and 1980’s, which saw the emergence to superiority of the formalized ideologically anti-democratic version of economics that now dominates, was merely a logical extension of the 1930’s limitation.

The subject finally emerged as a tool for performative reconstruction of society. Its methods were exported to ensure the elimination of alternative viewpoints. Its dogma was translated and accepted into the prevailing faith for business strategy, economic policy, and many other aspects of socio-economic life.

Even the supposed schism between various flavors of macroeconomics which gives great life to the academic elite and provides large numbers of hand-wringing articles about the state of the discipline is trivial when set beside the socio-political stranglehold neoliberalism has on our society.

When the major debate about ‘what went wrong’ is being conducted by the same people who led us into error; when that debate is conducted entirely in the same theoretical framework as that of the error itself; when the policy outcomes are only relatively modified; and when the entire discussion seems so unrelated to the day-to-day actors who populate – or are supposed to populate – the markets and economies that economics is meant to understand we know that nothing will change.

Don’t we?

Until economics rids itself of the fantasies of equilibrium, maximization, and the pursuit of an efficiency that cannot be located in an uncertain world, it cannot be much more than an narrow academic pursuit. Right now, by convincing itself of the efficacy of its method, and by the unethical exportation of that method into subject matter where the simplicity of economics has no relevance, economics has managed to make itself into nothing more than a technology for the exact opposite of its original intent: it is no longer trying to understand economies. It trying to invent them.

It is social engineering.

And like a lot of twentieth century social engineering it has become a very sinister undertaking.

Let’s take it back.

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