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Saturday
May182013

Hayek Explains Why Intellectuals Prefer Socialism

Why is it that intellectuals tend to prefer socialism over economic freedom?  It's a question with more than a few answers, but the most satisifying answer (at least for me) comes from Hayek in The Fatal Conceit. Intellectuals, says Hayek, prefer socialism because they overvalue intellengence.  Obama, for instance, believes he can rebuild the world in his image.  But like others on the left, Obama's judgement is clouded by his unwavering belief in himself.  This is the left's Fatal Conceit: instead of accepting the nature of man and the good (as well as the bad) of freedom, liberal arrogance enables a dangerous naivete where good intentions morph into ever more control from a power hungry state.

Here's how Hayek explained it:

The higher we climb up the ladder of intelligence, the more we talk with intellectuals, the more likely we are to encounter socialist convictions.  Rationalists tend to be intelligent and intellectual; and intelligent intellectuals tend to be socialists...

One's initial surprise in finding that intelligent people tend to be socialists diminishes when one realises that, of course, intelligent people will tend to overvalue intelligence, and to suppose that we must owe all the advantages and opportunities that our civilization offers to deliberate design rather than to following traditional rules, and likewise to suppose that we can, by exercising our reason, elminate any remaining undesired features by still more intelligent reflection, and still more appropriate design and 'rational coordination' of our undertakings.  This leads one to be favorably disposed to the central economic planning and control that lie at the heart of socialism.

 

Wednesday
Oct312012

Hurricane Sandy: How the Broken Window Fallacy Applies

In the aftermath of Hurricane Sandy, the reader will note many commentators claiming the hurricane cleanup will somehow boost the economy.  The idea that repairing destruction encourages spending and economic activity and thus improves an economy is called "the broken window fallacy."  The phrase is taken from French politician, philosopher, and economist Frederic Bastiat who obliterated the idea in an 1850 essay titled, "That Which is Seen, and That Which is Not Seen."  It's worth a read, so I've posted a portion of his essay below:

 

"Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation - "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade - that it encourages that trade to the amount of six francs - I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier's trade is encouraged to the amount of six francs; this is that which is seen. If the window had not been broken, the shoemaker's trade (or some other) would have been encouraged to the amount of six francs; this is that which is not seen.

And if that which is not seen is taken into consideration, because it is a negative fact, as well as that which is seen, because it is a positive fact, it will be understood that neither industry in general, nor the sum total of national labour, is affected, whether windows are broken or not.

Now let us consider James B. himself. In the former supposition, that of the window being broken, he spends six francs, and has neither more nor less than he had before, the enjoyment of a window.

In the second, where we suppose the window not to have been broken, he would have spent six francs on shoes, and would have had at the same time the enjoyment of a pair of shoes and of a window.

Now, as James B. forms a part of society, we must come to the conclusion, that, taking it altogether, and making an estimate of its enjoyments and its labours, it has lost the value of the broken window.

When we arrive at this unexpected conclusion: "Society loses the value of things which are uselessly destroyed;" and we must assent to a maxim which will make the hair of protectionists stand on end - To break, to spoil, to waste, is not to encourage national labour; or, more briefly, "destruction is not profit."

What will you say, Monsieur Industriel -- what will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?

I am sorry to disturb these ingenious calculations, as far as their spirit has been introduced into our legislation; but I beg him to begin them again, by taking into the account that which is not seen, and placing it alongside of that which is seen. The reader must take care to remember that there are not two persons only, but three concerned in the little scene which I have submitted to his attention. One of them, James B., represents the consumer, reduced, by an act of destruction, to one enjoyment instead of two. Another under the title of the glazier, shows us the producer, whose trade is encouraged by the accident. The third is the shoemaker (or some other tradesman), whose labour suffers proportionably by the same cause. It is this third person who is always kept in the shade, and who, personating that which is not seen, is a necessary element of the problem. It is he who shows us how absurd it is to think we see a profit in an act of destruction. It is he who will soon teach us that it is not less absurd to see a profit in a restriction, which is, after all, nothing else than a partial destruction. Therefore, if you will only go to the root of all the arguments which are adduced in its favour, all you will find will be the paraphrase of this vulgar saying - What would become of the glaziers, if nobody ever broke windows?"

 

Tuesday
Sep142010

5 Top Conservative Books

The website FiveBooks has a great symposium on significant conservative works. I'd encourage everyone to read the whole thing, and the interesting interviews with the voters about their votes. The panel of voters is all-star quality (included are Gov. Mitch Daniels, Karl Rove, David Frum, etc) and the ultimate results of the voting are nothing to argue with as well.

The top 5 vote getters are:

5. Free to Choose - Friedman

4. The Federalist Papers - Hamilton, Madison, Jay

3. Democracy in America - de Tocqueville

2. Witness - Chambers

1. The Road to Serfdom - Hayek

Thursday
Sep092010

Turns Out a Market Economy is Cooperative

NRO's Jonah Goldberg has an excellent column on the the market economy. Here's the meat:

"Friedrich Hayek did the heavy lifting on this point over half a century ago in his essay “The Use of Knowledge in Society.” The efficient pricing of markets allows millions of independent actors to decide for themselves how to allocate resources. According to Hayek, no central planner or bureaucrat could ever have enough knowledge to consistently and successfully guide all of those economic actions in a more efficient manner.

The latest proof of Hayek’s insight can be found not only in the economic winter that goes by the label “recovery summer,” but in the crown jewel of the stimulus known as “cash for clunkers,” which subsidized car purchases that would have happened anyway. That’s a major reason the auto industry just had its worst August in 27 years. Meanwhile, lower-income buyers are seeing used-car prices soar thanks to the artificial scarcity created by destroying perfectly good “clunkers.”

But that’s a small point in the grand scheme of things. According to progressives, the financial crisis discredited “market fundamentalism” and created a burning need for a more cooperative society where “we’re all in it together.” It’s an ancient argument, with many noble intentions behind it. But it rests on a misunderstanding of one simple, astounding, irrefutable fact. The market economy is cooperative, and more successfully so than any alternative system ever conceived of, never mind put into practice.
"

Goldberg is exactly right. And he barely scratches the surface of how Hayek deals with the subject. In The Road to Serfdom, Hayek spends time talking about how central planners operate under a false premise-- they seek to control that which they did not create, the market economy. Ultimately, according to Hayek, the inevitable result is failure.

Monday
Sep062010

Taxes Evaporate the Economy

The current debate over extending the Bush tax cuts is a classic demand-side economic argument. On one side, Conservatives are promoting across-the-board extensions to, among other things, encourage the wealthy to make capital investments. The other side, lead by Obama, says demand is best served by lowering taxes on the poor, who are more likely to spend, and raising taxes on the wealthy to fund government 'investments' in the economy. The idea is that tax cuts for the wealthy rob government planners of capital needed to guide the country out of recession.

On the surface, the liberal theory seems to work.  Not a week goes by without Obama visiting a clean energy company made possible by government largesse.  At each stop, Obama stands in the factory in front of the cameras repeating the mantra: government expenditures are pulling the economy out of the ditch. 

To answer Obama's liberal vision, we turn to the late French politician and free market economist M. Frederic Bastiat (1801-1850) and his classic Essays on Political Economy.  Admittedly, Bastiat lived during a time when political messaging wasn't as sophisticated--before big government types learned to call taxing and spending 'investment'--but the argument put forth below is strikingly relevant today.

"Have you never chanced to hear it said: 'There is no better investment than taxes.  Only see what a number of families it maintains, and consider how it reacts upon industry:  it is an inexhaustible stream, it is life itself...'

In order to combat this doctrine, I must refer to my preceding refutation.  Political economy knew well enough that its arguments were not so amusing that it could be said of them, repetitions please.  It has, therefore, turned to the proverb to it own use, well convinced that, in its mouth, repetitions teach.

The advantages which officials advocate are those which are seen.  The benefit which accrues to the providers is still that which is seen.  This blinds all eyes.

But the disadvantages which the tax-payers have to get rid of are those which are not seen.  And the injury which results from it to the providers is still that which is not seen, although this ought to be self-evident.

When an official spends for his own profit an extra hundred sous, it implies that a tax-payer spends for his profit a hundred sous less.  But the expense of the official is seen, because the act is performed, while that of the tax-payer is not seen, because, alas! he is prevented from performing it.

You compare the nation, perhaps to a parched tract of land, and the tax to a fertilising rain.  Be it so.  But you ought also to ask yourself where are the sources of this rain, and whether it is not the tax itself which draws away the moisture from the ground and dries it up?

Again, you ought to ask yourself whether it is possible that the soil can receive as much of this precious water by rain as it loses by evaporation."1

 

1. M. Frederic Bastiat, Essays on Political Economy, (New York: Putnam and Sons, 1874), 58-59.