Hayek in Brief

June 19, 2010

Frederich Hayek (1899-1992) was one of the most profound and influential thinkers of the 20th century. His most famous book is The Road to Serfdom, which though first published in 1944, is currently the #1 bestseller at Amazon.com. That this book is so widely read and so widely ignored by the leaders of the West defines the economic malaise currently disabling the enlightened spaces of the planet. Hayek’s most profound book, the one that looks most analytically at the role of the state versus that of the individual, is The Constitution of Liberty; it first appeared 50 years ago.

Both are virtually compulsory for anyone who wants to understand the end result of the welfare state and who also wishes to find an exit short of catastrophe. If you are too lazy or busy to read Hayek’s books there is a relatively short essay that encapsulates his thinking on the economic structure of society and the tension between liberty and equality. Individualism: True and False was a lecture given in 1945 and published the following year. It was published in a collection of Hayek’s essays as Individualism and Economic Order. It was recently reissued by the Mises Institute.  Individualism: True and False is the first of these essays.

Hayek starts by defining “individualism”. He distinguishes his sense of the word from that used by Rousseau and the Encyclopedists which he feels means or leads to collectivism. Hayek believes that true individualism is a theory of society. “Individualism postulates…the existence of isolated or self contained individuals, instead of starting from men whose whole nature and character is determined by their existence in society.” Nations, in his view, stumble accidentally on systems that may form the very basis of human organization, but which are not the result of design. Free men create things “which are greater than their individual minds can ever comprehend.” Hayek derived this apprehension from Josiah Tucker, Adam Smith, Adam Ferguson, and Edmund Burke. Smith and Burke were particularly important in shaping his thought.

This view contrasts diametrically to those who wrought the French revolution and whose heirs are the social designers of today. “[D]esign theories necessarily lead to the conclusion that social processes can be made to serve human ends only if they are subjected to the control of individual reason, and thus (they) lead directly to socialism, true individualism believes on the contrary that, if left free, men will often achieve more than individual reason could design or foresee.” This statement encapsulates the debate which animates our current politics, no matter how inelegantly framed, over the role of the government in the design and direction society in general and the economy in particular. Along with Adam Smith, Hayek was more concerned with a system under which man could do as little harm when at his worst, rather than what he could do when at his best. This is analogous to primum non nocere in medicine.

Hayek, along with Smith and Burke and unlike their French contemporaries, wants a system that grants freedom to all rather than to just the “good and the wise”. The reason for this preference is that the good and wise, no matter how wise, can never know enough to manage any complex system. Any one man or even a group of men can only know a sliver of the whole of society. This is Hayek’s crucial point; the one he returns to throughout his career.

A man “cannot (italics in the original) know more than a tiny part of the whole of society…all a man’s mind can effectively comprehend are the facts of the narrow circle of which he is the center…nobody can know who knows best…The fundamental assumption…is the unlimited variety of human gifts and skills and the consequent ignorance of any single individual of most of what is known to all the other member of society taken together.” These are the reasons why central planning fails. No matter how earnest or well intentioned the planners, they cannot know more than an infinitesimal of that required to successfully plan any enterprise of consequence.

The presence of 40 “Czars” in the White House and the “success” of their charge is a perfect example of Hayek’s assertion of individual ignorance.

He goes on to say his “argument does not assume that all men are equal in their natural endowments and capacities but only that no man is qualified to pass final judgment on the capacities which another possess or is to be allowed to exercise.” He then remarks that only because men are unequal can we treat them equally. If they were all the same we would have to treat them unequally to successfully organize society. But as they are not equal society can be successfully arranged by letting people freely follow their inclinations. “There is all the difference in the world between treating people equally and attempting to make them equal. While the first is a condition of a free society, the second means as De Tocqueville described it ‘a new form of servitude’.”

If all were equal we would have to coerce people into occupations or tasks for which they were no more qualified than anyone else. As people are unequal we can let their talents dictate their activities.

The tension between liberty and equality (if one means equality of outcomes) is the basis Hayek’s masterpiece The Constitution of Liberty. In more than 400 pages of tightly reasoned prose he scrutinizes individual liberty and the role of the state in its application. He defines liberty as the absence of coercion. Coercion may only be exercised by the state. He examines the condition under which such coercion is justifiable. He shows how liberty and equality of outcome are opposites – the more you have of one the less of the other. Thus the state should be careful in the application of its coercive power. Especially as it never has the knowledge necessary to gracefully manage any complex system.

Hayek believes that society must be ordered on general principles which have evolved over time, often unconsciously, that are respected by the state and equally applied to all. These organizational rules must serve for long periods of time. In a dig at Lord Keynes he derides government’s tendency to concentrate on short term problems “because in the long run we’re all dead”. Making up the rules as you go along (even if you’re only 20 years old this must resonate) allows, in fact it demands, that the state become absolute.

So what kind of rules do we want? In this essay Hayek does not examine the subject the way he does in the later Constitution of Liberty. He is, of course, in favor of an effectively competitive market system. He is very much aware that our personal sense of justice frequently revolts against the impersonal decisions of the market. “We must face the fact that the preservation of individual freedom is incompatible with a full satisfaction of our views of distributive justice.” Here is the nub of the contention that animates the politics of all the world’s liberal democracies.

The hard decisions of the marketplace often make the public prefer the imposition of human intelligence as a counter weight, but they soon discover (or they should if sentient) that no matter how hard the market it leave a person with a choice whereas the imposition of the government leaves none. The following paragraph though written almost 70 years ago could be the product of this morning:

“The unwillingness to tolerate or respect any social forces which are not recognizable as the product of intelligent design, which is so important a cause of the present desire for comprehensive economic planning is indeed only one aspect of a more general movement. We meet the same tendency in the field  of morals and conventions, in the desire to substitute an artificial for the existing languages, and in the whole modern attitude toward processes which govern the growth of knowledge. The belief that only a synthetic system of morals, an artificial language, or even an artificial society can be justified in an age of science, as well as the increasing unwillingness to bow before any moral rules whose utility is not rationally demonstrated, or to conform with conventions whose rationale is not known, are all manifestations of the same basic view which wants all social activity to be recognizably part of a single coherent plan. They are the results of the same rationalistic ‘individualism’ which wants to see in everything the product of conscious individual reason. They are certainly not, however, a result of true individualism and may even make the working of a free and truly individualistic system difficult or impossible. Indeed, the great lesson which the individualist philosophy teaches us on this score is that, while it may not be difficult to destroy the spontaneous formations which are the indispensable bases of a free civilization, it may be beyond our power to reconstruct such a civilization once these foundations are destroyed.”

What Hayek teaches us is that the only viable society is one based on individual liberty, a society that enacts general laws which are equally applied, and which resists the almost irresistible compulsion to interfere with the free exercise of individual rights; this interference is almost always excused in the name 0f social justice, a phrase that typically signals the approach of something nefarious. Social justice results from a free society where the government does for the people only that which is necessary for their welfare and which they cannot reasonably be expected to do for themselves. Whether the democratic countries of the world can successfully organize themselves along the principle of individual liberty is the compelling issue of our age. The alternative is submersion under a flood or moral sloth and societal dependence on a fattened bureaucracy.

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Terrorism and Healthcare Reform

December 29, 2009

The recent attempt to blow up a US airplane as it was about to land in Detroit may not seem to have much connection to healthcare reform, but on reflection the relationship is proximate and interesting.  The would be underwear bomber was known to the federal bureaucrats charged with protecting us from what is now a decades long concerted effort at destabilizing the US by Muslim extremists.

This is the unifying strand (it’s more like a chain) that connects most of these attacks either thwarted or successful. The government knows that certain people are a threat but can’t bring itself to take preventative action. It knew about the 9/11 terrorists, it knew about Nidal Malik Hasan, it knew about Umar Farouk Abdulmutallab and yet it did nothing. Abdulmutallab was on a terror suspect list that contained 500,000 names. Janet Napolitano the feckless Homeland Secretary who can’t tell whether our anti-terrorist system works or not seems intimidated by a list with half a million names. I’m sure the government has trouble with this long a list. But look at what Google can do with a far greater one. I searched Google for Shakespeare and got this:

Googles's Shakespeare search

More than 50 million hits in 0.13 of a second. I’m sure Google would be glad to keep track of all the governments lists for far less money than the government spends to not be able to track potential bad guys. But the bureaucrats would rather die (or more accurately we die) than relinquish any part of the budget or control. They can’t keep track of anything while Google can scan the entire internet in less than a second.

The new security methods immediately put in place after the failed attack punish the victim rather than go after the villains. It swill soon be so onerous to fly, if it isn’t already, that the fragile airline industry will collapse. The proper solution is so dazzlingly obvious that the government’s failure to adopt it can only mean they’re blind; it’s to vigorously scrutinize those passenger who are virtually the sole candidates for terrorism They are young Muslim males (Muslim females will have to checked as well). Patting down 80 year old grandmothers from Iowa City and putting retired professors of medicine from Lubbock through a whole body scanner is more than a waste to time and treasure it’s a lethal expression of political correctness. Liberty for the terrorists seems more important than that of their potential victims.

We are so weakened by moral idiocy that 14 people are dead in Fort Hood because of a depolarized moral compass. When an assault victim tells the police that his assailant was a 30 year old white man the cops don’t line up 60 year old black women. But when it comes to airline screening we do.

Consider the recent flap about battlefield pregnancies. When a regional commander in Afghanistan ordered that women soldiers who get pregnant in a war zone and their impregninators be disciplined the resulting outcry from women senators and NOW caused the general to be overruled by his superior. He likely will never be again promoted because of the incident. Getting pregnant on the battlefield (no smirk intended) is not a good thing. We have an all volunteer army. There is such a thing as military discipline. The army runs by a different set of rules than does civilian society. The general was right and the overturning of his order weakens the military and out national security.

The barbarians are always at the gates and they always will be. Our seriousness at keeping them out is doubtful. If they get in all our precious rights which are invoked as an excuse for not preventing their entry will be swept away.

What’s all this got to do with healthcare? The same bureaucracy that is making a mess of “homeland security” will be even more in charge of medicine than it already is. How can anyone  think that a 2400 page bill, the contents of which are fully know to no one will extend care and reduce costs? The suspension of disbelief required would make Samuel Taylor Coleridge take even more opium.

If the government can’t manage something as vital as keeping our airplanes from being blown out of the sky how are the going to respond to the same grandmother from Iowa City’s request for a lumbar MRI because of chronic low back pain? Perhaps they’ll send her to the airport for a total body scan which doubtless will be easier to get than the MRI.

The healthcare reform (as in reform school) bill that congress seems determined to pass even if they pay with their professional lives will create scores (likely more than 100) of new bureaucracies and mandates. These will not reform, will not energize, will not make more efficient a system that badly need real reform. Costs will continue to rocket out of control and medical care will degrade. The deficit will reach Alpha Centauri and the bureaucrats will soon outnumber the patients. Our response to terrorism and to increased government control of our lives reflects a serious weakness of national will. The barbarians are still at the gates.

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Draft of House Health Insurance Bill

July 31, 2009

If you are addicted to punishment you might want to page through the draft of the House’s health insurance bill. Not only have most congressmen not read it, they would have to understand bureaucratease – the language in which the bill is written. This is the June 19th version and comes in at a concise 852 pages. I must admit that I haven’t gotten all the way through it, but I’m sure its just what the doctor ordered. I’ll post a follow-up when I’ve digested the monster. In the meantime have a crack at it.

healthcare bill

Here’s the July 14 version of the bill. It has 1018 pages. As soon as I find the latest one I’ll add it.

July 14 healthcare bill


May 13, 2009

Recently I posted an article I wrote in 1997 – We Lose Money on Every Car We Sell But Make It Up In Volume or The Accountant Ascendant. In it I mentioned that a study (published in 1996) concluded that the CPI was underestimating the true degree of inflation by 1.1%. Now another report concludes that we are still overestimating how much it costs to live in the US.  Prices, Poverty, and Inequality: Why Americans Are Better Off Than You Think argues that properly tallied the poverty rate has fallen in the US by 60% since 1970. Who knew?

Yet again proof that he who controls the numbers controls the world.The poor in the US are the first of their kind to be plagued by obesity. Poverty in America is as much (perhaps more) a failure to cope as a failure to earn.If this new analysis is correct the income divide between rich and poor is not anywhere near as bad as commonly depicted.

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We Lose Money on Every Car We Sell But Make It Up In Volume or The Accountant Ascendant

April 30, 2009

I was flabbergasted when I reread the following piece originally published in 1997. It outlines our current economic plan. I had no idea that our future president read Lubbock Magazine 12 years ago. But don’t impute any bitterness to my remarks. I’m perfectly willing to let him take all the credit for the plan I outlined.

Losing money on every car but making it up with volume was the marketing strategy mockingly attributed to General Motors a generation ago. Surprisingly it turns out to contain the key to the closest universal truth yet promulgated by our fallible species; i.e. if you control the numbers you control the world. You can make people retroactively happy. You can do anything.

Consider Social Security. It appears to be growing broke. The realities of American life seem to preclude discussion of this problem by anyone in authority; so federal commissions are threatened. Whenever the government sets up a commission to deal with something important they are embracing the white feather. Yet the accountants are quietly rushing to the rescue with a fix breathtaking in its simplicity and implications. They propose, as you may have heard, that the government which annually adjusts Social Security payments for inflation has been systematically overestimating the inflation rate and thus the cost of living increases given Social Security recipients for decades. Reducing the annual cost of living increase by 1.1%, which is what the accountants believe the inflationary overestimate to be (actually they picked 1.1 arbitrarily from a range of 0.6 to 1.8%), eliminates three quarters of the Social Security shortfall projected to occur when the baby boomers retire (baby boomers has the same resonance as a murmuration of marsupials). No pain, lots of gain. But think about the implications of this adjustment.

Readjusting inflation downwards over the past few decades requires rewriting a lot of history. If inflation has been less than stated by more than 1% a year, the wages of American workers have gained ground over the past 20 years, rather than the reverse. In other words, their real wages have been much more than they thought. All those workers who have been unhappy with their economic lot will have to become retrospectively happy. Alternatively, they could sue someone for making them unhappy when they should have been delirious with delight. No wonder Bob Dole lost; he was telling us we should feel worse than we do when the truth is that we really should feel better. Bill Clinton will have to renounce the pain he felt four years ago even though it got him elected.

Alan Greenspan and the Federal Reserve will also have to redo the past. They have been fixated on the inflationary effects of too rapid economic growth. They threaten to raise interest rates any time the gross domestic product seems to be growing faster than a coral reef. Well it turns out that the economy has been speeding along like a runaway race horse without any impact on inflation and without the Fed knowing what was happening ever since Jimmy Carter decided to make being an ex-president his life’s work. The truth seems that we can safely lower interest rates without penalty until the banks are almost paying us to take their money.

Having shown that the accountant is omnipotent, I will now use the magic and romance of double entry bookkeeping to show how we can spend ourselves rich, which is the so far unrealized goal of every liberal democracy. Not too long ago Time or Newsweek, they’re indistinguishable to me, was carrying on about depression at such length that I was getting depressed until a dollar sign caught my eye. Depression (the disease not the economy) was said to be costing the country around 100 billion dollars annually. I was very impressed; that amount is more than 10% of the national medical care bill. I decided to see what other diseases were costing us. Of course I couldn’t consider diseases as obscure as acute intermittent porphyria, but I did tally the cost of every disorder that had at least one special interest group devoted to it.

Imagine my surprise when I discovered that the direct and indirect costs of disease in America come to three times the gross domestic product, (GDP is currently about 7.5 trillion dollars). Here was a real investment opportunity. Most experts have been worried about the high cost of American medicine, about 15% of GDP. They want us to spend less. It should be obvious that we should spend much more. If we triple or quadruple what we spend on medical research and health care we should eliminate human disease, or at least vastly reduce it. Let’s think positively and assume we’ll cure or prevent everything. This would raise our national income from about seven and a half trillion dollars to about 30 trillion. All this for a measly cost of three to four trillion.

Medical care is, of course, just the start. Everything we do costs something. I’m sure that when these costs are calculated they will also exceed what we spend on them, though I admit some of them might not exceed GDP. Biggies like pollution and occupational injury will likely amount to a multiplier of national income, however. Thus, we must increase spending on the environment until we are blue from cleanliness and eliminate every hazard from life until accidents are impossible. Another gigantic economic benefit that also needs to be factored in is that this spending on medical care, pollution, occupational safety, etc will create new businesses and jobs. More entrepreneurs will become billionaires, most of us can become as rich as Bill Gates. Unemployment will be a mystic memory.

I hope you see how the conservatives have gotten everything backwards. Rather than reducing spending and taxes we should increase them. Taxing and spending can only make us rich because the more we spend the more we make, just like GM.

By spending more and more we can only increase our net income. Accurate accounting holds the solution to everything; the more something costs the more profit there is in it if only we will invest in America. Dr Pangloss didn’t quite get it right. I envision a future that is better than the best of all possible worlds. Future columns will discuss investment opportunities in the Brooklyn Bridge, the Philosopher’s Stone, and perpetual motion.

Originally published in Lubbock Magazine (February): 22-23, 1997. (Also posted under “Commentary”)

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Why Politicians Lie

April 7, 2009

Human nature being what it is, all men prefer a false promise to a flat refusal. At the worst the man to whom you have lied may be angry. That risk, if you make a promise, is uncertain and delayed, and it affects only a few. But if you refuse [to promise aid or a solution], you are sure to offend many, and that at once.

Quintus Tullius Cicero, 61 BC
A Handbook of Electioneering
Addressed to his brother Marcus Tullius Cicero who was running for office.

Put another way – people want politicians to lie to them in preference to telling them the truth if the truth is unpleasant. We get the politicians we deserve and should stop complaining about them. But that would require facing the truth so forget it. Or as mark Twain said: “A ______  [fill in the blank] is human, worse I can say of no man.” But I wouldn’t get depressed about all this; it (whatever is troubling) won’t last long – nothing does. Get a really good hamburger with fries.

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Off With Their Thumbs

March 31, 2009

I propose that the top 2% of earners in the US have their left thumbs amputated under the direction of the Department of Health and Human Services. Of course, this would be done under the proper medical supervision and with all necessary anesthesia and post-operative analgesia. We are a humane country. Left handers would have the option of having their right thumbs removed. Read the rest of this entry »