July 3, 2010

THE ROUT IS ON:

Friedrich Hayek: Darling of the right is reborn in the USA: The uncompromising anti-statism of Friedrich Hayek has won a new following among Republicans. (Stephen Foley, 3 July 2010, Independent)

Friedrich August von Hayek was born in Vienna in 1899 to a family steeped in academia, and became a polymath whose learning spanned psychology and the law as well as philosophy and economics.

Working at the London School of Economics in the Thirties and Forties, he became the most persuasive of all the "Austrian school" of economists who advocated for limited government, a classical liberalism that is today more commonly described as libertarian.

They passionately opposed central planning of whatever political hue, from Nazism to Communism, and that included opposing the nationalisations and Keynesian demand management that took hold in social democratic Europe after the Second World War. It was a lonely position for much of the post-war period.

"It was the occupational hazard of liberal scholars to show the consequences of political error years ahead of their time," Hayek's disciple Arthur Seldon, founder of the Thatcherite think-tank the Institute of Economic Affairs, wrote in his obituary of the writer in The Independent in 1992.

"The electorate was not inclined to listen in 1945 before the vast post-war expansion in financial, industrial and welfare nationalisation. It may have wanted to wait for the evidence that liberty would suffer from aggrandisement of the state. By the General Election of 1979 it had had enough. It was Hayek's thinking which largely inspired the 'Thatcherite revolution' in economic policy ... For half a century, Hayek was the leader of world liberal thinking. His influence will extend long into the 21st century."

Seldon's words were prophetic. Glenn Beck's herogram to Hayek did not come out of the blue. His works – and those of other members of the Austrian school of economists, led by Ludwig von Mises – are much discussed in the online forums frequented by the politically savvy young, many of whom have a libertarian bent.

It was this online student following that kept alive the presidential hopes of Ron Paul, a Texan Republican, long after mainstream media had written him off as a candidate for the Grand Old Party's nomination in 2008. The Congressman has hung portraits of the Austrian economists behind the desk of his Washington office, and proudly tells visitors it was their work that inspired his move into politics.

Now his equally libertarian son, Rand Paul, has sensationally won the Republican nomination to fight the Senate seat in Kentucky this November, thanks to Tea Party support. But Rand Paul has got himself in a spot of bother since winning the nomination, having declared he would not have voted for the Civil Rights Act that outlawed discrimination against African-Americans. The Act contravenes strict libertarian dogma, since it represents government interference with private business, in this case the right to refuse to serve blacks.

After a decade when US elections have seemingly hinged on the cultural issues that fixate the religious right, the looming clash promises to put the role of government at its very heart. In a vivid way, it mirrors the intellectual clash between Hayek and another dead economist, John Maynard Keynes, who argued for governments to step in with big spending programmes to prevent a recession from spiralling into a depression. It was Keynesian policies, lashings of them in every major country in the world, that pulled the global economy back to growth after the financial crisis.

Keynes declared himself in "deeply moved agreement" with The Road to Serfdom, but he had a sting in the tail of his praise. He declared that the philosophy was of no practical use. A minimalist government, which left people to fend for themselves, was unconscionable, he said, and no matter how seductive it appears on the printed page, no one would support its introduction in the end.

Kevin Logan, chief US economist at the international bank HSBC, said that Hayek's economic insights were powerful but limited. "His political appeal is very high compared to his economic influence," he said. "It is absolutely true that markets create much more efficient dissemination of information and Hayek's is a valid critique of central planning. In a complicated, large, modern economy, a central planner cannot get enough information to make efficient decisions. How many nails should be produced in an economy? How many ham sandwiches? Central planners can't know.

"He was writing at a time when the world was coming out of the Great Depression, when capitalism was widely seen as an inefficient, lousy system that had given us high unemployment. This was when central planning took hold as an alternative, a time of five-year plans and input-output tables and the like. Hayek's critique was that it can't be done. But we are not talking about central planning today. The US government has taken stakes in car companies and banks, but reluctantly. There is no appetite for it, no desire to control or operate enterprises. Even in healthcare, where Americans can choose their doctor and their insurance plan, things are not centrally planned at all."


The thoroughness of Hayek's (and, even moreso, Milton Friedman's) triumph over Keynes was nowhere more evident than in the Democrats' adoption of the Republican plan for mandated private insurance rather than a national health system.



Posted by Orrin Judd at July 3, 2010 7:52 AM
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