The libertarian economist’s work is much more complex and valuable than his critics imagine.
NRPLUS MEMBER ARTICLE
n a new piece by American Compass, “Planning for when the market cannot, “Julius Kerin criticizes Nikki Haley’s recent unapologetic defense of capitalism. Particularly focused on the case of F.A. Hayek, against the government’s heavy-handed “planning” of the economy, hopes to persuade the reader to override Hayek’s forbidden conservatism in favor of the more interventionist economic policies supported by the new nationalist law.
Krein’s argument embodies a fatal weakness in the ‘national conservative’ intellectual strategy. But to understand why, it is first necessary to understand the different anti-planning arguments that he seems to confuse.
Types of planning
At least the concern that the government intervenes too much and too often goes back to Adam Smith and John Stuart Mill; Hayek was only the most famous exponent of the 20th century. The fundamental conservative / libertarian critique of government intervention in the economy is that it does not work because policymakers do not have the knowledge that market parties have in solving social problems, and therefore have to perform worse than the market in making economic decisions. Within that basic criticism are three related but different lines of argument.
First, there is the well-known argument against it Central planning, in particular the proposal that governments own and operate the capital of a society on their behalf. Hayek argued that such a policy could not succeed because planners did not have the required knowledge to plan. Hayek was right about this and in the end almost everyone agreed with him.
Second, there is the argument that some forms of government intervention tend to call for further intervention, triggering a spiral of failure: an inefficient, corrupt economic policy that may lead to full socialism. (Note that this is not the same as the argument that central planning cannot succeed. It is a clearer and more modest statement that certain types of interventions lead to others, only a criticism of “planning” in the broad sense.)
Then there is an even more modest argument that government intervention tends to fail because government bureaucrats know less than market participants and have poor incentives to generate good policies. We could describe these interventions as “planning”, but that would misuse the term.
Some market defenses put these arguments together, as Haley arguably does. It is tempting to shoot down modest government intervention proposals, claiming that even these proposals will lead to tyranny and gross waste. But if Kerin wants to use conservative and libertarian ideas at their best, he has to take them seriously enough to remove the distinction between them.
Kerin fails to define his terms
Instead, Kerin practically guarantees that he will combine the various arguments against the central planning he is complaining about, because he never bother to tell us what he means by “central planning”. (Indeed, at some point he seems to compare it to government intervention in general: “If anything, government intervention – and therefore planning – becomes more necessary when less market and industry knowledge is available.”) He notes that Hayek is not was against all planning, and that he preferred some form of government intervention. He also manages to correctly characterize some of the basic lines of Hayek’s argument against socialism. But his inability to define planning leads to some major obvious mistakes.
Take Krein’s assertion, for example, that “for Friedrich Hayek and his followers, government planning was the root of all tyranny.” This is simply not the case. Yes, for Hayek, very extensive states will be tyrannical. But what kind of “planning” leads to tyranny? Does Kerin mean central planning or modest industrial development policy? Which class of policy should only lead to tyranny? Kerin doesn’t tell us.
Krein’s failure here is all the more curious because Hayek himself was clear on these questions. He did not think tyranny was to blame only on certain institutional structures. As he explained The counter-revolution of science, he believed that one of the main sources of tyranny was a certain kind of thinker: the rationalist who wants to reconstruct his social order according to his own ideology or philosophical system.
In The road to bondageHayek claims that tyranny is threatened not only by planning, but by certain tendencies seen in institutions attempting to take on cognitively impossible tasks. Disagreement is endemic to any open, democratic society. To implement a comprehensive economic plan, we need to agree on many more topics than such a society in general can do, which means that it can only happen through a popular dictator.
Blaming the undefined idea of ”planning”, Kerin misses the point of Hayek’s arguments. He claims that “price signals, even if perfectly undistorted, are not enough for companies or the government to allocate resources effectively, let alone cause a” spontaneous order “that is the best of all worlds.” So, he says, we need some kind of “planning” to ensure efficient resource allocation. But what kind of planning?
Whatever answer Kerin has in mind, he does not tell us, and what argument he does offer lacks the nuances of Hayek’s real views. Hayek acknowledged that price signals are noisy; his point was that they are still better than the alternative. Price adjustments “are probably never” perfect “in the sense that the economist understands them in his equilibrium analysis,” he wrote. The reason the market is so ‘a miracle’ is that it can get so much out of so little.
Kerin later claims that “because following market signals slavishly doesn’t always deliver the best of all possible worlds, government planning is not always the first step towards serfdom.” But here too Hayek didn’t really think we should slavishly follow imperfect signals. He claimed that we do not travel along the road to serfdom without other institutional and cultural conditions.
Kerin then complains that Hayek mistakenly thinks market players can adjust to prices without knowing why prices have changed. Kerin exclaims, of course, policymakers and investors need to know why prices have changed to make wise decisions. They also have to ‘plan’. But Hayek’s point was not that we can’t properly guess why a price has changed, or that it doesn’t benefit trade and public policy making. It was that market parties generally do not need this information to coordinate their actions, so extensive central planning and closely related policies will not be effective.
Crucially, Hayek’s worldview was not as absolute as Kerin and other critics like to think: he didn’t believe all government interventions would fail, and in fact some of the policies that Kerin loosely calls “planning” are what he thought could succeed. In The Way to bondage, he defended countercyclical monetary policy, the construction of transport infrastructure by the government, social insurance for natural disasters, public health insurance, a basic minimum income and strict rules regarding working hours, health and safety at work, poisons, deforestation, harmful farming methods, noise, smoke and prices of goods and services that are natural monopolies. Likewise The constitution of freedom argued that the government should be used to prevent depression and, through vouchers, provide pensions, medical care and education to those who need them. Hayek repeatedly emphasized that “old laissez faire or non-intervention formulas do not provide us with an adequate criterion for distinguishing between what is and what is not permissible in a free system.” He believed that the government could successfully intervene in the economy to achieve better results for people.
Kerin gives some examples of successful industrial policy to show that “planning” works, but here again his points are not as strong as he thinks they are. Any Hayekian can admit that some government-led policies sometimes succeed. The best Hayekian argument is comparative: most industrial policy, conceived as deliberate government action to drive industrial development, will be less effective than market-driven industrial development. To refute this claim, we need to know the relationship between industrial policy hits and misses. And Kerin does little to help us with that.
Kerin emphasizes that “the availability of” knowledge “is simply not a useful measure of evaluating the soundness or inadequacy of a particular government plan.” We still do not know what a “plan” is in this case, so it is still difficult to assess his claim, but it is clear that the availability of knowledge a important measure of evaluation for each policy, although of course not the nothing but a.
Hayek himself advocated a normative measure for evaluating the legitimacy of social order The mirage of social justice. He too, in Rules and order and stressed elsewhere the importance of the moral and cultural underpinning of successful market systems. He saw legislation as older than legislation and evolved from certain types of local ownership conflicts – a prerequisite for a successful market order. And he saw the moral rules that limit our behavior just as important in creating and maintaining such an order.
Secret Hayekian theology?
Despite never giving his reader a clear idea of what he is against, Kerin confidently concludes that Hayek’s theories are “utterly useless as a guide to policy.” Indeed, for Kerin, Hayek’s arguments are so useless that they are probably not empirical claims at all, but some sort of “theodicity” that helps Hayekians understand their place in the world. Kerin claims that Libertarianism “can best be understood as an ideological project similar to communism” and, like communism, relies more on “secularized theodicy than on any serious reading of history or intelligent policy analysis.” And so, “thirty years after the Cold War, it is time to stop performing Hayekian morality games.”
It is true that some of Hayek’s views bordered on theological claims: Hayekian political theology, as it stands today, emphasizes the need for intellectual humility and the importance of limiting sins of power in our efforts to co-exist with others. Sometimes Hayek even claimed remarkable claims that new nationalists could agree with: he finished his last work, The Fatal Conceitby admitting that a free society can only support its institutions if it is believed that morality has religious and probably monotheistic foundations. But the fact that he was able to make such a surprising concession sparks skepticism about the idea that he was the cartoon-free-market fanatic his critics imagine.
Earlier generations of conservatives understood that Hayek’s worldview was more complex than often claimed, which is why he became such an essential part of the conservative canon and the ancient fusionist consensus that it helped generate in the first place. I understand why Kerin wants to give him a pen – he makes for an easy sacred cow to slaughter. But I think the new “national conservatives” would be wise not to kick him on the edge because he has more to offer than they think.