hayek

The DOJ’s Antitrust Seers

by Ryan Young on August 31, 2011

in Economy, Features, Regulation, Tech & Telecom

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Today, the Department of Justice sued to stop the proposed AT&T-T-Mobile merger. They claim to know in advance how the merger will affect the mobile market for years to come. It’s an example of F.A. Hayek’s fatal conceit. Of course, most people haven’t read Hayek. So over in the Daily Caller, I use a better known thinker to make the same point:

The philosopher Yogi Berra once said that “It’s tough to make predictions, especially about the future.” Let’s apply his lesson to the proposed $39 billion AT&T-T-Mobile merger…

Competitors are also surprisingly confident in their ability to predict the future. A Sprint spokeswoman said that “Sprint applauds the DOJ for conducting a careful and thorough review and for reaching a just decision … Today’s action will preserve American jobs, strengthen the American economy, and encourage innovation.”

This translates roughly to “We think the merger would make the market more competitive. We were scared that we’d have to work harder to innovate and cut costs to keep our customers happy. Whew.”

Most mergers fail. Nobody knows if a merged AT&T and T-Mobile would offer a better, cheaper product line. The only way to find out is trial and, often, error. The Justice Department’s astounding claim that it knows the merger’s effects in advance is either proof of its superior enlightenment, or else the height of hubris. I’m guessing the latter.

Read the whole thing here.

Hayek vs. Keynes, Round Two

by Ryan Young on April 28, 2011

in Economy

Russ Roberts and John Papola are at it again. Last year they made a rap video starring F.A. Hayek and John Maynard Keynes. It garnered over 2 million views, many of them in economics classrooms. Today, they release the sequel. Check it out.

Popularizing Hayek

by Ryan Young on March 10, 2011

in Economy, Features

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Hayek’s The Constitution of Liberty is a work of great depth. It’s one of those books that one doesn’t read, so much as study. But the extra effort brings ample intellectual rewards. Still, it isn’t the most approachable book. For one, its length requires a commitment that many readers aren’t willing to make. For another, Hayek’s verbose prose style does not make for easy reading.

Fortunately, the good folks at IEA have just released Eugene Miller’s summary of all the arguments Hayek makes in The Constitution of Liberty. You can download it for free here. Besides being a good companion to read alongside the original, it looks easier for more casual readers to digest.

IEA has given similar treatments to some of Hayek’s other works. Take a look if you’re new to Hayek, or would like a refresher course on works you’ve already read.

Debunking the Abner Doubleday Myth: Baseball as Spontaneous Order

by Ryan Young on November 15, 2010

in Culture, Odds & Ends, Zeitgeist

It turns out that Abner Doubleday did not invent baseball. The true story of the game’s origins is actually quite mundane — it evolved over time as a messy, Hayekian spontaneous order. No one person can claim to have invented the modern version of baseball.

The story of how Abner Doubleday was given his mythical status, however, is immensely entertaining. Apparently it came from a crazy person — literally — who wrote a letter to the founder of Spalding sporting goods. Spalding spread the story because he wanted people to believe that baseball was a uniquely American game, invented by an American. People were eager to believe him; some still are.

Joe Posnanski tells the tale well, as he does with everything he writes. Read the whole thing. It will make you laugh, and you will learn something about how easy it is for tall tales to become accepted fact. Lessons abound for the public policy world.

Photo credit: kfcempress’s flickr photostream.

Ignorance at the New York Times: Kate Zernike and the “Rule of Law”

by Hans Bader on October 8, 2010 · 1 comment

in Legal

The New York Times doesn’t know what the “rule of law” means.  In a story on the Tea Parties, reporter Kate Zernike claims that the “rule of law” is an “unwritten code” against government interference with “personal ends and desires” that has been adopted by the Tea Partiers.  She falsely attributed that strange definition to a book that she called a “once-obscure” text found on “dusty bookshelves” — the best-seller The Road to Serfdom by Friedrich Hayek.  Hayek was a famous free-market economist who received the Nobel Prize in 1974 and the Presidential Medal of Freedom in 1991.  Hayek has been approvingly cited as a groundbreaking thinker by even liberal economists, like Harvard’s Lawrence Summers, an adviser to Presidents Obama and Clinton.  Summers has said that Hayek’s legacy is “the single most important thing to learn from an economics course today.”  But to liberal reporter Zernike, Nobel Prize winner Hayek is a strange right-wing wacko that no one ever heard of before he was discovered by the Tea Parties.

The Times also didn’t know what an S Corporation is, as it was forced to reveal in a correction to a recent article slanted in favor of tax increases.

Being liberal is a virtual litmus test for working at the New York Times (even its house “conservative,” David Brooks, endorsed Obama in 2008).  Being well-read is not, nor is having a basic grasp of the economy.  Those things would just get in the way of pushing a know-nothing Manhattan-liberal agenda, like claiming that increases in government spending are good for the economy (even though increases in spending typically wipe out jobs in the long run, and often do so even in the short run).

As the Economist notes, “the rule of law, as Hayek understands it, does not, as Ms Zernike writes, prohibit government from interfering with the pursuit of personal ends and desires,” but rather embodies “ideals of impartiality, generality, and equality before the law.”  Nor is it supposed to be an “unwritten” code: indeed, “the rule of law” according “to Hayek ‘means that government in all its actions is bound by rules fixed and announced beforehand.’ Typically, these rules, once fixed, are written down and then published. . . The idea is that politically-determined rules need to be relatively fixed and publicly known in order to create a stable and certain framework in which individual planning and complex social coordination can flourish.”

Speaking Truth to Power Rarely Works

by Ryan Young on September 6, 2010 · 1 comment

in Economy, Politics as Usual, Stimulus to Nowhere

Telling the truth to one’s superiors is hard. Especially when the stakes are high. Christina Romer comes to mind. Brilliant economist. She’s done excellent work on the role of monetary policy during the Great Depression.

A partisan Democrat, she was summoned to Washington soon after President Obama’s election to advise him. All of a sudden she endorsed the Bush-Obama views on stimulus. This is a 180 degree turn from her previous views. Romer’s own academic research shows that fiscal stimulus’ effects are too small to do measurable good.

Romer the economist believes that most business cycles have monetary causes. Not fiscal. Monetary. Romer the economist had been very consistent in expressing that view. But that view changed as soon as she arrived in Washington and Romer the economist transformed into Romer the political advisor. Suspicious.

This is not a new phenomenon. Politicians from both parties have been using economists for as long as economists have let themselves be so used. Politicians love the air of legitimacy that pointy-headed academics can give to their proposals. And economists love the sudden rush of attention and name recognition — and the professional prestige that will long outlast the current administration. They are happy to sell out. Or is it buying in?

That thought was sparked by reading about F.A. Hayek mourning the death of some of his colleagues’ integrity back during the Reagan years:

“You can either be an economist or a policy advisor.

I have seen in some of my closest friends… how a few years in government corrupted them intellectually and made them unable to think straight.”

-Cato Policy Report, Vol. 5, No. 2, February 1983.

Celebrating Bastiat

by Fran Smith on June 30, 2010

in Economy, Odds & Ends

Economist Don Boudreaux reminds us that 209 years ago today, the great economic journalist Frédéric Bastiat (1801-1850) was born.  F.A. Hayek in his introduction to some selected Bastiat essays wrote that he was “a publicist of genius” and quoted Joseph Schumpeter ‘s assessment of Bastiat as “the most brilliant economic journalist who ever lived.”

On his birthday, it’s worth rereading some of his most memorable essays, such as “What is seen and what is not seen,” “The broken window,” and the “Petition of the candle makers against the Sun.”

Here’s a short excerpt from “The broken window”:

From which, by generalizing, we arrive at this unexpected conclusion: “Society loses the value of objects unnecessarily destroyed,” and at this aphorism, which will make the hair of the protectionists stand on end: “To break, to destroy, to dissipate is not to encourage national employment,” or more briefly: “Destruction is not profitable.”

Happy 204th Birthday, John Stuart Mill

by Ryan Young on May 20, 2010

in Culture, Odds & Ends, Personal Liberty, Sanctimony, Zeitgeist

John Stuart Mill was born on this day in 1806. I wrote an appreciation of him last year, and told a bit of his unusual life story. This year, I’ll write a little bit on his philosophy of utilitarianism.

There are two kinds of utilitarianism: act utilitarianism, and rule utilitarianism. Act utilitarianism leads to absurd conclusions; rule utilitarianism, while more lenient, is one of the strongest philosophical underpinnings of liberalism (in the traditional European sense of the word). Many later liberals, including F.A. Hayek, were rule utilitarians.

Act utilitarians think that each individual act should be judged according to how much good it does. This leads to some problems, since most actions involve at least some small harm to others.

If I drive to work, I can save myself a lot of time. But by contributing to traffic congestion, I hurt each of my thousands of fellow drivers just a little bit. Maybe I cost them more total time than I save, so my driving causes a net loss in utility. So that’s not a good option. The subway, then? Same thing. Not only do I lose some time compared to driving, but I make the train more crowded, which causes disutility to every passenger on the train.

Better to just sit at home, then. But then I don’t get anything done. That’s bad for my career, not to mention my bank account. Act utilitarianism is a bit like Pareto optimality in economics: it leads to paralysis. It is an impossible standard.

That’s why I prefer rule utilitarianism. Instead of judging each act by its utility, put rules in place that give people incentives to act well. No law or institution is perfect. Even the best ones hurt somebody; a law against theft is bad for thieves. But good institutions beget good results, especially in the long run.

A property-rights-based system of government is an excellent example of rule utilitarianism. It will not be perfect. Laws against stealing obviously have not put end to stealing. Even within the law, people inevitably have honest disagreements about what belongs to who. Externalities such as pollution will hurt some peoples’ property. But the results are certainly better than a system without property rights. The whole of world history is proof. It’s also better than act utilitarianism, which lacks that overarching institutional-level standard.

Rule utilitarianism is one of the greatest gifts ever given to liberalism’s intellectual toolkit, and we have Mill to thank for it. Happy birthday to you, John Stuart Mill.

Thoughts on David Frum’s AEI Exit

by Fred Smith on March 29, 2010

in Odds & Ends, Politics as Usual, Zeitgeist

Frum, like many intellectuals, suffered from the desire to gain respect from his fellow intellectuals. But, as Schumpeter noted long ago, the class interest of intellectuals is statism.

Schumpeter’s reasoning in “Can Capitalism Survive?” is rooted in envy. Intellectuals would grow envious of the entrepreneurial class – “If we’re so smart and moral, why are they so rich? – and seek to transform envy into theories of de-legitimization. Racism, sexism, environmental destruction, inequalities, exploitation of the developed world along with other associated Robber Baron style rewritings of history are the narratives they develop.

Since the narratives that inform the citizenry of most policy issues are devised and disseminated by intellectuals, the dominant narratives will be anti-capitalist, anti-business, and especially anti-entrepreneurial. That sets the stage for the growth of the state which creates many well-paying niches for intellectuals – mostly on the left, with a few on the right.

That combination of psychological and economic incentives means that most intellectuals see a large and growing government as key to their class interest.

Even conservative intellectuals seek respect from their fellow intellectuals. Intellectuals – having no obvious product save words and media appearances – are often insecure. Since most intellectuals are statists, the David Frums of the world are drawn into that ideology. AEI is not a statist institution – why they put up with him is unclear.

That point is made clear when one considers his defenders. Anne Applebaum’s “he was right” viewpoint is typical. She would have the Republican party follow the lead of David Cameron of the Tory party, endorsing European values, carbon energy rationing, redistribution policies – the whole non-sustainable welfare, regulatory state.

That would be insane.

The Hayekian Approach to Health Care

by Ryan Young on March 11, 2010

in Economy, Healthcare

George Will has a good column today. He does a wonderful job contrasting Hayek’s philosophy of humility before complexity with the early 20th-century progressive mindset of planning and scientistic design. The framework applies surprisingly well to today’s health care debate, with President Obama playing the role of Woodrow Wilson. Very thought-provoking.

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