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There Are No Experts In The Category For Which We Require Expertise.

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Late last week during a press conference, Governor Andrew Cuomo of New York said that he did not trust the scientific experts employed to advise his office about the coronavirus pandemic.

Without meaning to exonerate Governor Cuomo for his mishandling of several aspects of his state’s pandemic response – much of it, of course, informed by the advice of the same experts he no longer trusts – his volte face is entirely appropriate. We should be more skeptical of what science can do for policy.

The pandemic has revealed a shortcoming in our ever more technocratic approach to addressing social problems: there are more and different kinds of problems than there are kinds of experts. The division of scientific expertise according to discipline, field, and sub-field does not encompass, much less map onto, all of the problems for which we might want experts.

The best policy approach to the pandemic would not have prioritized health to the exclusion of economic, psychological, and sociological considerations. The best policy would have minimized human suffering, all things considered. Unfortunately, though there are epidemiological experts and economic experts, and psychological experts and sociological experts, there are no scientists whose expertise encompasses epidemiology, economics, psychology, and sociology.

The problem we raise is not among those frequently pushed against government-by-experts. In his influential paper “The Use of Knowledge in Society,” F. A. Hayek argued that the technocratic approach to policy making was doomed to fail because scientific knowledge was only a small part of the knowledge required to make technocracy effective. No matter the scientific wisdom of policy experts, they could never provide the local knowledge, the “knowledge of the particular circumstances of time and place,” required to control society to the degree necessitated by the technocratic approach.

It is, moreover, true that scientific consensus is often fleeting and regularly overturned, and that, in any case, consensus is neither unanimity nor a marker of infallibility. But the problem that we raise would remain a problem even if scientists were unanimous and infallible in their respective fields, and omnipotent about particular circumstances of time and place.

Scientists learn their trades through specialized study of specific phenomena, which they investigate in isolation under carefully controlled conditions, holding other factors constant. The best scientists in their fields are experts about a very limited range of phenomena that are assumed not to interact or integrate with any other kinds of phenomena. Outside of the graduate seminar and theoretical model, beyond the laboratory and controlled trial, however, other things are not constant.

When the phenomena of multiple scientific fields interact, such as when it is necessary to trade off the health costs of a virus against the economic and other costs of a lockdown, policymakers can turn to experts about isolated phenomena. But there are no experts about the interaction of different kinds of phenomena or about the proper weighting of some against others. Policymakers can ask epidemiologists to weigh in on epidemiology, infectious disease specialists to weigh in on infectious disease, and economists to weigh in on economics. But there are no experts about how these subjects interact or how to balance them.

Covid-19 is foremost a public-health problem, and policymakers have rightfully turned to physicians, epidemiologists, medical researchers, and other public-health experts for advice about how to respond to the pandemic. But just because Covid-19 is primarily a public health problem doesn’t mean that it’s only a public health problem. It has been obvious from the beginning of the pandemic that policies aimed at preventing the suffering associated with being infected with the virus would lead to knock-on consequences concerning the economy, society, and human psychology, and their secondary effects on human health.

When making policy about complex phenomena, politicians can only guess which experts to attend to, and which to ignore. There is no reason to assume that such guesses hit their marks more often than not or, indeed, that they tend to improve the relevant circumstances rather than make them worse. Policymakers do not have access to interdisciplinary experts about complex, multi-causal phenomena. Such experts do not exist.

Perhaps unfortunately, policymakers have apparently turned less regularly to the economists, psychologists, political scientists, and sociologists who might have provided advice about the side effects of policies meant to limit deaths and other forms of physical suffering from the virus. Policy responses to the pandemic have tended to treat one form of human suffering, the suffering directly due to the effects of viral infection, as more important than all other forms of suffering, such as economic, social, and psychological harms, and the further physical suffering that these harms cause.

As Hayek also had occasion to note in his 1974 Nobel Prize Lecture, playfully titled “The Pretence of Knowledge,” it is a basic but frequently made error to think that the complexity of modern society requires a scientific approach to policy making. As phenomena get more complex, the number and kind of relevant causal factors multiplies. As the number and kinds of causal factors multiply, as their interrelations proliferate and grow more intricate, our scientific understanding of them and, thus, the prospects for effective technocratic policy making necessarily diminishes commensurately. In a world where human knowledge is limited, complexity undermines – not buttresses – arguments for technocracy.

The discovery, development, and distribution of vaccines has revealed another shortcoming of the technocratic approach: at best, expertise extends as far as the design of a policy; science has nothing to say about how a policy is best implemented and administered. As a consequence, even policies based on unanimous and infallible scientific principles (which, again, do not exist) will falter in their application to real-world circumstances. “There’s many a slip ‘twixt the cup and the lip.”

When relevant phenomena are complex, political decisions can be no more technocratic, no more justified by the best scientific knowledge than were the decisions of kings and queens in a pre-scientific age. One possible answer is to reform science to better understand complex phenomena, the interplay of causal factors heretofore studied exclusively under ceteris paribus clauses. If they are not to give up on technocracy, then politicians need experts about complex phenomena capable of pronouncing scientifically on the pronouncements of experts about simpler phenomena.

Of course, this only pushes the problem back a level and sets the defender of technocracy on a potentially infinite regress: when the complex phenomena that these higher-level experts understand also interact, experts at yet a higher level will be required to make technocracy effective.

The other possible answer is to give up on technocracy and return to democracy, individual rights, and popular sovereignty.

A 10-Point Manifesto For Individualism

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10 Point Manifesto For IndividualismWe have spent a lot of time and energy recently at Center For Individualism in working hard to delegitimize collectivism in all its forms: socialism (democratic or otherwise), party politics, identity politics, the welfare state, and all other manifestations. Our 10-Point Manifesto is a reminder of the foundational value of what we stand FOR.

Friedrich A. Hayek was a 20th century Nobel Laureate in Economics and a noted social philosopher. In 1946, he made a speech at Trinity College, Dublin to which he gave the title Individualism True and False. He was speaking at a time when Europe and much of the world had committed self-destruction through warring governments. He wanted to point out how this could be avoided by future generations. His prescription was the system of Individualism.

The “false” interpretation of Individualism is that it means isolated, self-contained individuals who don’t collaborate. For Hayek, Individualism was a social concept with the potential to result in a better life for all.

Center For Individualism offers this somewhat modernized summary and language, in the strong belief that the underlying ideas are fully applicable today.

Click here to download a shareable infographic!

1) We all want social order.

Economists distinguish between ends – objectives or goals – and means – the method of achieving the objective. Social order is an objective. None of wants to live in strife or conflict, or feel we are fighting with others for our place in society. At the same time, we all want the opportunity to improve, to succeed, to better our circumstances. The condition for combining social stability with individual opportunity to improve is social order. It’s a desired state

2) But the way we try to achieve it is wrong.

Law and order is the current way: command-and-control by the state, based on the laws the state manufactures through the political process. Unfortunately, under these conditions, a society tends to drift towards the worst forms of state control. Hayek was making this point in 1947, when society was emerging from the ravages of two world wars, which were fights over different kinds of state control – communism, fascism, national socialism and democracy. Today is not so extreme, but the drift is manifest.

3) The alternative is Individualism: a set of general rules that everyone observes without government coercion.

Hayek advocated a system of general rules, equally applicable to all people and intended to be permanent (even if subject to revision with the growth of knowledge). These rules provide an institutional framework within which the decisions as to what to do and how to earn a living are left up to the individuals. Individual initiative is given the widest possible scope and the best opportunity to bring about effective coordination of individual effort.

4) We already know the general rules of Individualism.

The point about these general rules is that they are not prescriptive. They emerge over time as individuals in society collaborate in the marketplace. Hayek did set out a few in his 1947 speech.

  • Everyone follows their own individual conscience.
  • All property is private property, so I know what’s mine and respect what’s yours. None of it belongs to the state.
  • Everyone is free to try their best, to see what they can achieve.
  • Each individual contribution is tested and corrected by others.
  • No-one is qualified to pass final judgment on others’ capacities or what they can do.
  • The remunerations of the efforts of the individual correspond to the utility of the result of his effort to others.

5) An effective competitive market satisfies these conditions.

In the market, the individual takes the risk to find out if the results of their efforts create value for others. Everyone does their best, and the preferences of consumers tell producers what to produce more of and less of.

6) If freedom is granted to all individuals, they will contribute as much as possible to the needs of all others.

Individualism makes institutionalized charity and government welfare unnecessary, and, in fact, harmful to the degree that it interferes with the working of the market. Individuals are collaborative and giving. They focus their efforts on that part of society that they know – family, community, small group; they don’t need to serve the world. This spontaneous collaboration of free people results in great institutions on which civilization arises.

7) The system of Individualism does not require wise or powerful men to run it.

We err when we defer to other individuals or groups who tell us they know better than us what is the right thing to do. Nor is the majority always right. Individualism has no belief in majority decisions. It is a dangerous misconception to accept as true and binding the views of the majority. No-one knows what’s best. Everybody is allowed to try and see what they can do.

8) The political conclusion is that we must limit all coercive and restrictive power.

In order to ensure the benefits of voluntary and spontaneous collaboration, it is important not to place political or governmental restrictions on individuals. The individual should not be subjected to force or coercion by someone who claims to be acting for society as a whole.

9) Individualism is not egalitarian in the modern sense.

Individualism has no reason to try to make people equal. Instead, it treats them equally. Individualism is opposed to limitation on the position an individual may achieve. No-one should have the power to decide another’s status.

10) The spirit of Individualism is humility.

It is hubris to believe that some people or institutions can “run the country” or “plan the economy”. Every individual does their best. We are all awed by the result: mankind has achieved great things that have not been designed or understood by any individual.

It Is Important For Progress That We Each Retain the Courage To Be Utopian.

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Hayek famously penned the essay “Why I Am Not a Conservative.” I have often argued that folks need to read that essay in conjunction with his “Errors of Constructivism” to get a good sense of his position on why as true radical liberals we must be willing to question all existing political and social values, and submit them to critical evaluation, but also why epistemologically we cannot do so while assuming any “Archimedean point” from which to commence our evaluation.

We must always question within specific contexts, and criticize on the margin while holding other values as given at that moment if we are to avoid serious errors in our reasoning about society. Root-and-branch constructivism is merely an illusion of the revolutionary, and a dangerous illusion at that. But that doesn’t mean we are trapped in the status quo either.

Hayek is giving us a framework for engaging in social criticism from a radical liberal perspective that is within our epistemological boundaries of the humanly possible. Think about that. Now think long and hard about this passage from “Why I Am Not a Conservative.”

But the main point about liberalism is that it wants to go elsewhere, not to stand still. Though today the contrary impression may sometimes be caused by the fact that there was a time when liberalism was more widely accepted and some of its objectives closer to being achieved, it has never been a backward-looking doctrine. There has never been a time when liberal ideas were fully realized and liberalism did not look forward to further improvement of institutions. Liberalism is not averse to evolution and change; and where spontaneous change has been smothered by government control, it wants a great deal of change of policy. So far as much of current governmental action is concerned, there is in the present world very little reason for the liberal to wish to preserve things as they are. It would seem to the liberal, indeed, that what is most urgently needed in most parts of the world is a thorough sweeping-away of the obstacles to free growth. (The Constitution of Liberty, 1960)

This sense of excitement about the voyage into the unknown future, and the embrace of the possibility of discovery and creativity that the liberal society makes possible, is one reason among many I am excited to get my hands on Deirdre McCloskey’s forthcoming book, Why Liberalism Works.

Liberalism is a social philosophy that is grounded in the recognition of its constant need for renewal and reconstruction. It is never a fixed doctrine standing still and telling the context of history — STOP. It is, instead, a welcoming of the new and novel, of the fulfillment of its ideals, and the greater recognition that we are one another’s dignified equals.

Liberalism says YES, and the cosmopolitan liberal order turns strangers into friends and enemies into partners. It is an emancipation doctrine — from dogma of the altar, from repression by the crown, from violence by the sword, and from exploitation by the privileged mercantilist class.

It is an ongoing project, and will always fall short of complete fulfillment of its vision of peaceful social cooperation; change is ceaseless, and the effort to improve institutions is constant. Hayek’s great intellectual gift isn’t a completed system, but an intellectual framework which can aid future generations in their unique effort to reconstruct the principles of justice and political economy.

As Hayek told his readers in the first paragraph of The Constitution of Liberty:

If old truths are to retain their hold on men’s minds, they must be restated in the language and concepts of successive generations. What at one time are their most effective expressions gradually become so worn with use that they cease to carry a definite meaning. The underlying ideas may be as valid as ever, but the words, even when they refer to problems that are still with us, no longer convey the same conviction; the arguments do not move in a context familiar to us; and they rarely give us direct answers to the questions we are asking. This may be inevitable because no statement of an ideal that is likely to sway men’s minds can be complete: it must be adapted to a given climate of opinion, presuppose much that is accepted by all men of the time, and illustrate general principles in terms of issues with which they are concerned.

It had been a long time, Hayek continued, since the ideals of liberalism had been effectively restated. He made that judgment close to 60 years ago. He himself took several stabs at providing that restatement — The Road to Serfdom, The Constitution of Liberty, and Law, Legislation and Liberty — each with great strengths and some glaring weaknesses. Our times, I would say, do not need naysayers, but the articulation of a vision of the rights and dignity of all individuals, and invitation (in fact a welcoming hand) to all who seek to escape the oppression of dogma, of violence, of crushing poverty.

As Hayek wrote in the concluding paragraphs of his essay “The Intellectuals and Socialism” (1949):

We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is a liberal Utopia, a program which seems neither a mere defense of things as they are nor a diluted kind of socialism, but a truly liberal radicalism which does not spare the susceptibilities of the mighty (including the trade unions), which is not too severely practical, and which does not confine itself to what appears today as politically possible. We need intellectual leaders who are willing to work for an ideal, however small may be the prospects of its early realization. They must be men who are willing to stick to principles and to fight for their full realization, however remote. The practical compromises they must leave to the politicians. Free trade and freedom of opportunity are ideals which still may arouse the imaginations of large numbers, but a mere “reasonable freedom of trade” or a mere “relaxation of controls” is neither intellectually respectable nor likely to inspire any enthusiasm.

The main lesson which the true liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote. Those who have concerned themselves exclusively with what seemed practicable in the existing state of opinion have constantly found that even this had rapidly become politically impossible as the result of changes in a public opinion which they have done nothing to guide. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds, the prospects of freedom are indeed dark. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost.

The Most Fatal Conceit Is That Of A Politician Who Says, “I Have A Plan For That”.

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Nobel Laureate Friedrich Hayek’s last book is titled “The Fatal Conceit: The Errors of Socialism.” In this relatively short work from 1988, Hayek attempts to capture the essence of a lifetime effort to understand and explain how the actions taken by entire nations of people can create order. Let’s keep these lessons in mind as we hear ideas, both good and bad, from the field of 2020 presidential candidates.

Hayek’s focus was on institutions—customs, traditions, rules of law, and government—that sustain life and promote prosperity. Always showing a deep understanding of and respect for human nature, as well as an appreciation for evolutionary forces that affect all aspects of human life, he saw most features of society as having emerged spontaneously, not as the result of grand plans or designs. Millions of individuals making countless, largely rational and unnoticed decisions are the ones truly steering the ship.

The title of his book reflects a common self-delusion: the conceit that causes us to believe that mankind’s most profound problems can be solved if an assembly of the brightest and best—the “right ones”—are brought to Washington to devise a detailed, top-down plan to be implemented with the force of law. Almost inevitably, socialized approaches are seen as inherently superior to decentralized ones.

Of course, all of this conceit business is sometimes just political chatter. Many of these grand plans never really go anywhere. The conceit becomes potentially deadly—“fatal,” as Hayek put it—when it is taken too seriously. We see this when presidential candidates—though having never held a high-ranking executive office in their lives and with little first-hand technical knowledge—offer detailed plans to deal with such far-ranging problems as the opioid crisis, higher education for all, healthcare access for the indigent, climate change, nuclear proliferation, regulation of self-driving automobiles, abortion access, and cybersecurity.

No single person or agency can know how these plans (and their ripple effects) will affect the decision-making dynamic of millions of distinct individuals. Too often, this results in policies imposed upon the nation that simply do not work very well.

The conceit becomes complete when the typical voter is persuaded by all of this top-down political talk. This voter will not be satisfied with candidates who suggest, humbly and accurately, that the issue at hand is too complex to be solved beforehand by a group of experts, and that the knowledge necessary for addressing the problem is to found among the people. The candidate who says “I’ve got the solution” beats the one who will organize a series of town meetings nationwide to listen, learn, and then develop guidelines for legislating.

In like manner, the “I’ve got the solution” candidate won’t typically appreciate hearing about programs that assign a high priority to liberty while seeking to unleash and empower individuals to find decentralized solutions. Nor will this candidate be quick to leave some matters to state and local governments to resolve.

Conceit is endemic in presidential politics, no matter the party. We are not lacking for examples in the contest for the presidency in 2020. Nor should we expect otherwise.

We now see Senator Bernie Sanders presenting a series of detailed top-down solutions to important social problems. We hear plans from former Vice President Joe Biden and others. Indeed, a better illustration of Hayek’s concern is found in a New York Times analysis of Senator Elizabeth Warren’s public remarks. It focuses on her regular referral to specific plans and white papers that she has developed for solving many national problems. The Guardian also noted the senator’s habit of responding to questions about an issue by saying, “I have a plan for that.”

Hayek, who saw grand plans as a perfect vehicle for the fatal conceit, argued that highly mobile and creative human beings may have a better approach when left to their own devices. As he points out, ordinary people tend to solve the problems they confront, to figure things out, and invent new ways of doing things—including governing—and conserve resources in doing so. Those who face fewer regulatory constraints in carrying out their search for solutions tend to be more successful. But to be successful, those involved in life’s struggles must be subject to systems of property rights and a rule of law.

Through all this, human beings face a fundamental challenge which Hayek calls the “knowledge problem.” The knowledge required to address problems and invent solutions is dispersed across countless individual minds. In today’s terms, the trick is to find ways to make connections with billions of minds and engage them in building a better world.

Putting the meaning of Hayek’s knowledge problem into simple terms was a challenge met admirably by Leonard Read when he wrote a 1958 essay titled “I, Pencil.” Read’s essay makes the simple point that no one individual has sufficient knowledge to make even an ordinary yellow wooden pencil, the kind with lead inside and an eraser on top. While seemingly simple, each pencil component, along with its source and the technical knowledge required to obtain and process it, is extraordinarily complex. Yet these complicated devices are available everywhere, often without charge.

Read’s larger point is that ordinary people working in uncoordinated ways in relatively free markets solved the pencil problem, yet no single person had the knowledge necessary to do so. Those producing the inputs may have had no intent to create a pencil at all. We readily observe seemingly miraculous outcomes for far-more complicated devices, such as the construction of skyscrapers, suspension bridges, the design and manufacture of smart phones, computers, and the invention and production of artificial limbs and life-saving drugs.

The opposite of the pencil producers, Senator Warren and other candidates are attempting to solve important problems by concentrating knowledge in Washington and then passing problem-solving legislation based on a frozen collection of information. The candidates are undoubtedly sincere in their belief that they have the requisite knowledge and leadership ability to muster multiple solutions, if only they are elected.

Without realizing it, and as brilliant as they may be, the candidates—like all of us—are still profoundly ignorant. The time has come for more town meetings, more listening, less lecturing, and for the development of guiding principles instead of detailed answers for later legislative debate. That way, we may avoid the fatal conceit.

5 Charts Vividly Demonstrate The Economic Divide Between Socialist Venezuela And Free Market Chile

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Since Nicolas Maduro was sworn into his second term as President of Venezuela in January 2019, stories of civil unrest and economic hardship from the small Latin American country have dominated the media headlines. In the build-up to his controversial re-election, Maduro prevented opposition parties from freely and fairly competing for public support. Because of those electoral shenanigans and the human rights violations that followed, most Venezuelan citizens, as well as most Western governments, refuse to recognize Maduro’s legitimacy as President.

As widespread protests continue into their fourth month, one thing has become very clear: Venezuela’s experiment with socialism has been a resounding failure. The annual inflation is more than 80,000 percent and it is estimated that almost 90 percent of Venezuelans now live in poverty. Mass food shortages mean that the average Venezuelan has lost over 11kg in weight, despite Maduro’s waistline continuing to expand. The government’s murder squads fanned out throughout the capital, assassinating the ruling regime’s opponents. However, it’s important to remember that conditions in Venezuela haven’t always been this tragic.

Between 1958 and 1999, Venezuela was a democracy—albeit an imperfect one. The country suffered from corruption, but Venezuelans did not face food shortages or experience widespread human rights abuses. By regional standards, Venezuela also had a relatively free-market economy. Chile’s success starts in the mid-1970s, when the government abandoned socialism and started to implement economic reforms.

In the early 1950s, Venezuela’s gross domestic product per capita was among the highest in the world. It was higher than that in the United States and three times as high as that in Chile. Up until 1982, Venezuela was the richest country in Latin America. To fully appreciate Venezuela’s decline, it is useful to compare its fate to the massive political and economic improvements experienced by the people of Chile.

The story of Chile’s success starts in the mid-1970s, when the country’s government abandoned socialism and started to implement economic reforms. In 2016, Chile was the world’s 15th freest economy. Venezuela, in the meantime, declined from being the world’s 15th freest economy in 1975 to being the world’s least free economy in 2016 (Human Progress does not have data for the notoriously unfree North Korea).

As Chile’s economic freedom increased, so did income per capita (adjusted for inflation and purchasing power parity), which rose from being 32 percent of that in Venezuela in 1975, to being 287 percent of that in Venezuela by 2019. Between 1975 and 2019, the Chilean economy grew by 293 percent. Venezuela’s shrunk by 54 percent.

 

As its economy expanded, so did Chile’s ability to provide good healthcare for its people. In 1975, Chile’s infant mortality rate was 29 percent higher than Venezuela’s. By 2017, four times more infants died per 1,000 live births in Venezuela than in Chile.

With declining infant mortality and improving standard of living came a steady increase in life expectancy. In 1975, Venezuelans lived longer than Chileans. In 2017, a typical Chilean lived over five years longer than the average citizen of the Bolivarian Republic.

Moreover, more Chileans of both sexes survive to old age than they do in Venezuela. As they enter their retirement, the people of Chile enjoy a private social security system that was put into place by Cato’s distinguished senior fellow José Piñera. The system generates an average return of 10 percent per year (rather than the paltry two percent generated by the state-run social security system in the United States).

Finally, consider democracy. In his 1944 book The Road to Serfdom, the Austrian-born economist Friedrich Hayek explained that economic interventionism leads to massive inefficiencies and long lines outside of empty shops. A state of economic crisis ensues, leading to calls for yet more economic interventionism.

But increasing state control of the economy is inimical to freedom. First, there can be no agreement on a single economic plan in a free society. As such, centralization of economic decision-making has to be accompanied by the centralization of political power in the hands of a small elite. Second, as the economy deteriorates, authoritarian regimes that are determined to stay in power must silence the dissenters – through incarceration and even murder.

The economic and political deterioration of Venezuela has followed the pattern that Hayek described in 1944. In Chile, in contrast, free markets dispersed economic power amongst millions of Chileans and the military government, which ran the country between 1973 and 1990, gave way to democracy. Today, Chile is both economically and politically free.

This article appeared at fee.org, republished from Human Progress.

Marian L. Tupy is the editor of HumanProgress.org. Alexander C. R. Hammond is a researcher at a Washington D.C. think tank and Senior Fellow for African Liberty.
Road To Serfdom

Democratic Socialism Is Not Only Unachievable, Its Unintended Consequences Would Be Unbearable.

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When F.A. Hayek moved to Britain in the early 1930s from his native Austria, he was struck by what he saw as the same attitude among British intellectuals as he experienced among German thinkers during the 1920s. There was an extreme skepticism toward the market economy and capitalism, coupled with great optimism for planning and the promise of socialism. Advance the calendar almost a century, and Hayek might hear the chorus of Alexandria Ocasio-Cortez, Elizabeth Warren, and Bernie Sanders humming the same reprise. His ears may even perk up a bit when harmonies emanate from right-leaning folks like President Trump, who dabble in central planning.

British intellectuals in the ’30s such as Harold Laski and William Beveridge were dedicated social reformers. They despaired over the social costs they identified with unbridled capitalism resulting from monopoly power, externalities, macroeconomic volatility, mass unemployment, and income inequality. E.F.M. Durbin’s 1934 Labor Party Policy Committee “Memorandum on the Principles of Socialist Planning” promised that a planning system could eradicate the social ills emerging from the market’s inherent weaknesses. But a critically important point to understand is that from the perspective of these intellectuals, they were socialists in their economics precisely because they were liberal democrats in their politics.

Hayek heard all this before in the coffee houses of Vienna and throughout German-language periodicals. By the late ’30s, he decided to offer a warning to his sincere colleagues and fellow liberal democrats. “The Road to Serfdom” was the result of that effort.

He sought to demonstrate the incompatibility of socialist economic policy with the rule of law and democracy. Key to his argument is that in a democratic liberal society, there’s no overarching single scale of values. Society cannot achieve a single hierarchy of ends we all agree on. In fact, the great strength of democratic liberal societies is a multiplicity of values that are respected among diverse and often divergent, even distant, individuals. Liberal democratic society is a pluralistic society.

There are severe limits of agreement on the ends within a functioning democratic society, and thus we must restrain ourselves to an agreement on the means by which we interact, resolve conflicts, and come eventually to live better together with one another than we ever could live in isolation. Democracy in this sense is a way to relate to one another as dignified equals—not simply as a set of voting procedures such as one person, one vote majority rule.

In “The Road to Serfdom” Hayek gets to this point when he argues that “whoever controls all economic activity controls the means of all our ends and must therefore decide which are to be satisfied and which not.” So, Hayek warns his friends—“those socialists of all parties,” to whom he dedicates the book—that “democratic socialism, the great utopia of the last few generations, is not only unachievable, but that to strive for it produces something so utterly different that few of those who now wish it would be prepared to accept the consequences, many will not believe until the connection has been laid bare in all its aspects.” To lay bare the consequences for liberal democracy of socialist economic policy is what Hayek set out to do not only in “The Road to Serfdom” but throughout his career, culminating in “The Fatal Conceit.”

It’s important to understand, however, that his argument was never a slippery slope argument as critics often suggest. Hayek’s economic analysis of socialist economic planning reveals that policies employed to achieve impossible goals will lead to dire unintended consequences. Crucially, once faced with such frustrating feedback, it’s up to those in positions of power to decide to continue down their predetermined yet flawed road, or to change path.

The book is not deterministic. It’s a warning that, if heeded, means that the road where the danger to our freedom lies can be avoided. For many years, the UK and Nordic countries were headed down that road, but their leaders changed course—in part due to Hayek’s influence and the failures of the Soviet Union. For many, these lessons still inform their stance on government today, such as when former Swedish Prime Minister Carl Bildt recently chided Berne Sanders’ socialist policies.

Yet if recent trends are to be believed, intellectuals, policy makers and the youth in the United States and the UK are turning their backs on Hayek’s warning. Angered by two decades of international conflict since the 9/11 attacks, the discontent with globalization, and the outrage of the global financial crisis—which robbed individuals and communities of their livelihood and in many instances their dignity—the capitalist system is perhaps more under attack today than any time since the 1930s.

While nobody is calling for comprehensive central planning and the abolition of private property, calls ring out for government involvement in the economic and social system at every stage, and the establishment of large-scale policy initiatives to address societal priorities. The Green New Deal was introduced only shortly after the Council of Economic Advisors produced a report on the opportunity costs of socialist policies.

In any public policy discussion, we should insist that the debate move from the level of abstract desirability to the concrete level of feasibility. If we really want progress, we must earnestly scrutinize the array of feasible outcomes that are economically viable. Such moves in public discourse require a discipline in intellectual affairs that seems almost out of reach at this time of division and discord.

But this challenge is certainly less daunting than the one Hayek took up when he began his “Abuse of Reason” project and released “The Road to Serfdom” 75 years ago. A fresh reading of the book today provides a calm and sober analysis of economic and political systems, not at all prone to hyperbole as Hayek’s critics contend. His argument is a subtle and nuanced one examining the situational logic of comparative institutional arrangements and the impact on productive specialization and peaceful social cooperation among free and equal people.

Hayek still speaks to us today about the nature of democratic ways of relating to the rule of law, the structure of government, the role of public policy, and the promise of an international order of cosmopolitan liberalism. The book may be 75 years old, but its essential message is as young and fresh as any work in political economy and social philosophy that you will read this year.
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Peter Boettke is Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU. This article first appeared at AIER.org.

The World Has 525 Million Government Bureaucrats, Dedicated To Limiting Freedom And Opportunity For The Other 6.9 Billion People.

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Richard M Ebeling has calculated a deeply depressing statistic. There are about 525 million government bureaucrats on this planet. That’s about 7% of all humans, and 15% of all humans in the global labor force. Their job, as Ebeling puts it, is

supporting,…… overseeing, and enforcing all of those laws, regulations, and redistributive policies determining how the remaining 6.9 billion people on this earth shall live and work.

We who are members of the 6.9 billion rely on our individual knowledge and our individual ability to collaborate and trade with any other individual when both parties voluntarily identify a mutually beneficial exchange. I’ll work for you if you pay me an amount I find acceptable. I’ll buy what you’re selling if you offer me a value I find acceptable. We’ll find a way that’s a win-win for both of us.

How do we make it work among the 6.9 billion? How do we make it possible for a Mom in Minnesota to buy her son a T-shirt made in China that’s transported on a train driven by a Chinese engineer, possibly driving a GE locomotive, to a ship of Liberian registry, which docks in North America and connects to UPS logistics to get the garment to the local Target store.

We know the equation that makes this possible: individual knowledge plus individual freedom. As Ebeling puts it,

Almost 75 years ago, the Austrian economist and Nobel laureate Friedrich A. Hayek published one of the most notable economics articles of the 20th century, “The Use of Knowledge in Society” (1945). The gist of his argument is that matching the social system of division of labor is an accompanying division of knowledge; this knowledge encompasses many different and textured forms that are only acquired and fully known and appreciated by the multitudes of individuals each in his own corner of what is now a truly global society.

If all the knowledge of the world is dispersed among all the minds of all the individuals in the world, how might we somehow make it accessible and useable so all in society may benefit from what others know? Hayek’s answer was the institutions of competitive free markets and prices freely formed by the interactions of supply and demand. The free market price system does it all.

We, the 6.9 billion, communicate – by buying and selling, by consuming and producing, and by saving and investing – what we want and what we might able and willing to supply in return. And the price system does this, Hayek argued, with the minimum information needed for this multitude of market participants to coordinate their actions.

It all works fine until the hubris of politicians and bureaucrats enter the picture; they believe they can design and impose government policies to direct the actions of the 6.9 billion;

where industries and enterprises are to be located and what types and quantities of goods they will be producing; what types of jobs will be made available, in which locations, and satisfying whose consumer and producer demands; which resources and raw materials will be utilized in making what products with which methods of production; and who will earn what income and in what amount compared to others.

Every such decision, when it is made by a bureaucrat, preempts the decisions of the 6.9 billion about what to produce, where, with which methods of production, in what quantities, for whose uses, and at what prices and wages.

The economic, social, and cultural life of the 6.9 billion in society is placed within the straitjacket of what the 750 million in government know and consider good or desirable. Innovations and other adaptations to changing circumstances are confined by the restrictions enforced on private enterprises by the bureaucrats in charge; the directions and forms of production are artificially shaped by fiscal penalties and subsidies and by the spider’s web of regulatory restraints.

People’s abilities to discover and pursue ways of improving their own social and material circumstances by improving those of their fellow human beings through free and open exchange – whether between individuals in one neighborhood or one country or in different parts of the globe –  is hampered if not halted by bureaucratic restrictions.

Humans talk to each other and collaborate with each other through the prices of the global marketplace. Everyone participating in this international marketplace must have a wide latitude of individual liberty to use their personal knowledge, which they possess and others do not. Only through a respect for and practice of such freedom can all the knowledge of the world be effectively utilized to improve the circumstances of the individuals possessing it, as well as others who simultaneously gain from its effective use on their behalf in the form of goods or services they would like to acquire.

Another distinct contribution of Hayek’s was to highlight that competition is a “discovery procedure.” If we already knew the outcome of some competitive activity, what would be the point of holding the competition to begin with? It is precisely because we cannot be certain of the outcome before the competition is held that we see the benefit from the rivalry.

That’s another reason why liberty is such a great means to many of our ends. The freedom of others is a social good because by each having the liberty to decide and act on their own knowledge, the rest of us can be the beneficiaries of what they know and can do that which we could not for ourselves — or at least not as well and as inexpensively as they can for us. We should, at the same time, value an economic system that encourages the competitive discovery process that enables all to benefit from the ideas that someone may come up with that potentially enrich the lives of many if not all of the billions of people in the world.

We take for granted the miraculous ability technology has now given us to travel to and communicate with virtually any place on the planet in little or no time. Yet we allow governments and their bureaucracies to use their coercive powers to constrain us from having the full freedom to create, produce, trade, and travel to pursue our mutually beneficial purposes and cooperative plans to peacefully and productively make our lives better.

What the world needs is more personal freedom and economic liberty so we each may be the voluntary means to each other’s ends through the marketplace of ideas, employments, and products as we use our individual knowledge in our shared global society. The 6.9 billion of us should not be handicapped by what those 525 million bureaucrats can know and do.

Adapted from The Global Economy Desperately Needs Freedom by Richard M Ebeling, polished at AIER.org on 3-6-19, which was, in turn adapted from the Joan Thompson Memorial Freedom Lecture, given at the University of the Bahamas on March 1, 2019.

 

Crypto-Crash: An Optimistic Post Mortem Part II – Taking The Money Monopoly Away From Government.

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Over the last year, news of crypto hacks and heists became so prevalent that the new breaches were hardly worthy of reporting anymore. Among the headliners, however, was the Coincheck case, the Japanese exchange that lost over $530 million worth of the NEM cryptocurrency, as was Zaif, another exchange also from Japan, that saw $60 million worth of digital currencies vanish. Bancor, an Israeli-Swiss decentralized exchange lost $23 million to a hack this past summer, while BitGrail, a small Italian cryptocurrency exchange lost $170-195 million worth of its customers’ digital assets. All in all, nearly $1 billion was lost to hackers from exchanges and other platforms in just the first nine months of 2018, according to research by blockchain security firm CipherTrace.

An increasing number of ICOs also has come under the spotlight and attracted the attention of government agencies throughout the world. By July 2018, around $1.3 billion had already been invested in fraudulent ICOs, according to a report by Satis Group. The list of ICOs that turned out to be scams is long and it keeps growing. Among the most high-profile cases was OneCoin, an Indian operation that scammed investors for around $350 million, as was the Centra Tech, a heavily promoted and celebrity-endorsed swindle that raised a $32 million through its ICO, only to be indicted for securities fraud. Overall, even when looking at the projects that were not blatantly fraudulent or had their founders vanish with investors’ money, more than 55% of ICO-funded endeavors failed within 4 months, according to a study Boston College.

Source: Satis Groups LLC

All in all, some of the blame can be assigned to the extraordinary levels of greed that prevailed in the market, along with irrational optimism and a serious lack of attention to detail. Many of the investors who fell victim to the fraudsters didn’t even bother to read the corresponding white papers or do any kind of research before climbing on the bandwagon. It is also important to bear in mind that, much like in any other bubble, a considerable number of people who entered the market after the rally made headline news did not even have a basic understanding of the principles behind Bitcoin or any other coin they were investing in. Key concepts and mechanisms critical to the function of most crypto-related projects were and still remain largely elusive. For example, in the general public, 80% of people who have heard about the blockchain, have no idea what it actually is, as an HSBC poll showed.

“Doesn’t do what it says on the tin”

Beyond regulation and security issues, one of the main obstacles that many projects in the sector faced is that their products simply didn’t work as they were supposed to. Functionality is the bare minimum any investor and ordinary user would reasonably expect for their money and that expectation in many cases was not met.

A prime example is Bitcoin, originally promoted as a new, better, decentralized currency. While it performed exceedingly well (for some) as a speculation vehicle, it was a dismal failure as a currency. It was so badly designed and so unfit for this purpose, that the more users it attracted, the less usable it became. It goes far beyond Bitcoin too. According to an analysis by “Invest in Blockchain”, out of the top 100 cryptocurrencies in terms of market cap, less than half serve any useful function or actually have a working product.

The way forward

At the height of the crypto-rally, there were many who compared Bitcoin to gold and claimed that it could replace the precious metal. Of course, with the benefit of hindsight, such an idea now seems quaint and ludicrous. This was especially highlighted by the comparative performance of both Bitcoin and gold during the recent volatility extremes and investor anxiety levels in the stock market. As is historically the case, investors running for cover and seeking a safe haven turned to gold. As for Bitcoin, it became clear that it just does not enjoy the same trust from investors and not even the recent turmoil in equity markets could suffice to halt its descent.

The crypto-crash was a painful lesson on greed and on the downside of bandwagon mentality and it provided a much-needed reminder that “a fool and his money are soon parted”. However, it also served as an important catalyst for the industry. This dramatic thinning of the herd, eliminated many operations that were either fraudulent, unsustainable or simply not competitive enough. Much like the DotCom bubble, that eventually cleared the board for giants like Amazon to thrive and to fundamentally change the consumer landscape, this crash has also paved the way for the truly great ideas to flourish, the ones with the potential to impact significant change in the way we do business and interact.

The new and better ideas that the crash has made room for, is not the only reason to be optimistic about the future of the sector. It has also made a difference on the funding side. The significant drop in investment is not necessarily detrimental to the industry in the long run. For one thing, the excesses and waste that were facilitated by the exuberant investments and irrationally high valuations during the 2017 rally are now a thing of the past. The projects that survived and those that will be launched from this point forward face serious pressures to be operationally lean. As speculators and naive investors who were focused on “get rich quick” pitches have largely left the crypto arena, the focus has shifted to sustainable, functional and effective solutions that provide real value to their users and reliable profits to their investors. Thus, from an investing point of view, the crypto sector, as it matures, is bound to offer much more, much greater and much healthier opportunities to those seeking dependable growth.

After all, we must keep in mind that the blockchain technology and its currency applications that we’ve seen in the recent past are two different things. Bitcoin and the hundreds of other cryptocurrencies are but a single facet, just one of many possible uses for the distributed ledger technology. Blockchain has a wide variety of potential applications, already being developed, that hold great promise for cross-industry innovation: communications systems, industrial uses, quality assurance, logistics, law, trade applications and beyond.

As outlined in my previous article on this topic, there is no need to see precious metals and the crypto sector as competitors. If anything, the various solutions that are likely to emerge from the burgeoning industry, especially those with a monetary or transaction-facilitation focus (as we will examine in an upcoming article), are much more likely to threaten the future of government-controlled, fiat money. As the internet irreversibly separated our physical lives from our online activities and as the latter continuously gains ground, it is becoming clear that the tools we used so far to navigate and interact in both domains are no longer fit for purpose in an increasingly connected world.

The concept of national currencies, centrally controlled and manipulated by governments, is antithetical to the culture and the entire point of the internet. On top of that, fiat money is simply not as functional in online transactions as a specifically designed alternative, native to that realm, would be. Thus, we are bound to see the rise of “internet money”, with private and competing cryptocurrencies, able to offer stability, usability, security and convenience, providing much better and much more efficient solutions. Such a shift toward private initiatives and new concepts that enable commercial activity and online payments could soon push fiat money back into the confines of the increasingly irrelevant physical world.

On the other hand, physical precious metals will return to play their essential role as the most liquid and best store of value, as they have done for thousands of years. For investors and savers alike, the appeal of gold is timeless, as it is the only vehicle that has proven to protect and preserve purchasing power, especially in times of crisis.

We are still only beginning to realize the changes, the level of innovation and the vast array of new opportunities that a fully decentralized financial system could bring, operating peer to peer, cutting out the middle man and by doing so, destroying the government monopoly on money. Such a seismic shift would shake the current centralized power structures to the core and soon render them irrelevant. In the meantime, I believe it makes sense to keep an open mind and to familiarize oneself with these new technologies. I do see a lot of potential in systems and concepts that are geared towards digitalizing real assets, such as a physically gold-backed cryptocurrency that can be traded online, bypassing today’s centralized and government-regulated financial system, with its high fees and with transaction times of several days.

It seems to me, that the goal of this generation will be what Friedrich August von Hayek had in mind several years ago: “If we want to maintain a free society, we have to take the money monopoly away from the government”. This process has already begun and it can no longer be stopped, neither by mandate, nor by force.

Claudio Grass, Hünenberg See, Switzerland www.claudiograss.ch

This article has been published at pro aurum. All rights remain with the author and pro aurum.

Click on this link for Part I of the article

Wikipedia and Hayekian Philosophy: The Knowledge Problem

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Wikipedia has become a staple in each of our lives. No matter what information we may be in search of, Wikipedia either provides what we are looking for or offers a great launching off point to further research. And while most of us routinely use the site to aid us on our quest for knowledge, few know that the site was born out of a deep respect for the work of economist, F.A. Hayek. 

The Knowledge Problem

As a college student at Auburn University, young Jimmy Wales, the founder of Wikipedia, had the pleasure of taking an economics course from Austrian economist, Mark Thornton. It was during this course that Wales was first introduced to the ideas of Hayek. Specifically intrigued by Hayek’s essay, The Use of Knowledge in Society.

In this essay, which was published in 1945, Hayek explains that one of the major problems with central planning is the amount of knowledge that would be required to make it work. Since information is dispersed among individuals, it would be impossible for central planners to set regulations that accounted for every single person’s wants and needs. They would simply not have enough information to answer to solve these problems.

If the main goal of was the organization of knowledge, then Wales, who is himself a subscriber to the Austrian school, believes there are two means of centralizing this information. First, governments and rulers around the globe could do their best to collect all this knowledge. Of course, once someone is the keeper of knowledge they also control who receives it. This, of course, is not decentralization at all. Even so, this is what has occurred for most of human history.

Access to state-gathered information has traditionally been guarded against reaching the masses of the people. Instead, the right to this knowledge was a privilege given to those in power, whether political or economic. Obviously, this was not an effective way to decentralize knowledge among the people. Additionally, while this is the best possible solution for those in power, with large populations of individuals it is unlikely that even force would yield the gathering of all information. There would still be an inefficient amount of knowledge—and an insufferable amount of state control.

The Wikipedia Solution

The second approach to the knowledge problem can be found by taking a closer look at Wikipedia. Since history has shown us that governments are not the best keepers of knowledge, it is best for this information to stay decentralized, but still accessible by all individuals. Wales explained Wikipedia by saying:

“Wikipedia begins with a very radical idea, that is for all of us to imagine a world in which every single person on the planet is given free access to the sum of all human knowledge. And that is what we are doing.”

Instead of state control, Wikipedia is managed by a voluntary community. Users are free to add information and edit. However, the edits are subject to review by the community itself. If there is a dispute over any of the information added to the site, the Wikipedia community utilizes private conflict resolution in which they discuss and debate amongst themselves, without the need for state authority. Wikipedia even has its own internal common law system to help settle any disagreements about site entries that may arise. So not only is Wikipedia making knowledge accessible to all, it is also paving the way for private dispute resolution methods that do not involve government courts.

And while Wales’ recognition of the knowledge problem would be impressive enough on its own, Hayek’s influence on Wikipedia does not end there. In the next installment, we will discuss how Wikipedia is yet another real-life example of spontaneous market order.

The Fight Continues: Keynes and Hayek on Prices

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F.A. Hayek and John Maynard Keynes are two of the most controversial economists in history. They are also the two that are most often mentioned in undergrad economics courses. But even though these two have managed to break through to the mainstream, many still do not fully understand the differences between the two economists’ beliefs. 

Previously, I  discussed how Hayek and Keynes differed in regards to their views on spending and planned economies. Hayek, whose views were closely aligned with the Chicago school of economics, believed that markets operate organically and, as such, should not be constrained to the confines of government orchestration. This led him to conclude that government intervention, including but not limited to the setting of prices, inhibits the free market from reaching its full potential.

Keynes, on the other hand, believed the exact opposite. For Keynes, the more government intervention the better. He believed that laissez-faire economics was dangerous for consumers and was destined to fail. This faith in government institutions would also transfer over to his views on price theory.

Keynes on Pricing

Like most things regarding the economy, Keynes was a huge advocate of government intervention. As George Selgin put it, Keynes’s believed that “government authorities should manage money so as to achieve a stable level of consumers’ prices.”

Expanding on this, Selgin says:

“But, although some of Keynes’s writings, and the General Theory especially, may have laid the groundwork for inflationary policies, Keynes himself regarded them as supporting a monetary policy that would stabilize consumers’ prices. The desirability of a stable consumers’ price index is a persistent theme of Keynes’s monetary writings, from the Economic Consequences of the Peace (1919) to How to Pay for the War (1940). In this respect at least Keynes saw eye-to-eye with several of his more important contemporaries, including Irving Fisher and such members of the “old” Chicago School as Loyd Mints and Henry Simons.”

Keynes believed that prices were closely tied to monetary policy. Selin says, “But, although some of Keynes’s writings, and the General Theory especially, may have laid the groundwork for inflationary policies, Keynes himself regarded them as supporting a monetary policy that would stabilize consumers’ prices.

Let the Market Do Its Thing

For anyone familiar with Hayek, it will not be surprising to learn that he believed that prices are an organic product of the market. Since Hayek believed that the market was capable of operating without constant government supervision, he thought it was unwise to give the government the power to determine prices.

Instead, he believed that prices were a response to market demand. If an item was proving itself to be of value to willing consumers, that demand would provide a basis for entrepreneurs to structure pricing. 

To explain this in more technical economic terms, Selgin explains that Hayek, “believed that the general level of output prices should be allowed to vary in response to changes in factor productivity, falling in response to both anticipated and unanticipated improvements in productivity, and rising in response to any productivity setback.”

Until demand dies down, and consumers are demonstrating their unwillingness to pay a certain price for an item or service, there was no reason to reduce prices. If, on the other hand, demand continues to climb, entrepreneurs and business owners may decide to raise the price of a good or service since it is proportional to the demand. Keynes would have never trusted the market enough to believe that prices could be set and stabilized through demand.

 

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