Come for the Hyack - Stay for the Firedman

August 8, 2014 1:36 PM

Economist Robert Solow reviews Angus Burgin's history of laissez-faire thought The Great Persuasion [Amazon], and discusses the differing views and goals of the movement's two saints Hayek and Friedman.

Hayek:

here was a Good Hayek and a Bad Hayek. The Good Hayek was a serious scholar who was particularly interested in the role of knowledge in the economy (and in the rest of society). Since knowledge—about technological possibilities, about citizens’ preferences, about the interconnections of these, about still more—is inevitably and thoroughly decentralized, the centralization of decisions is bound to generate errors and then fail to correct them. The consequences for society can be calamitous, as the history of central planning confirms. [...]

But the Good Hayek also knew that unrestricted laissez-faire is unworkable. It has serious defects: successful actors reach for monopoly power, and some of them succeed in grasping it; better-informed actors can exploit the relatively ignorant, creating an inefficiency in the process; the resulting distribution of income may be grossly unequal and widely perceived as intolerably unfair; industrial market economies have been vulnerable to excessively long episodes of unemployment and underutilized capacity, not accidentally but intrinsically; environmental damage is encouraged as a way of reducing private costs—the list is long. Half of Angus Burgin’s book is about the Good Hayek’s attempts to formulate and to propagate a modified version of laissez-faire that would work better and meet his standards for a liberal society. [...]

The Bad Hayek emerged when he aimed to convert a wider public. Then, as often happens, he tended to overreach, and to suggest more than he had legitimately argued. The Road to Serfdom was a popular success but was not a good book. Leaving aside the irrelevant extremes, or even including them, it would be perverse to read the history, as of 1944 or as of now, as suggesting that the standard regulatory interventions in the economy have any inherent tendency to snowball into “serfdom.” [...]

And Friedman

Under Milton Friedman’s influence, the free-market ideology shifted toward unmitigated laissez-faire. Whereas earlier advocates had worried about the stringent conditions that were needed for unregulated markets to work their magic, Friedman was the master of clever (sometimes too clever) arguments to the effect that those conditions were not really needed, or that they were actually met in real-world markets despite what looked a lot like evidence to the contrary. He was a natural-born debater: single-minded, earnestly persuasive, ingenious, and relentless. My late friend and colleague Paul Samuelson, who was often cast as Friedman’s opponent in such jousts, written and oral, once remarked that he often felt that he had won every argument and lost the debate.

As for relentlessness: Professor Friedman came to my department to give a talk to graduate students in economics. The custom was that, after the seminar, the speaker and a small group of students would have dinner together, and continue discussion. [...] Next morning I saw one of the students and asked how the rest of the dinner had gone. “Well,” he replied, “Professor Friedman kept arguing and arguing, and after a while I heard myself agreeing to things I knew weren’t true.” I suspect that was not the only such occasion.

posted by shothotbot (11 comments total)

Everything I know about business and economics I learned from "Trading Places".

If you're ever stuck like me, whenever someone mentions stocks or the market or anything related to business. Just scream at the top of your lungs as loud as you can:

"My God! The Dukes are going to corner the entire frozen orange juice market!"

posted by Fizz at 1:40 PM on August 8, 2014 [2 favorites]

Is the "Good Hayek" and the "Bad Hayek" sort of like the cloth mother and the wire mother?
posted by TheWhiteSkull at 1:56 PM on August 8, 2014 [6 favorites]

Robert Solow is still alive??!

Anyway, this looks to be a really great book. Thanks for posting.
posted by MisantropicPainforest at 1:56 PM on August 8, 2014 [1 favorite]

Robert Solow is still alive??!

With the notable exception of Frank Ramsey (and Keynes, I suppose, who died at 62), famous economists live forever. Becker just died, but he lived to 84, and Coase died at like 93 or something last year. Friedman was 94 when he died. Solow won his Nobel in 1987, which was the year I was born.
posted by dismas at 2:16 PM on August 8, 2014 [1 favorite]

Good Hayek is pretty good. The notion that bureaucracies tend to be inefficient due to a paucity of information at the center is a good one, though it's unfortunate that libertarians seem to overlook that it applies just as much to large corporations as it did to the Soviet Union.
posted by justsomebodythatyouusedtoknow at 2:18 PM on August 8, 2014 [7 favorites]

I actually like Hayek at least at an organizational level (Friedman not at all).

The thing is our current world has the consequences he feared without the benefits of the systems that he feared would bring them about. We already have centralized decision making in the form of massive concentration of wealth and dictatorial corporate monopolies without the benefits that a government that had at least some central planning could bring (like dealing with global climate change, pollution, health care, education and immigration).

When the richest 200 in the world control 60% of the world's wealth how is that not worse than any politburo or feudal system for organization ignorance? Plus they have no obligation to even try and help anyone unlike a soviet or a feudal lord.
posted by srboisvert at 3:00 PM on August 8, 2014 [4 favorites]

For a long time I knew of Hayek only as that Road to Serfdom guy, which apparently crazy people kept telling me to read. It was many years before I found out that there had also been a Good Hayek. Kids today probably get to have the same kind of experience with Richard Dawkins.
posted by sfenders at 3:05 PM on August 8, 2014 [1 favorite]

...famous economists live forever.

Don't forget John Kenneth Galbraith (97).

We should start a list.
posted by rhombus at 5:24 AM on August 9, 2014

When the richest 200 in the world control 60% of the world's wealth how is that not worse than any politburo or feudal system for organization ignorance?

For real? I've (and likely you've) helped the likes of Apple and so on become the corporate giants they are today because they offer neat stuff in return. Soviet/feudal systems in power maintained power because fuck you that's why.

Plus they have no obligation to even try and help anyone unlike a soviet or a feudal lord.

Soviet/feudal lords aren't typically extolled for their generous fulfillment of social obligations.

Look, we've seen what's worse. Does anyone but the most demented seriously pine for soviet or feudal systems today?
posted by 2N2222 at 2:52 PM on August 9, 2014

We should start a list.

Well Ken Arrow is still kickin' at 92. He might be the oldest econ Nobel laureate still alive, although Shapley is 91 (and they won their prizes forty years apart).

Amartya Sen is only 80, but I can verify that in person he appears to be about two hundred years old.

James Buchanan was like 91 when he died a year or two ago. Good lord. Of course this is selection bias, I'm clicking around the list of Nobel laureates (for lack of a better list of famous economists) and ignoring the ones who died in their mid-80s (of which there are plenty). Nash is still alive at 86.
posted by dismas at 3:29 PM on August 9, 2014

I've (and likely you've) helped the likes of Apple and so on become the corporate giants they are today because they offer neat stuff in return. Soviet/feudal systems in power maintained power because fuck you that's why.

Talking about this in terms of tech companies is exactly the wrong thing. Think JP. GS. BOA. RBS. How exactly are the terms of their existence different from fuck you that's why?
posted by PMdixon at 8:37 AM on August 10, 2014