It took we a long time to write this response to Nathan's post on Hayek. Still, here it is. I want to start by saying that I appreciate Nathan's honest attempt to understand ideas of Hayek and his followers. Now we can have a substantive discussion of which part, if any of these ideas, have merit and applicable to the present economic, societal and political situation in US. Following traditions of the authors of old, I will arrange my discussion of Nathan's "Notes in the Margins" in the form of a dialogue. I will use actual quotes from the "Notes" to present the points he has made, and will compliment them with my replies and commentaries.
Nathan
Hayek, at first glance, comes across as much more moderate and reasonable than his current day disciples. Even his libertarian interpreter feels obliged to use words like "community" and "common interest" in describing his ideas.
Lev.
Dear Nathan, in the quoted text you imply that "community" and "common interest" to a libertarian are curse words to be avoided at all cost. You seem to believe that individualism lying at the cornerstone of libertarian world view is something incompatible with the sense of community and realization of significance of "common interest". This view trivializes basic libertarian notions as expressed for instance by Ayn Rand (cannot be responsible for all libertarians, quite possible that some of them view individualism in a similar trivial light). Individualism is not incompatible with sense of community, when the community is viewed as voluntary union of individuals, who come to assistance of each other because they realize intrinsic value of cooperation for each of them individually. The same goes for the idea of "common good", which is something voluntarily accepted by the members of the community as having high value for each individual, when realized through cooperation and common efforts. This understanding of common interest and community must be sharply contrasted with views of present days liberals, personified, for instance by Obama, for whom "community " and "common interest" is something which can only be realized through participation of some kind of central authority, most often, federal government. It is this understanding of "common interest" that Hayek would find incompatible with ideas of individual freedom.
This is nothing new, of course. The ideas that any distinction between Society and State must vanish have been discussed in Europe since the first decades of the last century. Here, for instance, a quote from Hayek's "Road to Serfdom", where he gives a sharp critique to views of once influential British political philosopher Prof. Carr, pointing out his connection to Nazism
Does Professor Carr, for example, realise, when he asserts that "we can no longer find much meaning in the distinction familiar to nineteenth-century thought between 'society' and 'state''', that this is precisely the doctrine of Professor Carl Schmitt, the leading Nazi theoretician of totalitarianismI do not suggest, of course, that liberals consciously share doctrines of fascism. I rather suggest that liberals' views on relations between Society and State are intellectual relatives of totalitarianism.
Nathan.
Moreover, it turns out that Hayek had no problem with basic welfare state functions, thought the state had a legitimate role to play in establishing the "rules of the game" and even believed that citizens should be guaranteed a basic income. Ouch! That sounds like socialism!
Lev.
It is true that Hayek wrote about possibility for the State to provide some limited support to those members of society who for some reasons cannot earn their living. He thought that if society accumulated enough wealth, allocation of a small part of it to support the most unfortunate is allowable because the risk of distorting market forces through removing incentives to work is outweighed by limiting the risks of social unrest. The key words here are "limited" and "small number". I am afraid, however, that he overestimated ability of society to keep such assistance under control. What we have now in the form of welfare state has nothing to do with what Hayek had in mind. The level of benefits the State provides is so much above of what can be considered as limited temporary assistance that in many cases it does disincentives people from efforts to support themselves. And what Hayek allowed in terms of social support does not sound like "socialism" at all, and you Nathan know this very well, so, please, stop playing dumb.
Nathan
Hayek's ideas are the ideas of a bygone era. ..The entire edifice of his economic theory seems to be directed against Soviet style economic planning... How many governments still think that they can arbitrarily fix prices and plan all aspects of economic activity? ... its hard to see how Hayek's arguments against economic planning are applicable in the present day. There is after all, a world of difference between the Soviet planned economy and modern capitalism...
Lev.
Well, if one cannot rebut arguments, one call them trivial and/or obsolete. I wish it were true, but it is not. While Hayek was rallying against planned economy, he never understood it as narrowly as you, Nathan, suggest. His understanding of central planning was not limited by full-fledged Soviet style totalitarian planning, it was much broader. To explain his ideas let me give you a few contemporary examples of what Hayek would had considered as unacceptable elements of central planning, which happen right now under our very nose.
Example 1. Direct central planning.
Solyndra and other recent investment projects of Obama administration provide obvious examples of central planning in action. Indeed, all these projects grew out of the conscious actions of administration to substitute markets in developing specific products using centralized governmental resources. The result of these activities is well known. But even if Solyndra and others did not go bankrupt, and, indeed, managed to develop a successful business, it would not have mattered. It still would have been an example of central planning, when government, believing in its infinite wisdom, thinks that they know better than the market what consumers want. Hayek was screaming that this wisdom is an illusion, but who is listening?
Example 2. Planning via price fixing.
There are plenty of examples of price fixing by the State, which is just another way of central planning, when government, rather than market decides how much a particular product must cost. Market distortions caused by this type of planning usually have very negative consequences. Here is a few example of planning via price fixing: Rent control and other affordable housing programs, cost of health services, price of food (fixed via agricultural subsidies), minimal wage laws ( fixing the price of the labor).
Example 3. Here I collected examples of more subtle State interventions in economy, but which still are covered by Hayek's arguments against central planning. I can begin with the multitude of the licensing laws limiting access of people to particular professions. Governmental planners decided on the qualifications, which a person must have to legally practice certain professions. Most of these laws (I would say, all of them, but it will ire you too much) are not just unnecessary, but really harmful. For instance, according to the State laws neither you nor me are qualified to teach our respective subjects in high schools. Do you find it reasonable? I find it to be an example of central planning. Another example is the whole bunch of anti-discrimination laws, which require adherence to certain racial and gender quotes. I still have very fresh in my memory speeches by Soviet party bosses proudly reporting percentages of women, students, manual and agriculture laborers in their elected organs, institutes, etc. How is it different from us, calculating the percentage of women, or blacks, or Hispanics in Romney's or Obama's administrations, or any other organizations?
Thus, Hayek's concerns about central planning are very from being obsolete and have direct relation to our current political and economic practices.
Nathan.
To apply Hayek's thinking to the present day his followers need to show that his criticisms of the planned economy are applicable to any and all government intervention in the market. ... So how to separate legitimate government action from improper intervention? Hayek, according to author of the article, suggests a distinction between end-directed action, intended to create a specific outcome, and process-directed or procedural actions intended to establish the rules of the game, the framework within which spontaneous order can emerge. It seems to me, however, that this is really a distinction without a difference....
Lev
Well, Nathan, this is the point that I tried to explain several times in the past, unfortunately, without much success. Let me try again. Hayek's distinction between an end-directed regulation and procedural regulation is quite substantive and important.To develop procedure, by which a society does something, is obviously not the same, as to try to create a particular state of society according to some predefined vision. The fact that you choose one particular process over others making this process an end result in itself does not make this difference disappear. The chose process becomes the end result only in the meta-sense.
I will try to explain it in more details using the concept of the "veil of ignorance" introduced by John Rawls. (It does not mean that I share Rowls' views, I just use this idea as a explanatory vehicle.) This concept can be loosely interpreted as a statement that one can make objective judgments about issues involving interests of various groups of people, only by placing himself in the position of not knowing how this judgement will benefit him personally, or any other particular group of people he has a personal attachment to. This person must hide behind the "veil of ignorance" of his own interests in the issue under discussion. What Hayek says is that the regulations introduced by government cannot be based on consideration of which particular group will benefit from them, and who will be at disadvantage if the regulations are implemented. In other words, governmental rules must be developed from behind a "veil of ignorance" with respect to actual losers and beneficiaries of the regulations. These must be the rules of the road equally applying to everyone, but not necessarily producing equal results for everyone.
Why is it important, from Hayek's point of view? Hayek believed that government is not capable of knowing all consequences of its actions. Therefore, attempts to go beyond the simple rule of the road regulations, and design rules with the eye for affecting different groups of people in different ways will always have unintended consequences and will not reach desirable goals most of the time. In addition, they will most likely result in less productive use of limited resources, and make everybody's conditions worse. In a way, attempts to design a law for benefits of one particular group, is for Hayek just another example of central planning.
Now, looking at many past and recent laws, I think it is clear that our legislative practices are very far from the Hayek's standards. Just a very recent example. Romney proposed to cut rates for all tax brackets and close the loopholes in the tax code. This is the neutral "rule of the road" proposal. In response, democrats immediately employed class warfare rhetoric looking for losers and winners. However, contrary to what they claim, they do not know who the losers and winners will be. Nobody knows how new tax rates will change behavior of individuals and businesses, and it is quite conceivable that increased economic activity will result in increased wages and well being of those people who democrats are trying to scare. It might not happen this way, of course, because economic behavior depends on more factors, that the tax rates. Also, I am not claiming that Romney's proposal will do what is promised, I simply use it as an example of the difference between the two types of regulations, which I think illustrates that this difference, contrary to your, Nathan, assertion, is with much distinction.
Among multiple examples of failed end-directed legislations are all kind of laws concerning affirmative actions, which achieved very little, and actually hurt those whom they were designed to help, according to many studies. The so called war on poverty, which is another example of end-directed laws, is a complete failure by all accounts. One can come up with other examples, but I have to stop here or I will never finish this piece.
Nathan
It seems to me that in their struggle against "redistribution" modern-day Hayekians are once again battling with Bolsheviks. Redistribution evokes the image of Leninist calls to "expropriate the expropriators, exploit the exploiters."... I believe, social programs are best envisioned in two ways neither of which involve outright redistribution of wealth. The first way to think of social programs is as a sort of insurance policy. I may not need unemployment benefits right now, since I am gainfully employed, but it is important to me to know that should I lose my job, I will receive support so that my family will not face total destitution. One could view food stamps, welfare, disability and social security in much the same way. I don't need these things now, but as a member of the middle class all that separates me from destitution is a few turns of bad luck. Should this happen I I will be very glad that there will be something there to cushion the fall and help me get back on my feet. This is no more a distribution of wealth than my car insurance which takes money from me (a safe driver, I'd like to think) and gives to people who drive like maniacs and get into accidents.
Lev
Dear Nathan, you keep pressing the line that Hayek was fighting only with full fledged totalitarian State, and, that his arguments do not apply to our contemporary world. I already have shown that Hayek' s arguments regarding planning were meant to be applied to a much broader set of political and economical circumstances that you would like to believe. Now I will do the same for the notion of redistribution of wealth.
Let me begin by stating the obvious: All social programs are re-distributive in nature. They can only exist if there is inequality in wealth and a mechanism of transferring resources from those who has more to those who has less. This is quite a trivial economic fact, which has nothing to do with images of Bolshevism. Hayakians do not fight with redistribution per se. More over, they accept that some degree of redistribution is unavoidable and justifiable even in the minimalist "dream" libertarian state. Robert Nozick quite convincingly demonstrated that maintaining law and order is a function of state, which is redistributive in nature because some people contribute to it more than others. However, since State does not allow people to take law in their own hands, it must compensate them for this restriction by extending its protection even to those who pay nothing for it.
Now let me comment about your attempt to present welfare programs as some kind of insurance policy. I believe that this interpretation is deeply flawed. Insurance is something that you buy with your own money to keep you solvent in the case of catastrophic unforeseen events. The key words here are "you buy" and "your own money". This is true that insurance policies redistribute money from those who has not experienced the insured event, to those who did, but this redistribution is voluntary, and everybody gets something, which they consider worthwhile from it. Peace of mind, for instance. Further, the premium you pay for insurance is inversely proportional to your risk factor. If social programs were anything like insurance, then those most likely to benefit from it (poor and uneducated) would have to pay more taxes than those with a much lesser risk to take advantage of them (wealthy and educated). This would mean a regressive tax system, while ours, of course, is the progressive one. Those who have almost zero probability to use welfare (the famous "one percenters") pay the largest premium. This makes no sense from the insurance point of view.
You may say that social programs are not individual insurance policies, but rather a collective insurance, which a society buys to defend itself against social upheaval, and those who stand to loose more, must pay more, thus the progressive tax scale. While this argument fixes the logical problem of the individual mandate argument, it is still flawed. In this case, the benefits are paid not to those who suffer as a result of the civil unrest after the insured event had happened, but is paid to the potential perpetrators of these event to prevent them from happening. In this situation, your insurance policy looks more like mafia protection racket.
The final comment in this segment is concerned with your argument that social programs give you peace of mind knowing that someone will be out there protecting you if your luck changes. While I agree that it is nice to have a piece of mind and feel protected, but have you thought through the moral content of this argument? You could try to live within your means, not to make debts, save for a rainy day, buy a number of insurance products to protect yourself and your family in the case of bad luck. Instead you prefer to rely on government to provide you with the protection. But the State does make money, manna does not fall in the State's treasury from the sky. Everything what government has, is taken from someone else. We can argue if it is OK to use coercive force of government to finance projects possessing certain common value, schools, for instance, or roads. But I think that to consciously expect that your bad decisions or even bad lack entitles you to receive resources taken by force from other people is morally quite questionable. Alas, but the concept of personal responsibility and self-reliance is becoming extinct in this country.
Nathan
People who don't want to pay taxes to support social programs do have an option--they can emigrate. Nothing is forcing them to stay in this country. I hear there's some great real estate in Mogadishu going cheap. "Oh, but you don't want to live in a country with no law and order, no infrastructure, no education, where corruption is out of control and dire poverty and misery confront you everywhere you turn?" Then, pay up! Paying for a social safety net is not coercive redistribution of wealth; it's the price of admission to a civilized society.
Lev
Dear Nathan, I had to re-read this passage several times before I realized what you have said. And I still could not believe that you, so smart, intelligent, and moderate, actually said it. What a disappointment! It looks like that you studied so much of Russian and Soviet history that it affected you thought process. This hit me very personally because this is exactly what I heard from Soviet party bosses and brain-washed proletariat: "You do not like our Soviet system, which provides you with everything, free health, education, housing? Then get out!" This is what they said to Rastropovich, Brodsky, Solgenitsin, Galitch, and multiple others, including me. I simply cannot believe you wrote it. I will assume that you do not really think it, and that it is the partisan rage that got the better of you.
Also, why did you choose Somali out of all places? do you think that this is the best representation of libertarian's "dream" state. Well, let me tell you something. Maintaining the law and order has always been considered as a main (for some people the only legitimate) function of the State in most of libertarian traditions, and definitely in Hayek' political philosophy. All of the economists working in Hayakian tradition emphasize importance of correctly organized governmental institutions maintaining law, order, sanctity of private property, of contracts, etc. No capitalist economy cannot work without government performing this basic functions, and liberals must be ashamed of bringing Somalia over and over again to scare people of libertarianism. To mention Somali while discussing libertarian's ideas of limited government is just intellectually dishonest way of arguing.
There is also another aspect of this argument. Did you really think through what will happen with this country if those who disagree with your version of civilized society will take you on your word and immigrate? They will not be going to Somali, of course, they will take their money and move to Cayman Islands or some other similar place. The one percent of US citizens pay more about 20 percent of all taxes in the country. What do you think will happen with the society if even a quarter of this one percent withdraw from the American economy? Well if you do nor have enough imagination, you can re-read Atlas shrugged.
Nathan
Getting back to my point on social justice, David Schmidtz, the author of the piece on Hayek, drawing, I believe, on the ideas of Robert Nozick, condemns social welfare program on the grounds that they are intended to create some kind of artificial "end state" based on an abstract notion of justice. Again, it seems to me the Hayekians are substituting Leninist visions of a communist utopia (along the lines of State and Revolution) for the actual functioning of the modern state. Social programs, as I understand them are designed not to equalize the end result of participation in the market but rather the initial conditions. It's about equal opportunities, not equal outcomes..
Lev
OK, let's talk about equal opportunities, a favorite liberal catch phrase. But what does it mean, exactly? Does it mean that everyone must enter the marketplace with the same level of education, skills, access to jobs? I think, it is obvious that this a completely Utopian goal unattainable in real world, and Shmidt is absolutely correct criticizing it for being based on an abstract concept of justice. People are born to different socio-economical situations, to families with different level of incomes, education, intellectual abilities, psychological compositions and predilections. This inequality is inherent to any society, and the more advanced the society is the greater the spread of this inequality. This is as much a fact as the law of gravity. One cannot eradicate this inequality unless one is ready to impose forceful totalitarian equalization by DECREASING the quality of education, health care, , etc. for everybody making everyone equally miserable. This is the argument, which Nosizk makes in his Anrchy, State, and Utopia. The suggestions that in the race for equal opportunities someone can seriously consider limiting opportunities for some kids is not a crazy right-wing fantasy. I actually heard on public radio comlains of liberal activists that well to do parents spend too much money and efforts on their kids. This is unfair, it was said, and must be forbidden. If they had their way, you would have been forbidden to take your daughter to piano classes, and to read smart books with her, and even to discuss with her topics outside of the list approved by the Board of Equal Opportunities. And why not? By doing all these things you create for her an unfair advantage as compared to children from East Orange, who do not have parents with doctorates. And these equalizers did succeed in equalizing our public school and university programs by dumbing them down, all in the name of equal opportunities. I think it is clear now, that the idea of equal opportunities either does have any real content, or, if taken seriously, put us dangerously close on the path toward totalitarianism.
The repudiation of the equal opportunity nonsense, does not mean that we, as a society, should not do something to give those who are at the bottom a boost, not to make their chances at success equal, but to improve them somewhat. However, presently, government has absolutely nothing to show for the billions of dollars spent on this type of programs. The most successful all-encompassing anti-poverty program run in Harlem has been developed by a private charitable organization with donations from wealthy Wall Street bankers. Attempts by the government to replicate this program elsewhere was a complete failure, first, because it is too expansive and government cannot afford it, and second, governmental bureaucrats are not capable of replacing passion and drive of a private individual for whom this program is the labor of his life. Most likely, such comprehensive approaches, while very beneficial for the small group of children lucky to be in the program, cannot be replicated, and cannot be foundation of the society-wide policy.
More promising are special type of early education programs tried in a number of states, which according to recent research, have very large impact with relatively modest expenses. The ironic thing is that these programs are quite Hayakian in style, as they do not aim to achieve some predetermined outcomes such as reading or math skills. They just put a child into a normal family-like environment and let him or her develop whatever abilities they naturally have. Normally, family would do that (and still doing for many children growing in "normal" families), but with destruction of families brought about by many years of misguided policies, the society must step in. These programs are not very expensive to run, and they save lots of money in the future. Not surprisingly many economists, including those of libertarian/Hayakian persuasion commented quite approvingly on these programs. But in order to have resources and implement these programs successfully, the government must stop wasting money and human resources on all the other crap they are doing unde the equal opportunity slogan now just to get votes.
Conclusion
In conclusion, I am sorry to say that yours, dear Nathan, understanding of Hayek has been clouded by your political predispositions. I hope that I clarified some of the most confusing points for you. I wouldlike to help you with some other points such as relation between Hayekianism and Marxism, but I cannot afford spending any more time on this. May be next time.
