[In response to a long thread on Hayek, and his value as an economic theorist]
Well, I think it’s a difference between economic theory in context of academia, and economic theory to justify public policy. The key tenets of Classical Economics are interesting and useful in a theoretical construct, but as soon as you depend on “rational actors”, “Information equality” and “profit motive” as absolutes to determine economic and monetary policy, THAT is where it falls apart. Alan himself blamed “irrational exuberance” for the housing bubble, a statement that clearly goes against Classical Economics, also explaining that he did not see that people would act against the best interest of their company.
This notion that Classical Economics contains self regulatory mechanisms and levers that work in the real world has been disproven time and time again. Does this mean Hayek and Friedman are no longer valuable to the discussion of business and economics? Certainly not. As you say, there are valuable lessons to be learned from their study. But real world application of ANY ideology needs to be tempered with informed, pragmatic actions that are not blindly linked to an absolutist and Utopian ideal. I would no more support a full Hayekian economy any more than I would a full Marxist one. Indeed, I view Hayek as the Right Wing Marx: neither should be ignored for what they get right – Marx is dead on when he says the class struggle is a key component to an imbalanced economy, we’re seeing that now. The wealth gap plainly shows that the proletariat (American workers) are not being adequately compensated in relation to the profits or the bourgeoisie (the corporate class). Now, does that mean the State needs to control the means of production in the name of the proletariat? Uh, fuck no. Because Marxism as an economic reality has failed miserably as well. CLEARLY.
My largest problem with the Ayn Rand/Hayek/Friedman/neoliberalism economic paradigm is the evangelical nature of it’s adherents to an unsustainable endgame – a problem I tend to have with Libertarianism as a political force, as well. As these views circulate through the Washington-Wall Street echo chamber (something shown very well in “13 Bankers” and a few other books on the current crisis), they take on the feeling of Gospel – unimpeachable truths that must be implemented in toto, the canon of the Free Market and Personal Freedom becoming as immutable as the Bible. Is “Free Market” and “Libertarian” perspective valuable? Yes, of course. We must balance management with the freedom to act. However, taken to their logical extremes, they are contrary to the evidence of their implementations’ effectiveness – even when couched in “we just want smaller government” language, it is undeniable that the ideology of Libertarianism and it’s accompanying Classic Liberalist or Neoliberalist economic beliefs are being used to drive politicians towards more and more extreme policy. The completely insane and manufactured debt ceiling crisis is a perfect example. This isn’t a question of “small government”, or of policy being tempered by a small government perspective. It’s the economic fate of the nation – if not the world – being taken hostage in the name of FUCKING BUDGET CUTS. It’s not pragmatic – the wealth lost on Monday would have filled the Social Security gap, or paid for the Bush Tax Cuts! Yes, the market rebounded, but I want you to see the point. Pragmatically, the course – to economists – really is clear. You need to put purchasing power back in the hands of the Middle Class. Period. You can’t run a fountain with no water at the bottom. This isn’t even economics, it’s basic systems analysis. If we don’t do this, we’ll all have “the freedom” to starve as we bicker about the notions of “freedom” held by a bunch of elitist, entitled ideologues unable to back one iota off their Religion of the Rich. Is it fair to tax the rich at 45%? Who fucking cares? If we don’t, we’re not going to be a nation long enough to debate it.
Which brings me to the basis of my distaste for Classical Liberalism and Libertarianism – there will never be enough evidence to convince the ideologues because saner heads will always prevail and save us from experiencing the total meltdown that would be caused by following these policies. The madmen who push this drivel will never have to face the actual consequences of their lunatic policies – note, the theories aren’t lunatic, per se, again, there’s value in the perspective, and the analysis – but the policies derived from this “Holy Mandate”, this “Divine Right” of defining “Freedom” have a pragmatic track record of failure, with clear evidence that their basic tenets – information equality (which, ironically, actually also defines that no one can outsmart the market), rational actors, hunger and profit motives and the “invisible hand of the market” – are NOT practical absolutes. And again, I would apply this same reasoning to Marxism, another system that, when followed religiously, fails to account for the myriad ways that reality stubbornly refuses to follow our little schemes.
All of this, of course, is just as an economic system, to say nothing to Libertarian and Neoclassicism’s complete abhorrence of social justice. THAT’S a whole other argument. Although I will say that Classical Liberalism completely ignores the idea of social welfare as an investment in human capital to drive innovation. Without the development of human capital, there IS no innovation, which means stagnation. What seems clear is that in times of crisis like we have now, the pragmatic idea is that social spending as an investment in human capital (not to mention in infrastructure) matches our need to get money into the hands of the worker so they can become the consumer. Demand drives production, which creates jobs. It doesn’t work backwards. We can build 100,000 homes, and if no one is willing to buy them, it doesn’t matter. That’s not a sustainable market. Same with investing – we can encourage investors to put all their money into new enterprise, but without wages to fund aggregate demand, it doesn’t matter. You could cure cancer, and if no one can afford it, it’s not going to create a single job.
If the economy recovers, we can talk about what policies we can follow to allow the most amount of growth, with the highest level of innovation, with the best amount of preventative legislation (I firmly believe that there is a point of acceptable trade off in slowed growth from regulation that keeps an industry honest and un-self-destructive, costing less than policy to clean up a mess). We can tinker with the balances between protection and shared risk, between personal choice and personal responsibility. There is certainly room for all viewpoints – as long as they are sane, intelligent voices willing to support ideas that cross ideological lines in the name of practicality, and who are willing to accept when their own ideas have failed, and to move on to develop new ones. Democracy – much like the economy – is driven by innovation, and that takes a collective effort to attempt, evaluate, and adjust in the spirit of good faith compromise, not the lunatic rantings of power mad ideologues.