Archive for October, 2011

Link. Today I learned that Keynes was my height (we’re very tall).

In the podcast, the dispute is framed in terms of the Keynesian concern for unemployment versus the Hayekian concern over inflation (stemming from Hayek’s experience of hyperinflation in the late 20s and early 30s).

It’s a bit too polite, but it’s a good primer.

What interested me was the part of their discussion that focused on the retardation of innovation as a consequence of direct government intervention in the economy (via the imposition of a monopoly). As it always is, the iPhone is held up as something that would never have been created by Ma Bell. Happens at about the 18 minute mark or so.

Adam Davidson ventriloquises the supposedly Hayekian side, saying something like “Sure Keynsian, you can spend a trillion dollars building roads or whatever, but there are thousands of Steve Jobses out there, and the degree to which the government is spending money here is the degree to which its somehow messing things up and corrupting the information system those Steve Jobses would need to rely on to realize their innovative genius” (not an exact quote). The mechanism isn’t really explained beyond a statement that “prices are the key to everything” and if they’re set “freely,” they’re the most informationally rich, which, flipped around, suggests that government intervention in the economy, if it has an effect on prices, impoverishes the information environment.

What’s frustrating is that there’s no distinction made in this discussion between different types of economic products — between simple, rivalrous commodities purchased and used individually and from which the consumer has some distance allowing them to be rational in their decision to purchase (e.g., personal devices, cosmetic surgery, etc.), and on the other hand, commodities that, from a market perspective, are only made possible via a much more complex social relationship (mass infrastructure, like roads; non-intrinsically rivalrous goods, like what’s called “intellectual property” within the market paradigm; things like that).

In the later cases, by the time any price can be set, it’s already necessarily abstracted simply by the active involvement of soooo many more people in the process of negotiating what counts as a reasonable price (or maybe its better to say, actively involved in holding up the social agreement that makes any kind of price-setting/respecting possible), that the process of negotiation is hardly recognizable as such. The setting of prices for digital music, books, and newspapers seems and has seemed almost totally arbitrary; even when it’s stabilized, remaining widely ignored by a large sector of the population to whom the price doesn’t make sense and who have the technical literacy to find and download a torrent tracker.

Another point to make is that for the Hayekian hypothesis that these prices can tell us more than common sense requires one, in many cases, to play awfully dumb. Sure, there could be innovation in how roads or public infrastructure are built / designed, but the benefits of such innovation are much more palpably understandable at a macro-level at which the market doesn’t really operate coherently in the public interest unguided by government-driven demand. And the idea that government-driven demand can’t generate innovation is comprehensively belied by, for example, Sputnik and the Apollo program (WWII was arguably the biggest catalyst to innovation in history). And as much as Ma Bell would never have invented the iPhone, the market would never have innovated any of the societal-in-scale technologies that underlie the transportation and energy systems. It wouldn’t, I bet, have invented the Internet (early breakthroughs were all in military and university contexts).

And pertaining to education and health, these systems go screwy in a market system simply because what broadly counts as quality education and healthcare is actually quite easily discernable through common sense, while, simultaneously, the details are so impossible to rationally assess without highly specialized training.  It’s a perfectly safe assumption that the vast majority of citizens would choose not to have their lives dominated by pain that could be prevented via medicine that could very easily be made universally available; to be able to take for granted that they can have affordable access to health care of a quality that they could have some peace from worries about being forced to make horrible choices between health and crippling debt. It’s also clear that when one’s health or education is on the line, the supply side of any market in which there is no good public alternative has the demand-side over a barrel since it’s clear to all parties that, to health or education “consumers,” good health and education is simultaneously priceless and extremely difficult to comparison-shop for on any intelligent criteria.

This kind of differentiation between goods is something both Hayek and Keynes (and Adam Smith) agreed on. Yglesias dug this passage out of the Road to Serfdom last year:

Nor is there any reason why the state should not assist individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance, where, in short, we deal with genuinely insurable risks, the case for the state helping to organise a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to supersede it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less ineffective. But there is no incompatibility in principle between the state providing greater security in this way and the preservation of individual freedom.

And check out the discussion of Hayek’s views of education (and his advocacy for the liberal arts over market-driven technical education) in the Encyclopedia of Education.

Note that it’s extremely difficult to turn up any direct discussion by Hayek of transportation or energy infrastructure (at least via google… anyone got a direction to point me in on this?… I found plenty of pretty ridiculous derivations by contemporary pseudo-Hayekian libertarians applied to the issue, but all the one’s I’ve read make a number of dubious leaps on principle).

Adam Smith, for good measure, on the roles of government (snagged from Mark Thoma):

• the Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’ (WN464);
• Sterling marks on plate and stamps on linen and woollen cloth (WN138–9);
• enforcement of contracts by a system of justice (WN720);
• wages to be paid in money, not goods;
• regulations of paper money in banking (WN437);
• obligations to build party walls to prevent the spread of fire (WN324);
• rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’) (WN539);
• ‘Premiums and other encouragements to advance the linen and woollen industries’ (TMS185);
• ‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
• ensuring the ‘cheapness or plenty [of provisions]’ (LJ6; 331);
• patrols by town guards and fire fighters to watch for hazardous accidents (LJ331–2);
• erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours) (WN723);
• coinage and the mint (WN478; 1724);
• post office (WN724);
• regulation of institutions, such as company structures (joint- stock companies, co-partneries, regulated companies and so on) (WN731–58);
• temporary monopolies, including copyright and patents, of fixed duration (WN754);
• education of youth (‘village schools’, curriculum design and so on) (WN758–89);
• education of people of all ages (tythes or land tax) (WN788);
• encouragement of ‘the frequency and gaiety of publick diversions’(WN796);
• the prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population (WN787–88);
• encouragement of martial exercises (WN786);
• registration of mortgages for land, houses and boats over two tons (WN861, 863);
• government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’ (WN356–7);
• laws against banks issuing low-denomination promissory notes (WN324);
• natural liberty may be breached if individuals ‘endanger the security of the whole society’ (WN324);
• limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’) (WN539); and
• moderate export taxes on wool exports for government revenue (WN879).

The point is that what’s too often missed in the whole elevation of the Keynes/Hayek opposition is that it’s a misleading frame through which to consider debates over things like the government’s role in health care, social security, defense, education, energy and transportation infrastructure. Since Smith, almost all major economic thinkers (even Hayek, implicitly on some points, and explicitly on others) have recognized that these are areas in which markets fall short of what could be provided far more effectively by a central, democratically legitimated authority.

We can only conclude that the pervasive (and highly abstracted) questions over whether the provision of education, healthcare, and safety/security, and transporation and energy infrastructure should be public or private is a massive distraction from the important question that should be central in the public debate, but which has been pushed completely to the side by the pseudo-democractic cacophony over non-issues generated by the money of what amount to saboteur robber barons (more abstract, this time, than Carnegies orRockafellers — those people aggregated under and set to profit from the growth of those corporate people we know as financial, defense, health, energy and educational institutions). That question is simply this: How could the government best be providing these services? As long as we’re distracted from scrutinizing these services’ provision in terms of that question, their quality will continue to erode, and right along with it, the legitimacy in its own eyes of the democratic system.

Not a pretty picture, but one we’ve seen before.