Highlighting Hayek
Is the world finally looking to the ideas of Friedrich Hayek? It appears that the intellectual debate may be heading in a new direction. Stimulus spending has done practically nothing to reduce unemployment or spur growth; instead it has merely inflated the deficit and enraged taxpayers.
Instead of falling into a vicious cycle of government spending its way out of a recession- the standard Keynesian prescription- Hayek’s economic findings suggest that government programs cause more harm to the economy than good, thus modern policy makers would be well advised to minimize spending, and work to abolish trade restrictions and allow capital to move freely.
Why this newfound interest in the writings of this Austrian-born economist?
Glenn Beck made a plea to his audience to read Hayek’s Road to Serfdom, which subsequently became the number one best seller on Amazon and sold out from the University of Chicago Press.
Financial Times’ columnist John Kay referenced Hayek as “the most eloquent expositor of the market”, in displaying how markets act as a process of discovery that drives innovation and creates improvements to our way of life.
Russ Robert’s, of George Mason University and EconTalk, recent op-ed in the Wall Street Journal, highlights four important insights from the writings of Hayek that we ought to consider during times of economic uncertainty.
1. Boosting aggregate demand is short sighted and will not lead to sustained growth, despite Keynes’s claim that “even digging holes and filling them is better than nothing because it gets money into the economy”. This is false, as with the Broken Window Fallacy, because the demand is unsustainable and there is unseen opportunity cost losses that occur in other industries.
2. Sound monetary policies are extremely important and often understated and misunderstood. The Fed’s role in the business cycle is worth highlighting, namely that by manipulating interest rates, incentives are distorted and artificial bubbles emerge.
3. Economic freedom and political freedom are intrinsically linked; when a government is given power to centrally control the economy, political control is sure to follow. As Roberts states,
Even when the state tries to steer only part of the economy in the name of the “public good,” the power of the state corrupts those who wield that power. Hayek pointed out that powerful bureaucracies don’t attract angels—they attract people who enjoy running the lives of others. They tend to take care of their friends before taking care of others. And they find increasing that power attractive. Crony capitalism shouldn’t be confused with the real thing.
4. The best solutions need not come from the top down. In fact, bottom up solutions drawn according to individual choices will bring greater freedom and overall prosperity.
Returning to the words of Roberts:
Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. We join with others to produce the goods and services we enjoy, all without top-down direction. The same is true in every sphere of activity that makes life meaningful—when we sing and when we dance, when we play and when we pray. Leaving us free to join with others as we see fit—in our work and in our play—is the road to true and lasting prosperity. Hayek gave us that map.
Aside from teaching Hayek in economics classrooms at George Mason University and writing about the Austrian perspective in the WSJ, Russ Roberts has also brought the debate to life with this popular YouTube video, viewed over one million times.
After decades of Keynesian fallacies dominating the mainstream public discourse, it is refreshing to see Hayek’s legacy being uncovered and his influence continue to grow.
Candice Malcolm
Koch Summer Fellow
Atlas Economic Research Foundation
Image by Chris Sharp / FreeDigitalPhotos.net.
