Tageconomics

Who’s Afraid of Friedrich Hayek?

A favorite essay.

TODAY, THESE observations are merely obvious. Yet it is worth pointing out that Hayek understood at least one very big thing: that the vision of a perfectible society leads inevitably to the gulag. Experience should have taught us by now that human societies are jerry-built structures, rickety towers of ad hoc solutions to unforeseen problems. Their development is evolutionary, and as in biological evolution, they do not have natural end-states. They are what they are continuously becoming. Comprehensive models of how society should work reject the wisdom of solutions that work and deny the legitimacy (indeed, from Lenin to Mussolini to Mao to Ho to Castro to Qutb, deny the very right to exist) of individuals who demonstrate anti-orthodox wisdom. Defenders of these models are required by their own rigidity to invent the category of the counterrevolutionary.

To Hayek, this is what socialism, communism, and collectivism—he makes little distinction between them—mean: the dangerous illusion of perfectibility. The only kind of socialism he considers in Road is state-managed, perfect-society utopianism, in which the direction of the economy and all of its inputs and outputs are planned, with the accompanying political and moral degradation that Hayek demonstrates quite convincingly. In many ways, the warnings in Road prefigure those in 1984 and have the same intimate feel for the totalitarian state. This focus on state-led socialism should not be particularly surprising in 1944, and perhaps Hayek (like Arthur Koestler, in a different but not unrelated way) deserves some credit for warning European idealists about the true meaning of the major romantic movement of the postwar period. But other visions of socialism, and other socialistic traditions, were certainly available to Hayek when he wrote. The absence of any consideration of more libertarian, less top-down approaches (the socialisms of Luxembourg, Kropotkin, Proudhon, many others; or of the possibility of nontotalitarian models of social democracy, like those that emerged in Europe after the war) should alert the reader to Hayek’s limitations. Admittedly, Kropotkin’s ideas had little impact on the world of 1944, Stalin’s a great deal.

The omission of these other viewpoints is important nowadays, because Hayek’s ideological descendants often assume, either sincerely or disingenuously, that in a world very different from that of 1944, socialism by definition still means state control of the economy in the interest of perfecting social relations. To Hayek, as to such diverse right-wingers as Ayn Rand, Margaret Thatcher, William F. Buckley, Thomas Sowell, or Phil Gramm, collectivism is defined as something imposed and policed by the state. It is the Borg Hive, the submersion of individual will and agency to the greater good.

For thoughtful democratic socialists, this line of attack is surely an amusing or infuriating distraction. Yes, when they feel like it, right-wingers can dig up someone like “Maoist economist” Raymond Lotta of the Revolutionary Communist Party, who will argue that a completely planned economy is more efficient and more just than the market. Former leftist turned left-basher David Horowitz, for example, loves to do this kind of thing, in the same way that Dinesh D’Souza, with equal intellectual seriousness, recently blamed the attacks of September 11, 2001, on cultural liberalism. But how relevant is the RCP to the ongoing American political debate? Does it represent any school of democratic socialism? The RCP quite explicitly despises liberal democracy.

Dissent Magazine: Who’s Afraid of Friedrich Hayek? The Obvious Truths and Mystical Fallacies of a Hero of the Right

Rules for the Cult of Capitalism

Socialism is on the rise in America. Capitalists are on the defensive. So I’ve put together a handy list of rules to use whenever debating anyone who doubts the power of the Flying Invisible Market Hand to solve all life’s problems.

1. When market liberalization has a positive impact (such as in Chile), this is a victory for capitalism. When market liberalization has a negative impact (the recent economic meltdown), it’s because there is government intervention somewhere and free markets don’t really exist (therefore, capitalism is not responsible).

2. When they are doing things you don’t like, countries like Venezuela and Norway are socialist and therefore doomed to fail. But if someone makes the argument that socialism can work and uses these countries as examples, point out that they are actually capitalist.

3. When the government charges for its services (taxes), this is theft. When private enterprises charge for food and rent, this is just.

4. Theft is the worst crime known to man. It is a far worse that rich people are forced to pay taxes (if their accountants can’t get them out of it) than that poor children are allowed to go hungry.

5. Speaking of which: capitalism is both the fairest AND the toughest philosophy. If you think it’s unjust that children starve, you’re a pussy and need to awaken to the harsh realities of life. If you think that progressive income tax is a good idea, then you are an unjust Nazi bastard.

6. As an alternative to # 5, you can just claim that the US is actually a socialist nation and therefore starving children in this country are the fault of socialism. However, when it compares favorably to China or Soviet Russia, the US is a capitalist nation (refer to rules # 1 and # 2). Socialism puts naive faith in the nature of humans. But people would be good natured enough to donate to charities if they didn’t have such tax burdens.

7. Even though Karl Marx literally wrote the book on capitalism, his very concept definition of capitalism is “flawed.” Capitalism doesn’t mean what Marx said it meant, it means whatever capitalists say it means. Therefore, his whole critique is invalid. Also: Stalin and Mao killed millions of their own people – therefore nothing Marx said was ever correct.

Oregon subsidizes Wal-Mart to the tune of $4 million

Out fucking rageous:

I received an email late last night from the Governor of Oregon.

I had written to Governor Ted Kulongoski asking him why the taxpayers of his state were subsidizing Wal-Mart with a $3.7 million tax break they didn’t deserve. “Thank you for sharing your ideas and concerns,” the Governor told me. “I believe citizen input is vital to a strong and healthy society and I urge your continued involvement.” […]

According to the Beaverton Valley Times, Wal-Mart received a fat subsidy at taxpayer’s expense by buying a tax credit from Solar World, a German company that makes photovoltaic solar panels. The city of Hillsborough, Oregon was able to attract this large solar production plant, and its 1,000 jobs, by offering a candy store of tax-subsidized incentives to the manufacturer. But some of the profits ended up in Wal-Mart’s pocket instead, because of a bizarre arrangement that allows manufacturers to sell their tax credits to companies who are doing nothing valuable for the environment, like Wal-Mart.

According to the Valley Times, Solar World was given an $11 million renewable energy tax credit. Solar World was then allowed to turn around and sell that credit to Wal-Mart for only $7.3 million, two-thirds of its real value. The full $11 million value of the credit was 51% more than what Wal-Mart paid for it. Wal-Mart can now use the full credit to reduce its corporate income taxes on profits owed to the state, earned at Wal-Mart’s 32 stores across Oregon. Wal-Mart can spread this $11 million tax credit over the next five years. Oregon taxpayers lose out on $11 million in income taxes that the corporation would have paid, and Wal-Mart makes $3.7 million for merely buying up the credit. […]

For Solar World, the tax credit had more value as a commodity to sell—than as a tax break, because Solar World only pays the state minimum tax of $10 per year. The tax credit was worth little to the company—unless they sold it. “A tax credit’s only good for those people who have a tax liability,” explained a representative of the Oregon Department of Energy.

Huffington Post: Wal-Mart Becomes Oregon’s Welfare Queen

Pentagon preps for economic warfare

The Pentagon sponsored a first-of-its-kind war game last month focused not on bullets and bombs — but on how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis.

The two-day event near Ft. Meade, Maryland, had all the earmarks of a regular war game. Participants sat along a V-shaped set of desks beneath an enormous wall of video monitors displaying economic data, according to the accounts of three participants.

“It felt a little bit like Dr. Strangelove,” one person who was at the previously undisclosed exercise told POLITICO.

But instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS – all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world’s leading economies.

Their efforts were carefully observed and recorded by uniformed military officers and members of the U.S. intelligence community.

Politico: Pentagon preps for economic warfare

(via Cryptogon)

Christopher Hitchens: The Revenge of Karl Marx

As I write this, every newspaper informs me of frantic efforts by merchants to unload onto the consumer, at almost any price, the vast surplus of unsold commodities that have accumulated since the credit crisis began to take hold. The phrase crisis of over-production, which I learned so many long winters ago in “agitational” meetings, recurs to my mind. On other pages, I learn that the pride of American capitalism has seized up and begun to rust, and that automobiles may cease even to be made in Detroit as a consequence of insane speculation in worthless paper “derivatives.” Did I not once read somewhere about the bitter struggle between finance capital and industrial capital? The lines of jobless and hungry begin to lengthen, and what more potent image of those lines do we possess than that of the “reserve army” of the unemployed—capital’s finest weapon in beating down the minimum wage and increasing the hours of the working week? A disturbance in a remote corner of the world market leads to chaos and panic at the very center of the system (and these symptoms are given a multiplier effect when the pangs begin at the center itself), and John Micklethwait and Adrian Wooldridge, doughty champions of capitalism at The Economist, admit straightforwardly in their book on the advantages of globalization that Marx, “as a prophet of the ‘universal interdependence of nations,’ as he called globalization … can still seem startlingly relevant … His description of globalization remains as sharp today as it was 150 years ago.” The falling rate of profit, the tendency to monopoly … how wrong could that old reading-room attendant have been?

Atlantic: The Revenge of Karl Marx

(via Richard Metzger’s post Marx Was Right)

Ten principles for a Black Swan-proof world – Nassim Nicholas Taleb

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

Global Dashboard: Ten principles for a Black Swan-proof world

(Via Chris Arkenberg)

Squatter cities as the cities of the future – TED talk by Robert Neuwirth

See also:

The Sudden Stardom of the 3rd World

Let them fail? I wish.

Douglas Rushkoff’s latest Arthur column has been making rounds in the blogosphere since it was posted yesterday. It’s a good read, but strikes me as naive for an old fogy like Rushkoff. I don’t have time to reply in depth, but briefly:

1. I question his claim that people made more money in the middle ages. Yeah, maybe if you landowner and not a serf. I think that was not the point of using this as an example, but it makes him sound like a silly back to the middle ages type.

2. It would be nice if it were a possibility to actually let the economy fail. But too many entrenched interests (backed up by guns and bombs) have too much riding on this. Just “letting it die” won’t be an option.

3. Even if it were, it wouldn’t be a very pleasant process (though it might be necessary to build something better). I think the financial sector does a lot more than Rushkoff is giving them credit for.

4. He’s assuming all trade can and should be local.

The real problem is how much we’ve come to rely on the FIRE sector of the economy – or actually, how much they’ve coerced us into relying on them. There are a number of movements afoot to create more resilient communities, less dependent on the FIRE sector, oil, and other things that exist outside the control of individuals. This is a good thing – but there are a few problems:

A. Will they be allowed to operate or will they be shut down by the police? Alternative currency is particularly vulnerable to government intervention. Grey water systems are illegal in most states and cities. And so on.

B. Can these systems be implemented fast enough to absorb the shock of the crumbling economy? Or will they be brushed aside by more aggressive, less democratic totalitarian movements?

C. Can they scale?

D. Can they avoid becoming just as corrupt as what preceded them?

Problems A. and B. are directly related to problem 2. above.

Solutions are always welcome at the Recession Hacking Wiki.

Jon Stewart’s smack down of Jim Cramer and CNBC’s failure as a watchdog

Yeah, I’m pretty late to the table with this, but I just got around to watching it, and it’s worth while if you haven’t watched it yet:

Full un-edited version directly from Comedy Central – uncensored and even better:

Part 2:

Part 3:

Background:

Capitalists on the defensive

If you ask a staunch capitalist about the global economic meltdown and the state of the system that brought us to this point they say “that isn’t really capitalism.” This sounds a lot like the socialists they’ve always criticized who defend their ideology by saying that the Soviet Union and China aren’t REALLY communist.

In the afterword of the copy of Anthem I read years ago, Ayn Rand wrote that if collectivists were successful in the political agenda, we would end up with a world much like Rand described in Anthem and the well-meaning commies behind it all would stand up and say “But this isn’t what we MEANT.”

Today, it is the those free market ideologues who are left to say “this isn’t what we MEANT.”

The current global economic crisis should lay rest to the notion that markets or the invisible hand or whatever can produce the “least bad,” let alone “optimal,” economic results. None the less, there are still those who would try to blame government intervention, rather than market failure, for the situation. In January, Reason Magazine ran a few articles on the subject, notably:

Is deregulation to blame? by Katherine Mangu-Ward

and

Anatomy of a Breakdown by Michael Flynn

This is a great pair of articles – they provide a clear, easy to understand insight into what went wrong. But they fail to make the case the authors are trying to make: that not only is deregulation not to blame, but that government policy is to blame.

Weirdly, Katherine Mangu-Ward finds case by case that the arguments that deregulation are to blame are in fact correct (with the exception of blaming the Glass-Steagall Act), and then concludes the exact opposite. She admits the The Commodity Futures Modernization Act of 2000, a loosening of debt rules in 2004, and the lack of oversight of Fannie and Freddie caused the meltdown. Her essential argument, however, is that the debt rule change and the lack of oversight of Fannie and Freddie are not technically deregulation but misregulation. This semantic argument does nothing to support the idea that banks (and by extension “the market”) can self-regulate. In fact, Mangu-Ward’s examination of the facts should lead to the exact opposite conclusion: left to their own devices, banks make stupid, stupid mistakes like taking on too much debt and trading in crazy derivatives.

Michael Flynn meanwhile makes the case that the government’s home ownership evangelism is to blame for the crisis. He says that the poor banks were bullied by the government into making bad loans, but all that would have been fine if not for the ripple effects caused by Fannie and Freddie’s stupid moves. And the fact that Fannie and Freddie were allowed to go hog wild? That wasn’t “deregulation” since they were government agencies (semantics again). Which is all more or less correct, but doesn’t address a few small problems: none of this proves that there wasn’t a market failure.

No one had to take out subprime loans. They could have read the fine print and then walked away. Banks could have found other ways of dealing with subprimes loans, recognizing the problems with Fannie and Freddie. Nothing suggests to me that Fannie and Freddie would have acted differently had they been private banks (except that they would have been more regulated as private banks). In other words: the government may have started the problem in motion. They definitely failed to stop the problem when they could have, and they seem to have made it worse. But they never did did anything that the market could not have stopped had the industry been “self-regulating.”

The two Reason articles are good, but they miss a big piece of the puzzle: the preemptive squashing of derivatives regulation in the 90s. In this case it is again not “deregulation” that was the problem – it was the lack of existence of regulation in first place. We were warned by congress, in no uncertain terms, what would happen back in 1994 but concerns were shouted down by anti-regulation ideologues in government, the industry, and the press. We were warned again in 2003 by Warren Buffet and still took no action.

None of this bodes particularly well for the government’s ability to regulate markets. But the idea that the financial industry can regulate itself has proven completely wrong, and no amount of spin and semantic games can change that. Unregulated free market capitalism has failed as socialism (or as some call it, “state capitalism”) is looking stronger than ever.

Meanwhile, the idea that economic freedom brings with it individual freedom has also been discredited by the persistent human rights abuses in Singapore (one of the most “economically free” places in the world) compared to the more economically regulated nation of Norway. You can’t make a convincing argument that strong civil liberties make for a strong economy, nor that economic liberty will necessarily result in civil liberty.

The battle between market economics and total state control (as played out between the US and the USSR) was only the beginning of a much longer struggle between many different economic policies that are neither strictly capitalist nor strictly socialist.

Those who still believe, as I do, in the virtue of open societies can no longer rely on practical arguments against the sort of extreme market regulation and lack of civil liberties found in countries like China. China’s technocracy has been too successful and the US’s dependence on markets too disastrous. We now must ask harder questions such as “what specific regulations make sense?”

Further reading:

Economic freedom? It depends where you stand

Who’s Afraid of Friedrich Hayek?

Markets and Anti-Markets in the World Economy

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