Wednesday, July 27, 2005

More on Hayek and that stuff

Continuing on Henry's post, I do recall having the general impression from reading Road to Serfdom (too quickly and without reflecting, but I still saw all the words), that Hayek's attack was on central decision making and planning, which is the straw man that is often thrown up to attack any government plan (do you want bureaucrats in Washington...), even if that isn't really what the policy would do. But of course there is far more, and more interesting, Hayek that I still should read.

Relatedly, a few weeks ago I was poking around in this book (didn't quite have the focus to actually read it) which makes the point that invoking liberty when discussing the economy can have two very distinct meanings:
  1. The liberty to engage in commerce free of government intervention.
  2. The liberty to engage in commerce free of market power (monopoly).

The first is the true hands-off version, but justifies leaving monopolies, with their anti-competitive market power, and sometime anti-competitive behavior (see Microsoft) in place, which can prevent people from having the liberty to start new businesses in those fields (well, they can, but they would have close to zero chance of succeeding).

The second view recognizes the limitations of the first view and says that government's role is to promote liberty by creating an environment in which small businesses can start and flourish, providing a dynamic economy and opportunities for citizens, and thus it is government's job to break up monopolies with their economic power. The problem with this view, of course, is that government can do a very bad job of deciding which monopolies to break up and how to do it. Proponents of the first view will claim that monopolies rise and fall over time, and so aren't as entrenched or as threatening as the second view would imply (see successful software start ups).

The book argues that in the last 100 years we've gone from the second view (break up the trusts!: see Standard Oil and Louis Brandeis's embrace of small enterprise), to the first view (see Microsoft not broken up, and the influence of Posner and Bork on antitrust law).

What all this has to do with Hayek is to point out that discussions of liberty in the economic realm today (and for Hayek) tend to take place almost entirely within the constraints of the first view; but that if you think about liberty in the economic realm as -- in the Isaiah Berlin distinction -- a positive liberty, the second view, (which has happened in American history) then you get a very different understanding of what liberty means, and what a free economy looks like.

I wouldn't advocate the second view as the only way to see it, critiques of government intervention do have bite and you could argue that an economy with more large companies is more stable thus reducing risk for workers, which I think a conditionally good thing.* But it shouldn't be neglected as some wish to do (so I go for that nice balance Henry spoke of here).

*Not least because the average, uninspired worker makes more doing the same job in a large company than doing the identical job in a smaller company (janitors are the classic example).

1 Comments:

Blogger Lawrence said...

"What all this has to do with Hayek is to point out that discussions of liberty in the economic realm today (and for Hayek) tend to take place almost entirely within the constraints of the first view; but that if you think about liberty in the economic realm as -- in the Isaiah Berlin distinction -- a positive liberty, the second view, (which has happened in American history) then you get a very different understanding of what liberty means, and what a free economy looks like."

The two views you describe are useful for understanding a person's economic viewpoint. I've noticed that a person's profession is a strong indicator of which of these two views will seem natural to them. This was on display in an especially vivid way during the late 1990s, when many media companies were merging and the FCC had to approve the mergers. I noticed that on the committee that ok'd the mergers, the economists tended to vote in favor of the mergers, and the lawyers tended to favor putting restrictions on the deals. I noticed that profession was actually a stronger predictor of how a person would vote than their party affiliation. Republican lawyers tended to vote the same as Democratic lawyers and Republican economists tended to vote the same as Democratic economists. I've meant to look this up and see whether my anecdotal observation was solid, but I've never had the time. I know it was true and noteworthy for 4 or 5 important votes in the 1990s. I don't know if it is still true today.

10:29 PM  

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