Tag Archives: Hayek

“Government by Whim”

Posted on by cjarrettdieterle
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The spring 2011 issue of National Affairs included several essays exploring “government by whim” in contexts like economic policy, law and the auto bailouts. These pieces got me thinking about other examples in our state and country.

The term “government by whim” means governing via a series of regulations and rules that can be capricious and confusing. In such a structure, regulators and government officials are often granted broad latitude when it comes to implementing provisions from legislative acts. In turn, special-interest pressure can lead to a convoluted network of laws that inhibit economic and personal freedom. As Yuval Levin, the founding editor of National Affairs, put it in a recent National Review Online post: “One of the problems with massive, complicated government regulations is that they create a lot of room for regulator discretion, and therefore a lot of room for unequal treatment of different players in the market.”

Of course, the idea of government by whim was neither discovered nor originally popularized by Levin. Friedrich A. Hayek wrote extensively about the dangers inherent in technocratic government, in which bureaucratic institutions attempt to fine-tune large and complex swaths of economic activity. In “Road to Serfdom,” Hayek wrote: “The important question is whether the individual can foresee the action of the state and make use of this knowledge as a datum in forming his own plans … or whether the state is in a position to frustrate individual efforts.”

Instead of heeding Hayek’s warning, government by whim seems to be catching on at all levels in the United States. On the federal stage, the controversial Patient Protection and Affordable Care Act has codified a health care system that invests broad powers in government agencies. This can be seen in the actions of the Department of Health and Human Services, which has granted some companies waivers from the health care law. These waivers have allowed corporations like McDonald’s to avoid increasing the annual benefits of their “Mini-Med” employee health plans. Meanwhile, companies that were not fortunate enough to receive such waivers must cope with the burdensome costs of the statute. Most frustratingly, the HHS criteria for granting waivers are nebulous and thus fail to provide a guideline.

Government by whim does not end at the swamp’s edge of Washington, D.C., either. State governments have proven just as adept at pursuing erratic, special interest driven programs. For example, the Michigan Economic Growth Authority awards tax credits to select businesses as an inducement for them to increase operations within state borders. In addition to the dubious economic benefits associated with MEGA, the very structure of the program proves problematic too. As Michael LaFaive and James Hohman discuss in their 2009 study, “The Michigan Economic Development Corporation,” companies can initiate requests for tax credits from MEGA. After evaluations on the potential economic impact of a proposed project, the MEGA board votes on whether to approve the deal. This quasi application and approval process amounts to a whimsical game of choosing “winners” and “losers” in the market place as MEGA creates competitive advantages for companies receiving the tax credits.

Other cases in which this topic could be further explored include Michigan’s film subsidy program, the regulatory agencies created in the recently passed Dodd-Frank Act and the Federal Reserve’s unwillingness to engage in rule-based monetary policy. Until and unless we eschew government by whim, efforts to stimulate economic growth will be frustrated. If individuals and corporations cannot engage in strategic planning with assurances that the rules of today will remain the same tomorrow, they will be hesitant to invest and expand. We must return to an economic environment that treats market players equally and consistently. By setting basic initial guidelines and then deferring to market forces, government can lay down a foundation for growth – not a series of roadblocks.

Evolution, Social Cost, and Ideas to Change the World.

Posted on by Dustin Anderson
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Over at Org Theory, David Stark has an interesting piece on game theory and sociology that is self-recommending.  One of the interesting observations in the post in the first paragraph:

Some years ago, when they were little kids, my children developed a hybrid game.They’d taken their Monopoly board over to a friend’s house.  They’d remembered to bring back the board, but they’d forgotten the houses and hotels.  What to do?  So, they started to use Lego building blocks in place of the houses and hotels.  But, with the Lego pieces offering more affordances, they immediately began to construct ever more elaborate structures.  Even when the Monopoly pieces were returned, the Legos were much preferred and they played it again and again that year while they were first-graders in Budapest. Was it Monopoly? Was it Legos?  It was “Legopoly.”  Over time the rules evolved away from bankrupting one’s opponents and toward attracting customers to the plastic skyscrapers that towered over the Monopoly plain. [emphasis mine]

While this is merely a story to illustrate a point I do think there is significant amount of game theory and experimental economics work with data to back it up (see Wilson, Kimbrough, and Smith’s “Exchange, Theft, and the Social Formation of Property” for experimental).  This story illustrates quite well the possibility of what Hayek called the “spontaneous evolution” of the “rules of the game.”  When there was a change in the way of doing things, that is, when the top-down rules could no longer be followed, the children took matters into their own hands, altering the rules in a way that suited their needs.  Through this evolution came about a less aggressive game.  The game changed from trying to harm your opponent via bankrupting them to a game of cooperation and creating products that attracted others.

However, this is also a quite simplistic view of the world. In his seminal work, “The Problem of Social Cost,” Coase observed that in a world of zero, or near zero, transaction costs, it is easy for people to come to cooperative agreements and that in the real world, a world of transaction costs, it may be more difficult to get people to work together. In the story observed above, there indeed were little barriers to facilitate cooperative, innovative behavior. The only thing that existed was the incentives, that is, the probability of making themselves better off in the game.  With a probability there is also risk that it could fail.

I sometimes feel that there are not enough libertarians who understand this.  They possess utopian, or near utopian, fantasies of the world being perfect and without transaction costs.  Those who believe in liberty tend to talk past people with genuine concerns and who believe there are places in which the state has a legitimate role in providing a social safety net or protecting society from others’actions.  By no means am I advocating for state intervention, but we must see the big picture if we want to foster the ideas we hope will change the world.

Cross Posted at Rational Conduct.

The Pretense of Knowledge

Posted on by razma766
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Here is a letter I recently sent to the Midland Daily News:

James Benjamin’s entire letter went as follows: “The solution is simple: Medicare for all; keep your private insurance if you want” (“Simple Solutions,” February 17).

Society is a complex outcome that emerges as a result of individuals interacting with one another. No single individual consciously plans its course. As a result, no one fully understands this complex outcome we call society. Government interventions into the society must, therefore, create unintended consequences that no individual is capable of foreseeing. Simply providing Medicare to all will necessarily generate more outcomes than just free health care for everyone.

Nobel Laureate economist F.A. Hayek, in his Nobel Prize Lecture The Pretense of Knowledge, clearly articulated this point in his concluding paragraph: “The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society – a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

Kurt Bouwhuis

How little we know

Posted on by razma766
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Kurt Bouwhuis, Mackinac Center Intern

This is a fantastic piece by the always great Russ Roberts at Cafe Hayek.  It is barely over four pages and is definitely worth the read.

by Russ Roberts on November 12, 2009

in Financial Markets

Here is my take on financial reform at The Economists Voice. Other opinions by Posner, Richardson and Acharya, Hubbard , and Calomiris, here. My piece is very Hayekian as you might guess from the title.

The Price is Right

Posted on by razma766
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hayekKurt Bouwhuis, Mackinac Center Intern

I was reading through The Road To Serfdom by F.A. Hayek last night, and stumbled across a fantastic passage:  “In a competitive society the prices we have to pay for a thing, the rate at which we can get one thing for another, depend on the quantities of other things of which by taking one, we deprive the other members of society.   This price is not determined by the conscious will of anybody.  And if one way of achieving our ends proves too expensive for us, we are free to try other ways.  The obstacles in our path are not due to someone’s disapproving of our ends but to the fact that the same means are also wanted elsewhere.  In a directed economy, where the authority watches over the ends pursued, it is certain that it would use its power to assist some ends and to prevent the realization of others.”

Knowledge is Dispersed and Incomplete

Posted on by razma766
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Here’s a letter I recently sent to the Midland Daily News

To the editor:

There have been several different opinions on the infrastructure funding for Michigan.  Some believe that we need a higher degree of repairs, while others feel that we cannot afford any additional repairs.  Regardless of what the “right” answer is, we may first want to examine the process for determining infrastructure spending.

Have you ever wondered why we don’t have individuals bickering over how much money should be spent on the creation of peanut butter, computers, clothing, paper, glass, etc…?  Or at what quality these respective goods should be produced.  Or where they should be distributed.

There are sound reasons for the absence of bickering in these markets: all the transactions are made voluntarily by millions of individuals who pursue what they value most.  No one person determines the “right” number.

Infrastructure funding, on the other hand, is determined by a few politicians.  Most, if not all of these politicians have driven on no more than 1% or 2% of all the roads in Michigan.  The bulk of their knowledge on infrastructure comes from the bickering of their constituents.  Can you imagine if a similar process were used to determine the production of all goods and services?

It would be childish to assume that any one individual, or small group of individuals wields the power to gauge the preferences of all the citizens of Michigan and miraculously generate the exact dollar amount for funding.

Sincerely,

Kurt Bouwhuis

Knowledge is Dispersed and Incomplete

Posted on by razma766
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Arnold Kling channels Hayek on the stimulus plan. Lots of insight. An excerpt:

How many people will have meaningful input in determining the overall allocation of the billion stimulus? 10? 20? It won’t be more than 1000. These people–let’s say that in the end 500 technocrats will play a meaningful role in writing the bill–will have unimaginable power. Remember that what they are doing is taking our money and deciding for us how to spend it. Presumably, that is because they are wiser at spending our money than we are at spending it ourselves.

The arithmetic is mind-boggling. If 500 people have meaningful input, and the stimulus is almost $800 billion, then on average each person is responsible for taking more than $1.5 billion of our money and trying to spend it more wisely than we would spend it ourselves. I can imagine a wise technocrat taking $100,000 or perhaps even $1 million from American households and spending it more wisely than they would. But $1.5 billion? I do not believe that any human being knows so much that he or she can quickly and wisely allocate $1.5 billion.

Post from Cafe Hayek

FA Hayek Quote For Election Day

Posted on by razma766
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hayekimage1Kurt Bouwhuis, Mackinac Center Intern

“The successful politician owes his power to the fact that he moves within the accepted framework of thought, that he thinks and talks conventionally. It would be almost a contradiction in terms for a politician to be a leader in the field of ideas. His task in a democracy is to find out what the opinions held by the largest number are, not to give currency to new opinions which may become the majority view in some distant future.” — FA Hayek

Changing the World!

Posted on by jsrule
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Yeah, but how?

Photo taken from Lifehack.org

Most people I’ve talked with, after thinking about it for a while, have told me that the world needs to change. They might want world peace, the legalization of marijuana, more hot dog stands on Main Street, or even just a few extra dimes in their pocket, but they want change. After talking a bit longer, these conversations also tends to conclude that we, the individuals who see a need for change, need to create the change ourselves somehow. Doing so can be a bit difficult, however, especially when one has no idea where to begin.

Well, a recent lecture by Institute for Humane Studies’ Nigel Ashford convinced me that the place to begin is in deciding how the world is changed. Once we have a theory of social change, we can then begin to create the change we are seeking. Ashford proposes three different theories of social change that I would like to briefly describe here.

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