Posts tagged with: Friedrich Hayek

As noted already at the PowerBlog today, Sam Gregg has a fine piece on the complex relationship between law and morality, or constitutions and culture, over at Public Discourse.

As a follow-up (read the piece first), I’d like to point to an interesting aspect of James Buchanan’s advocacy of a balanced-budget amendment. As Gregg notes, Buchanan is an example of someone who thought that “America’s constitution required amending to bestow genuine independence upon a monetary authority,” or advocated for the “constitutionalization” of money. A related effort would be Buchanan’s efforts in support of a balanced-budget amendment to the American Constitution, as explored by James Alvey in his piece, “James M. Buchanan on the Ethics of Public Debt and Default.”
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On Public Discourse, Acton Research Director Samuel Gregg addresses the “considerable fractures” that continue to divide conservative and libertarian positions on significant policy issues as well as on “deeper philosophical questions.” He pulls apart the “often tortuously drawn distinctions” surrounding the political labels and then offers some reasons why the “often unconscious but sometimes deliberate embrace of philosophical skepticism by some conservatives and libertarians should be challenged.”

Perceptive critics of skepticism have illustrated that the concern to be reasonable and avoid self-deception about reality is the starting point of any quest for philosophical truth: i.e., the very knowledge that skeptics believe we can’t know. What reason could skeptics therefore have for desiring to comprehend that, in the final analysis, all is unknowable, unless they are engaged in a quest for truth? In other words, skeptics draw their deduction that we should be philosophical skeptics from foundational assumptions they cannot doubt.

Also self-refuting is the common skeptic claim that reason is purely instrumental. For to defend this position, the skeptic’s reason necessarily engages in a non-instrumental task. He presumes it is good to know the truth of skepticism, and on grounds of reason rather than feelings. It is thus inconsistent for skeptics to assert that all philosophical viewpoints are arbitrary opinions. When skeptics posit that humans can only be motivated by sentiment rather than reason, they are not proposing this statement as their own impetuous preference. They claim to be making a rational judgment.

Read “Beyond Conservatism and Libertarianism” on Public Discourse by Samuel Gregg.

Blog author: jwitt
posted by on Wednesday, December 21, 2011

My recent piece in The American Spectator took the left to task for its misuse of the terms justice and social justice. The piece was more than a debate over semantics. In it I noted that Sojourners and its CEO, Jim Wallis, continue to promote well-intended but failed strategies that actually hurt the social and economic well-being of poor communities. I also called on everyone with a heart for the poor to set aside a top-down model of charity that “has trapped so many humans in a vicious cycle of paternalism and dependency” and instead to focus “on cultivating political and economic freedom for the world’s poor.” Sojourners’ Tim King responded here and then emailed me to ask for my thoughts on his response. I’ll start by emphasizing a few areas of agreement, adding a caveat here and there so as not to overstate the areas of overlap, and then I’ll move on to some areas of difference.

First, it’s a matter of record that politicians and other opinion leaders from both major U.S. parties have supported various forms of government-directed charity over the past several decades. Tim King is completely justified in pointing this out, and it’s important to recognize this state of affairs, since it reminds us that transforming the way we do charity won’t occur simply by voting one party out of power. Substantive change will require cultural transformation.

A second area of agreement is that, yes, there is such a thing as smart aid. PovertyCure has a good discussion of smart aid versus damaging aid here, as well as a page here on the good, the bad and the ugly in efforts to fight malaria. And in this Acton Commentary, Jennifer Roback Morse discusses some of the lessons learned in the battle against AIDS in Africa.

Third, Tim King’s blog post gives the reader the impression that that I consigned all uses of the term “social justice” to everlasting perdition, or that I want to ban the use of adjectives from the English language or something. My position is actually a bit more nuanced than this. In my article I noted that the term social justice has “a justifiable raison d’être,” “stretches back to 19th century Catholic social thought” and “was used in the context of nuanced explorations of law, ethics, and justice.” I didn’t have space to elaborate on this in the Spectator article, so I pointed to additional resources in this follow-up blog post.

King went on to say that the adjective social in social justice “highlights that justice deals with systems and structures within a society, not just with individual people. Justice can occur through the punishment of a single person for wrongdoing, but also through ending slavery or apartheid.” Absolutely. Justice deals with those things, a point I underscored in my article.

The thing is, though, that’s not how the religious left generally uses the term social justice, a reality that Tim King himself demonstrated by immediately pointing to the Circle of Protection statement as an embodiment of social justice principles. The statement is about preserving top-down government spending programs on behalf of the poor.

Another way to see how ordinary justice is being leeched out of Sojourners’ brand of social justice is to look at its official position on abortion. On the organization’s Issues page, under “What is Your Position on Abortion?” Sojourners emphasizes that “All life is a sacred gift from God, and public policies should reflect a consistent ethic of life.” Sounds like justice, plain and simple. But then look at their specific recommendations for how to protect the sacred gift of unborn human life:

Policy
Dramatically reduce abortion. Our society should support common ground policies that dramatically reduce the abortion rate by preventing unwanted pregnancies, providing meaningful alternatives and necessary supports for women and children, and reforming adoption laws.

Notice what’s missing from the list: A call to extend the most basic human right to unborn babies by making it illegal to kill them. What’s missing, in other words, is a call to extend ordinary justice to the unborn. In its place is a call to prevent “unwanted pregnancies” and to create attractive alternatives to killing unborn babies.

Sojourners and its leader say that laws against abortion are unattainable and ineffectual. But these laws wouldn’t be unattainable if the religious left joined religious conservatives in the fight to extend the right to life to the unborn. And as for ineffectual, University of Alabama professor Michael New studied the question and came to a very different conclusion in State Politics and Policy Quarterly. Here’s how he summarized his findings:

Planned Parenthood and many groups on the Catholic Left often argue that pro-life laws are ineffective. They claim that contraception spending and more generous welfare benefits are the best ways to reduce abortion rates. In reality, however, there is virtually no peer reviewed research, analyzing actual abortion data, which finds that more spending on either contraception or welfare has any effect on the incidence of abortion.

Conversely, this study adds to the sizable body of peer reviewed research which finds that legal protections for the unborn are effective at lowering abortion rates …

The study is now part of a substantial body of academic literature showing that such laws are effective in cutting abortions — and back up the anecdotal evidence seen in states like Mississippi, Michigan, South Carolina, Missouri and others where abortions have been cut by half from their previous highs thanks to the passage of several pro-life measures limiting abortions.

What Sojourners and many others on the left support for the unborn is more of their ineffective brand of redistributionist “social justice,” and never mind about the most basic form of justice for the unborn — a right to life protected by the law.

I’ll close by calling attention to one other thing in Tim King’s response, and that is Sojourners’ whole post-partisan meme. It’s a little surreal that they keep trotting this dog out after the George Soros funding fiasco. As my old colleague Jay Richards and others have reported, Sojourners had already received significant funding from the ultra-liberal, ultra-secular George Soros when Jim Wallis denied it in a public interview, going so far as to answer the charge by saying that World magazine editor and Acton senior fellow Marvin Olasky “lies for a living.” Then it came out that Sojourners has in fact received major funding from Soros, along with major funding from a who’s who list of left and ultra-leftwing organizations.

Sojourners keeps trying to hunt with the “we’re deep, not left” meme, but the dog won’t hunt anymore. A better approach would be to simply identify themselves as members of the religious left and forthrightly make a case for the specifics of their position. An even better approach would be to rethink that position from top to bottom, looking not at just the immediate and obvious effects of various government wealth transfers, but also at those long-term effects that are less obvious and often destructive.

In the mean time, if you are looking for a clear alternative to A Circle of Protection, one that emphasizes the dignity and creative capacity of the poor and the role of Christian worldview in promoting human flourishing, take a look at PovertyCure’s Statement of Principles or PovertyCure’s Facebook page. To sign a letter that directly answers the Circle of Protection, go here to Christians for a Sustainable Economy.

A practical man?

On the American Spectator, Acton Research Director Samuel Gregg examines the baleful influence exerted on economic thought and public policy for decades by John Maynard Keynes. Gregg observes that “despite his iconoclastic reputation, Keynes was a quintessentially establishment man.” This was in contrast to free-market critics of Keynes such as Friedrich Hayek and Wilhelm Röpke who generally speaking “exerted influence primarily from the ‘outside’: not least through their writings capturing the imagination of decidedly non-establishment politicians such as Britain’s Margaret Thatcher and West Germany’s Ludwig Erhard.” Perhaps not so surprisingly, many of Keynes’ most prominent devotees are also “insider” types:

The story of Keynes’s rise as the scholar shaping economic policy from “within” is more, however, than just the tale of one man’s meteoric career. It also heralded the surge of an army of activist-intellectuals into the ranks of governments before, during, and after World War II. The revolution in economics pioneered by Keynes effectively accompanied and rationalized an upheaval in the composition and activities of governments.

From this standpoint, it’s not hard to understand why New Dealers such as John Kenneth Galbraith were so giddy when they first read Keynes’s General Theory. Confident that Keynes and his followers had given them the conceptual tools to “run” the economy, scholars like Galbraith increasingly spent their careers shifting between tenured university posts, government advisory boards, international financial institutions, and political appointments — without, of course, spending any time whatsoever in the private sector.

In short, Keynes helped make possible the Jeffrey Sachs, Robert Reichs, Joseph Stiglitz’s, and Timothy Geithners of this world. Moreover, features of post-Keynesian economics — especially a penchant for econometrics and building abstract models that borders on physics-envy — fueled hopes that an expert-guided state could direct economic life without necessarily embracing socialism. A type of nexus consequently developed between postwar economists seeking influence (and jobs), and governments wanting studies that conferred scientific authority upon interventionist policies.

Read Samuel Gregg’s “The Madness of Lord Keynes” on the American Spectator.

Friedrich Hayek called it a weasel word. The American Spectator has my new essay on it here.

More on social justice as it appears in Catholic social teaching here. And more on social business here.

Acton’s director of research Samuel Gregg has provided his reasoned take on the new document from the Pontifical Council for Justice and Peace — it’s up at The Corner. While its diagnosis of the world economy is fairly accurate, the council’s treatment plan is lacking in prudential analysis. Gregg’s disappointment is expressed at the end: “For a church with a long tradition of thinking seriously about finance centuries before anyone had ever heard of John Maynard Keynes or Friedrich Hayek, we can surely do better.”

He’s got four main points (full text below): (1) the fiat money system that accelerated financial decline wouldn’t be reformed by a world bank; (2) neither would the proliferation of moral hazards, which might in fact be increased; (3) there is no mention in the document of public debt and deficits, which problems face most developed countries and can’t be ignored; (4) there is little reason to believe that a newly created world bank could avoid the mistakes made by the Federal Reserve and other sovereign banks in the lead-up to the 2008 crash.

Despite the Catholic Left’s excited hyperventilating that the document released today by the Pontifical Council for Justice and Peace (PCJP) would put the Church “to the left of Nancy Pelosi” on economic issues, more careful reading of “Towards Reforming the International Financial and Monetary Systems in the Context of Global Public Authority” soon indicates that it reflects rather conventional contemporary economic thinking. Unfortunately, given the uselessness of much present-day economics, that’s not likely to make it especially helpful in thinking through some of our present financial challenges.

Doctrinally speaking, there’s nothing new to be found in this text. As PCJP officials will themselves tell you, it’s not within this curial body’s competence to make doctrinal statements that bind Catholic consciences. Moreover, the notion that an increasingly integrated world economy requires some type of authority able to make decisions about what the Church calls “the universal common good” has long been a staple of Catholic social teaching. Such references to a global world authority have always been accompanied by an emphasis on the idea of subsidiarity, and the present document is no exception to that rule. This principle maintains that any higher level of government should assist lower forms of political authority and civil-society associations “only when” (as this PCJP text states) “individual, social or financial actors are intrinsically deficient in capacity, or cannot manage by themselves to do what is required of them.”

But putting aside doctrinal questions, this text also makes claims of a more strictly economic nature. Given that these generally fall squarely into the area of prudential judgment for Catholics, it’s quite legitimate for Catholics to discuss and debate some of this document’s claims. So here are just a few questions worth asking.

First, the text makes a legitimate point about the effects of a disjunction between the financial sector and the rest of the economy. It fails, however, to note that one major reason for this disjunction has been the dissolution of any tie between money and an external object of value that regulates the quantity of money and credit in circulation in the “real” economy.

Between the late 1870s and 1914, such a linkage existed in the form of the classic gold standard. This gave the world remarkable monetary stability and low inflation without any centralized authority. You needn’t be a Ron Paul disciple to recognize that fiat money’s rise is at least partly responsible for the monetary crises this document correctly laments.

Second, this document displays no recognition of the role played by moral hazard in generating the 2008 crisis or the need to prevent similar situations from arising in the future. Moral hazard describes those situations when people are effectively insulated from the possible negative consequences of their choices. This makes them more likely to take risks they wouldn’t otherwise take — especially with other people’s money. The higher the extent of the guarantee, the greater is the risk of moral hazard. It creates, as the financial journalist Martin Wolf writes, “an overwhelming incentive to privatize gains and socialize losses.”

If PCJP were cognizant of this fact, it might have hesitated before recommending we consider “forms of recapitalization of banks with public funds, making the support conditional on ‘virtuous’ behaviours aimed at developing the ‘real economy.’” Such a recapitalization would simply reinforce the message that Wall Street can always turn to taxpayers to bail them out when their latest impossible-to-understand financial scheme goes south. In terms of orthodox Catholic theology, it’s worth reminding ourselves that the one who creates an occasion of sin bears some indirect responsibility for the choices of the person tempted by this situation to do something very imprudent or simply wrong.

Third, given this text’s subject matter, it reflects one very strange omission. Nowhere does it contain a detailed discussion of the high levels of public debt and deficits in many developed economies, the clear-and-present danger they represent to the global financial system, and their negative impact upon the prospects for economic growth (i.e., what gets people out of poverty).

Given these facts, how could governments provide the aforementioned public funds when they are already so heavily in debt and already tottering under the weight of existing fiscal obligations? By raising taxes? Even Bill Clinton thinks that’s not a great idea in an economic slowdown. Indeed, the basic demands of commutative justice indicate that governments need to meet their current obligations to existing creditors before they can even consider contributing to further bailouts.

Fourth, the document calls for the creation of some type of world central bank. Yet its authors seem unaware that much of the blame for our present economic mess is squarely attributable to central banks. Here one need only note that the Federal Reserve’s easy-money policies from 2000 onwards played an indispensible role in creating America’s housing-market bubble, the development of questionable securities products, and the subsequent 2008 meltdown.

Calls for a global central bank aren’t new. Keynes argued for such an organization 75 years ago. But why, given national central banks’ evident failures, should anyone suppose that a global central bank wouldn’t fall prey to the same errors? The folly of a centralized supranational body like the European Central Bank setting a one-size-fits-all interest-rate for economies as different as Greece and Germany should now be evident to everyone who doesn’t live in the fantasy world inhabited by EU bureaucrats. Indeed, it is simply impossible for any one individual or organization to know what is the optimal interest-rate for every country in the EU, let alone the world.

Plenty of other critiques could — and no doubt will — be made of some of the economic claims advanced in this PCJP document. As if in anticipation of this criticism, the document states, “We should not be afraid to propose new ideas.” That is most certainly true. Unfortunately, many of its authors’ ideas reflect an uncritical assimilation of the views of many of the very same individuals and institutions that helped generate the world’s most serious economic crisis since the Great Depression. For a church with a long tradition of thinking seriously about finance centuries before anyone had ever heard of John Maynard Keynes or Friedrich Hayek, we can surely do better.

We live in the information age, or more accurately referred to as the age of “information overload.” Anyone who has a Twitter account knows what I’m talking about. You may feel like you’re drowning in a flood of Facebook statuses, emails and YouTube videos. With information coming at us every which way, how can we process it all? How do we even know it’s true?

Neoclassical economics assumes people act on the basis of perfect information. With all the information that’s out there, this might seem like a good assumption. Dr. Robert Nelson, a professor of environmental policy at the School of Public Policy at the University of Maryland, does not agree with this theory. In his critique of neoclassical economics at Acton University, he said,

Perfect ignorance is a better starting assumption than perfect information.

Rather than perfect information, perhaps we only need “good enough” information. Economist Vernon Smith claims markets converge toward equilibrium by trial and error. Experiments outlined in his book Rationality in Economics show equilibrium can be reached with a limited amount of information. Similarly, Austrian economist Friedrich Hayek argues that prices are sufficient in signaling value and enabling efficient economic decision making.

An experiment conducted by Paul Andreassen in the late 1980s tested two groups of MIT business students to see how information affects stock investments. One group could only see changes in prices while the second group was allowed to read The Wall Street Journal, watch CNBC and consult experts on market trends. Unexpectedly, the group with less information earned twice as much as the well informed group. His analysis suggests the high-informed group was distracted by the rumors and insider gossip from the extra information. The excess information encouraged them to engage in much more buying and selling than the low-informed group because they were confident their knowledge allowed them to operate more efficiently in the market. In this case, price signals and the invisible hand of the market proved more efficient than an overload of information.

In a world that seems to have all the technology and science to answer life’s greatest questions, we realize it is still imperfect and demand more. For example, many believe that overwhelming forensic evidence was enough to convict Casey Anthony of the murder of her daughter Caylee, but the verdict proved otherwise. The jury demanded more than just DNA; they wanted the exact time of death and a stronger motive.  

Information is a necessary prerequisite for belief, but we must be careful not to fall into the trap of doubting Thomas (though we have all been there). Always demanding personal evidence and more proof in order to believe something will only lead to skepticism. A skeptic says he will only believe it if he sees it, but rarely do we ever experience information from a primary source. Should we believe the facts we read in our textbooks? Should we believe what the experts say on the news? Belief always takes a step of faith.

In his encyclical letter Fides et Ratio, Pope John Paul II asks,

Who, for instance, could assess critically the countless scientific findings upon which modern life is based? Who could personally examine the flow of information which comes day after day from all parts of the world and which is generally accepted as true? Who in the end could forge anew the paths of experience and thought which have yielded the treasures of human wisdom and religion? This means that the human being—the one who seeks the truth—is also the one who lives by belief.

In the age of technology and information overload, we should be humbled in our human limitations. Because information is imperfect, it takes a little faith in the invisible hand to reach equilibrium in the free market. But we should not center our faith in free markets because markets are imperfect and will fail as everything else in the world. Information, which is necessarily imperfect, and faith is required in the human pursuit of truth. Whoever knew markets could teach us so much about faith?

From EconStories.tv:

According to the National Bureau of Economic Research, the Great Recession ended almost two years ago, in the summer of 2009. But we’re all uneasy. Job growth has been disappointing. The recovery seems fragile. Where should we head from here? Is that question even meaningful? Can the government steer the economy or have past attempts helped create the mess we’re still in.

John Maynard Keynes and F. A. Hayek never agreed on the answers to these questions and they still don’t. Let’s listen to the greats. See Keynes and Hayek throwing down in “Fight of the Century”.

Blog author: mvandermaas
posted by on Thursday, November 4, 2010

Hayek and Keynes are dropping beats again – this time live! If you haven’t seen the original, check it out here.

Blog author: jcouretas
posted by on Wednesday, November 3, 2010

A new article from Acton Research Director Samuel Gregg published today in Acton News & Commentary. Sign up for the free, weekly email newsletter here.

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A Tale of Two Europes

By Samuel Gregg

The word “crisis” is usually employed to indicate that a person or even an entire culture has reached a turning-point which demands decisions: choices that either propel those in crisis towards renewed growth or condemn them to remorseless decline.

These dynamics of crisis are especially pertinent for much of contemporary Europe. The continent’s well-documented economic problems are now forcing governments to decide between confronting deep-seated problems in their economic culture, or propping up the entitlement economies that have become unaffordable (and morally-questionable) relics in today’s global economy.

While some European governments have begun implementing long-overdue changes in the form of austerity-measures, welfare-reforms, and labor-market liberalization, the resistance is loud and fierce, as anyone who has visited France lately will attest.

No-one should be surprised by this. Such reforms clash directly with widespread expectations about employment, welfare, and the state’s economic role that have become profoundly imbedded in many European societies over the past 100 years. Yet it’s also arguable this is simply the latest bout of an on-going clash of economic ideas which goes back much further in European history than most people realize.

Certainly the contemporary controversy partly concerns the government’s role during recessions. From this standpoint, Europe (and America) is rehashing the famous dispute between the economists Friedrich von Hayek and John Maynard Keynes in the 1930s about how to respond to the Great Depression. Should we, as Hayek maintained, react by giving markets the flexibility they need to self-correct? Or do we prime the pump à la Keynes? (more…)