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The "steal industry"? I know it's a typo, but it's so true!

What's disturbing to me is the extent to which leftists now see everything as "failed free market ideals."

You can often find remarks in the popular press reasoning that if Obama is a socialist than everyone is. From my perspective, my response is: "Yes. And?"

I'm worried that people have simply lost their compass on these things. Wealth redistribution is wealth redistribution, but there is some unwritten rule that we can't call it "socialism" if it's currently a US policy.

Something is very wrong here.

I am willing to see the Simon Johnson issue as one related to his outrage over crony capitalism, just as he was outraged at crony socialism. But I think his positions often go beyond that discourse fueled by outrage --- which I share with him --- and go deeper at the positive role of government in economic affairs and the failure of a free market economy (a non-crony laden economy). This is the case on the post I linked to today from him on the tax debate.

I think Hazlitt provides a clue to the answer in his book on how to think. Even the well-educated have problems with thinking well because of biases they refuse to address. But at it's heart is the issue of the desire for truth. Most people don't want the truth; they merely want to promote their prejudices. To know truth, You have to deliberately put yourself in an emotional state in which you don't care about the consequences; just just want to know the truth. That is very difficult for most people to do, but it is the only path to truth. Truth has to be more important than anything else. That attitude produces wisdom, which is very different from intelligence.

Hayek wrote that intelligence is highly overrated, especially by intelligent people. He was addressing the problem of pseudo-reasoning. What highly intelligent people who embrace falsehood are lacking is wisdom.

I think you have the same process here going on as you do with reactions to, say, Herbert Hoover. What really embodies Hoover's reaction to the depression? Well, that depends on your perspective. If you come from the perspective that fiscal stimulus was the correct reaction, then it's perfectly reasonable to think of Hoover as an austere president. Relative to what the situation called for, the austerity is obvious. If you don't think the situation called for fiscal intervention, he looks like an interventionist. Both perspectives are "right", they're just both espoused from an entirely different set of fundamental understandings.

Europe now looks like it embraces an American free market perspective because of its tight money biases and suspicion of fiscal policy. That doesn't surprise me at all that he would say that, given his priors. Given your priors it makes no sense, of course. But I think you should still be able to understand where he's coming from.

The fact is nobody in this debate you're referencing is especially happy with Europe, or Hoover, or Obama. What you need to realize is that when people advocate certain interventions, they're not embracing interventions for intervention sake. The steel tariffs, the ag subsidies, the auto bailouts, and in many cases even the bank bailouts are as opposed by guys like Johnson as they are by you. When you think of "intervention" you count those as well. When I think of "intervention", I don't and I consider those Bush-era and also Obama-era policies entirely counter-productive. There's a miscommunication on what we're even talking about.

You can think of it as a venn-diagram with two circles of policies we disagree on, right? There are certain institutional issues, central planning problems, entitlement concerns, bloated public sector concerns, and various tariffs and subsidies that a wide swath of people disagree firmly with. You have a sliver of things that you disagree with but I agree with. I have a sliver of things that I disagree with and you agree with. But when you think "interventionism" you think of the whole circle of things you disagree with and can't understand why I might differentiate between the interior section of the venn-diagram and the exterior section of the venn-diagram.

Does that make sense?

I think the solution is to be very candid that Johnson and others have very good reason for not thinking of, say, fiscal stimulus and tariffs and central planning in the same breath. To you, those are two sides to the same coin. To us they are very different and it's not surprising at all that I would support one but not the other.

I think for the exact same reason Johnson would probably have the same reaction to you and other libertarians - "how could they be so right on X, Y, and Z and just drop the ball on A, B, and C". It's not that you're a different economist on those things (and neither is Johnson) - you are the same economist, your framework is just different. In your framework X, Y, Z, and A, B, C may mesh perfectly - but it doesn't in others.

"How can they see free market dogma, in a world full of interventionism? How can they continue to blame the free market for the social ills we are confronted with when the free market is not what we have in policy practice?"

It's just a cheap rhetorical trick: "We live in a world of pure (ideology I disagree with); therefore (said ideology) is the cause of all our problems."

In reality, we do not live under pure free markets or socialism, but interventionism, a mixed system. And in the real world, determining causation is a much more difficult task.

Think of it this way, on the Europe question, for example.

The question at hand is "Is Europe being relatively Hayekian?". Well, the entire point is that's a relative question. If you asked Simon Johnson if Europe is putting unalloyed Hayekian ideas into practice, of course he would answer "no". If it's just a sense of the extent to which Europe is Hayekian, you're going to be more likely to answer "quite Hayekian" if Europe is between you and Hayek on the spectrum than you are if you are between Europe and Hayek on the spectrum. You are closer to Hayek than Europe is, and Johnson is father from Hayek than Europe is - so of course Europe is going to look like a non-interventionist response to him and an interventionist response to you.

Nobody is claiming the stronger point that the ghost of Hayek is at the helm of the ECB.

One more point - Peter, you write about "the failure of a free market economy". I think very few commenters are claiming this. We usually think of the market as "unstable" or that it has very specific things it trips up on. That's very different from saying that it has failed. See the market as extremely good but volatile is very different from seeing it as a failure.

"Wealth redistribution is wealth redistribution, but there is some unwritten rule that we can't call it "socialism" if it's currently a US policy."

Is wealth redistribution analytically equivalent to socialism? Would Hayek call wealth redistribution socialism? Note that I am not arguing that wealth redistribution is desirable. Rather I am inquiring whether the existence of wealth redistribution programs is/should be sufficient for issuing the "socialism" label.

Daniel Kuehn, Hoover engaged in more fiscal stimulus than any President before him. FDR's first term was less "Keynesian" than Hoover's (perhaps not surprising since his campaign attacked Hoover for unbalanced budgets). The main reason there was so little "Keynesian" stimulus during the 30s was because Hoover raised taxes to an unprecedented level (and they stayed there after he left). Hoover's failure to embrace certain policies seems more attributable to the novelty of them at the time than any particular aspect of his governing style.

Wonks -
You're entirely missing my point. Yes, if you catch anyone saying that Hoover slashed the budget I think we have an obligation to historical fidelity to smack them over the head. But don't be surprised when people claim that Hoover was relatively austere or provided an insufficient response. There's a very good reason for making such a claim, but it's true you have to understand the person's priors to understand the claim (just as you have to understand somebody's priors when they call Hoover an interventionist).

There's a difference between understanding the historical facts (ie - spending did increase) and the interpretation of those facts to shed light on the general disposition of Hoover.

And this doesn't need to be stuck on Hoover - it applies equally to Johnson's claims about Europe.

Will - I think it is sufficient, yes.

I read Cassidy's book, too. I also called in to a NPR radio show he was on to ask if he'd ever heard of free banking, or the Adam Smith notion that, you know, this little thing called "competition" (i.e. no bailouts) is really a form of regulation.

Pete, I think you're way too generous to Cassidy. I think his approach is explained by "The Anti-Capitalistic Mentality," and his notion of "free market dogmatism" is a wispy strawman.

Consider this passage from Cassidy's own book:

"The combination of a Fed that can print money, deposit insurance, and a Congress that can authorize bailouts provides an extensive safety net for big financial firms. In such an environment, pursuing a policy of easy money plus deregulation doesn't amount to free market economics; it is a form of crony capitalism. The gains of financial innovation and speculation are privatized, with the bulk of them going to a small group of wealthy people who sit at the apex of the system. Much of the losses are socialized."

Thus Cassidy basically gets the diagnosis right- it's a matter of a terribly screwed up policy environment, not some kind of "market dogmatism." But he consistently (and annoyingly) tries to paint a different picture, involving reliance on straw men perfect competiton/ perfect markets assumptions. For a book that refers to Hayek, Coase, Menger, and even Mises as much as he does, this strawmanning is inexcusable.

Cassidy is trying to have it both ways- he has to acknowledge the "crony capitalism" aspect at least once (and he pretty much nails it), because it's blatantly obvious, but he's so desperate to tell a "market failure" story that he spends the rest of the time miscontstruing (or ignoring) things like Austrian and Public Choice insights.

Oh, and one more thing: Cassidy relies on this "deregulation" narrative to the point that I want to pull my hair out every time I read it. There's no such thing as deregulation. There's sound, robust regulation- the kind that develops in under the harsh competition, loss accountability, and legal liability of the unfettered market process. There's bad "knowledge problem" regulation- such as occurs when Basel I capital requirements put subprime MBS on the same footing as GSE bonds (thank you Arnold Kling! Cassidy totally misses out on this one), and then there's bad "Public Choice" regulation, such as when firms are enabled to "shop" for the regualtors and other forms of regulatory capture (Cassidy touches on this phenomenon, but still there's basically no Public Choice in his book). But there's always some kind of regulation out there in the social world. Thus "deregulation" is the biggest straw man of all.

"Is wealth redistribution analytically equivalent to socialism? Would Hayek call wealth redistribution socialism? Note that I am not arguing that wealth redistribution is desirable. Rather I am inquiring whether the existence of wealth redistribution programs is/should be sufficient for issuing the "socialism" label."

Luther, I would say that redistribution is one of the weakest forms of government intervention. Since it only tax current economic activities and distribute the money according to some income rule. In principle it doesn't block the operation of markets, but taxation always creates some distortions. Redistributive programs are less interventionist than the direct production by the government of certain goods, like education in public schools. The voucher system proposed by Friedman is a type of wealth redistribution, where the recipients of redistributed income don't have freedom to spend their income according to their preferences, but are forced to spend it on education.

A certain country is capitalistic when the driving force of their economy is the market process. A policy to tax income derived from this process and them redistribute it to reduce their Gini coefficient is an interventionist policy, not a socialist policy. It is perhaps one of the weakest forms of interventionism, since the recipients of the redistributed income have freedom to spend it according to their preferences and the taxes are anticipated by the individuals that operate in the market (in contrast to the random confiscation of property or price controls).

This statement by Alice Amsden that “it was the dogmatic ideas of Mises and Hayek that dominated the thinking of the IMF and the World Bank in the 1980s onward” is truly extraordinary.


I had a lot to do with the IMF and the World Bank on a daily basis between 1998 and 2003. My job was to know everything about them as a professional economist because I had daily dealings with them.


Face up to it, most of the economists at the IMF and the World Bank in the 1980s and 1990s would not have heard of Mises! Just face up to it and also that this situation would be the same today.


As for Hayek, there may have been some name recognition because he won a Nobel prize. The chances of many of the economists at the IMF and the World Bank in the 1980s and 1990s passing a pop quiz on Hayek would not be good.


Back in the 1980s, even the much less radical Milton Friedman was just graduating from being the wild man in the wings to just a suspicious character in policy circles.


I know from first-hand experience working in the Prime Minister's Department that Friedman certainly had no influence on macroeconomic policy in Australia in the 1980s. Mentioning his name in the 1980s at job interviews would have been extremely career limiting. Not much better in the 1990s.


I wrote two papers in 1995 for the then Industry Commission in Canberra on merger policy. I was required to delete all of my references to Posner and Bork because they were too contentious. They were merely Chicago school.


Has anyone got a 1980s leading macroeconomics or microeconomics textbook? Check the name index for references to Hayek and Mises. Expect to be disappointed. Today,Hayek would be listed in microeconomic textbooks for his work on knowledge?

The very term "free market dogmatism" drives me nuts. That's like accusing someone of being an evolutionary biology dogmatist, or an atom dogmatist. Those who use terms like "free market dogmatist" are like those people who think that one cannot have complex biological systems of structures without some sort of (un)intelligent designer behind it. How can one be an dogmatist about facts?

Peter Boettke asks: "How can they see free market dogma, in a world full of interventionism?"

In part it is because self-described free-market advocates have identified interventions as "free market." Alan Greenspan claimed to be championing free markets, even while manipulating them with Fed policy. The banking system is one of our most mercantilist sectors ("mercantilist" is more correct here than "crony capitalist"). In the midst of the housing bubble and accompanying shadow banking control frauds, alleged free-market advocates were calling it the triumph of entrepreneurial innovations in lending & finance. (I recall Roubini being labeled a "credit snob" because of his skepticism of subprime NINJA loans and the fraudulent securities based on them.)

IMO too many people among self-described free market advocates equate "private sector" with "free market," and are willing to conclude that whatever the private sector does must be good, and whatever government does must be evil. This idea would be better termed "private sector dogmatism." But self-described free market advocates have helped to conflate "private" and "free market."

People also mistake "pro-business" with "pro-market." They are utterly different.

"So long as it is legitimate for government to use force to effect redistribution of material benefits – and this is the heart of socialism – there can be no curb on the rapacious instincts of all groups who want more for themselves." Hayek (I got it from "Taking Hayek Seriosly" blog.

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