Sunday, February 27, 2011

A world in which the majority could prevent the appearance of all that they did not like would be a stagnant and probably a declining world.

I propose for this reason we enact a regressive tax system. We should tax the poor and give hand outs to the rich. This would allow the rich the time they need and deserve to consume leisure time and invent new methods of relaxation. In the long run this would maximize societies utility. I do not know what social discount rate we would use but I am confident the growth in gross utility would surpass the discount rate so that is irrelevant. Just imagine all the new games, movies, toys and so forth would become. Well, we can't readily imagine or we would created them already. That is why we must buy the rich more leisure time so they can imagine them for us. Let the games begin!

A Variety of Perspectives (but only wealthy-elite perspectives)

In last week's chapters we were first introduced to Hayek's views on the skills of moneyed elites. Hayek wrote:

"What reason can there be for believing that a desirable quality in a person is less valuable to society if it has been the result of family background than if it has not. There is, indeed, good reason to think that there are some socially valuable qualities which will be rarely acquired in a single generation but which will generally be formed only by the continuous efforts of two or three."

During this reading I immediately recalled my historical inspirations, the people whose lives followed patterns I hope to emulate. "There has never yet been a man in our history who led a life of ease whose name is worth remembering." wrote Theodore Roosevelt. Roosevelt came from a very wealthy family, and as such could have chosen any number of paths for his life. This quote sums up the rational for his adventurous life. Can we then expect this as a rule? Are the wealthy likely to improve upon their society in a manner greater than if they were "coerced" to contribute to the improvement of all society?

No. I believe a person's behavior is often like water, flowing through a path of least resistance. I believe that exceptions to this behavior are more often seen in families of continuous wealth, but only because these families are more aware of the opportunities that come with diverse skill sets. We see it more often with the wealthy because the families are more aware of positive qualities and may devote more time to developing these advantageous qualities in their children.

Now, if the wealthy possess beneficial qualities due to their advantaged upbringing, why would the less wealthy not similarly benefit? Any parent should be able to raise their child to be educated and capable, and it behooves society to provide the opportunity. Such an action would open society to a much broader perspective than would be possible otherwise. It is only rational that society would benefit from as many perspectives as possible. If there are not mechanisms in place to allow social mobility, how might the full range of perspectives be applied to generation of new ideas and improvements in society?

I know this last statement is bold. The only way to create these opportunities is to take some opportunities from someone else. And thus, for the first time this semester, I find myself disagreeing with Hayek. While certainly some innovation is attributable to the wealthy elite, how is it reasonable that the experiences of non-elite classes could not contribute to new ideas and advances in society? In fact, greater benefits are available when the poor are given resources to improve their standing. If the poor can improve their standing without support, what would be possible with some minimum level of support? When progress depends on imaginative new ideas, the participants must come from a more diverse background than perpetually wealthy families.

In this defense of a permanent wealthy segment of the population, Hayek has glossed over the possibilities open when all of society holds the resources to offer their perspectives.

The Leisured Elitist Group

I found it interesting that Hayek puts a great deal of focus on what he calls the leisured portion of society; this refers to those as in the upper class, which have a focus on education and philosophical thought. He mentions that in America this class is not really apparent. However, he points out that this lack of a cultured upper class has brought about a new leisured group in Europe. It seems that this new group is looked down upon, rather than respected (like the former upper class) for their obnoxious amount of consumption. Yet he points that others in poorer countries feel that the American masses are wasteful.

I feel that this is true to a certain extent. I believe that a lot of this envy or critique of others wastefulness first stems from the knowledge, that there’re those who have more than others. I did not really think about how wasteful celebrity’s seemed to be until a watched a few episodes of Cribs and saw shoe closets bigger than my house. Like children who have tantrums about not getting the new toy that their neighborhood friend has we seem to have a focus on comparative view of resources and view of consumption and if we did not know that they had this toy we probably would not give a care. I think that perhaps at the time Hayek wrote this work, that others in developing countries did not feel that the average American was wasteful, as much so as they probably do now since there is more access to the knowledge of how much we consume compared to them.

Hayek next goes on to the point that just because the amount that the leisured class spends on materialistic goods seems wasteful, that we should not interfere as they should have the liberty to spend their income as they desire. It is this consumption that allows others in the economy to gain wealth.

I follow this argument and I actually hear it quite often. Typically, the person bringing it up uses the pie example and asks do we want to care about how the pie is split up or the total size of the pie. If we want to be good economists we need to care about the size of the pie, not tax people and reap the benefits. Quite honestly, I feel this argument is flat on both sides.

This is for the reason of thinking only about the NOW.

We are placing resource decisions through our consumption (whether frivolous or frugal) on future generations because of scarcity. I think that it is shallow in the name of liberty that we should not judge others as wasteful and give them the total liberty to use resources in very a wasteful manner as we are taking away the liberty for those in the future to use resources. Perhaps I have gone too far in a direction that was not meant to be mentioned, but it is a direction I feel is often neglected and not thought to the extent that that it should be.

A few thoughts

The point is raised in this chapter that if the State becomes the sole employer of the people, he would possess the unlimited power to coerce the individual. My question is if the state is made up by the people, would be their incentive to exploit themselves? It’s not that I don’t agree with Hayek, it is equally beneficial to all involved to have competition not only in the employee pool, but the possible employer pool. Competition is good for the advancement of society, although we might not like the aspect of completion because it means that we have to work harder.

My favorite quote of this book yet is on page 125, “though the limitations of the market provide a legitimate argument for some kinds of government action, they certainly do not justify the argument that only the state should be able to provide such services” I like this quote for two reasons. 1.) THE MARKET IS NOT INFALLIBLE. The question was raised recently why the market produces things like the dog snuggie, while illnesses like Polio and Leprosy still exist in third world countries… according to the free market at this point in time we value superficial blanket coats for our dogs, more than having a healthy global community, maybe this is not a free market failure, or maybe it is… feel free to shred this argument apart if you find fault in it. And 2.) Hayek poses the concept of the government and private sector competing against each other, which I think is a wonderful thing.

Independence Increases Wealth

Once again I find a solidly constructed capitalistic argument in Hayek's opinion of employment and independence. He demonstrates the numerous counts of opportunity cost in the long-run of seeking employment, rather than the entrepreneurial decisions of the independent individuals who have intertwined work with their personal lives.

I don't see work being intertwined with personal interests to be a terribly appealing ideal, however, when weighing it against the long-run opportunity costs of many who do not make this decision, one being demonstrated on pg (124)..."The existence of a multiplicity of opportunities for employment ultimately depends on the existence of independent individuals who can take the initiative in the continuous process of re-forming and redirecting organizations."

This opportunity is not available to the employee (High-salaried "Yes" men) who works a 9-5pm shift and are molded into a corporate culture, paid according to the evaluation of his/her peers and superiors, and does not make decisions on his own, and therefore does not wholly develop a project ingenuity of his own. The consequences of this in institutions of corporate culture and government in many cases are inevitably some form of corrupt coercion.

One point is very valid, that even in a capitalistic structure, coercion takes on the form of the views of those who allow it and implement it. If they are fair, just men, who consider the interworkings of the individual concerns of society, then this is good for social equality and contains merit. Generally, institutions are corrupted by the men who power them.

Do the wealthy still "Holla Back?"

According to Hayek, they still do, well, circa 1960 that is. I rather like the idea of having a certain sect of the wealthy class that, after attaining their corpulent supply of currency, sit around, sip wine, and play exuberant amounts of polo. It's harmless, well deserved, and pretty darn classy if you ask me. What I don't like however, is the existence of an upper-upper class; a hyper rich elite that practices not the leisurely lifestyle of the aforementioned wealthy class, but devotes the majority of their time to consolidating, growing, and and hoarding their wealth at the expense of the "employed majority." Hayek mentions on page 123 that,

"When an employed majority determines legislation and policy, conditions will tend to be adapted to the standards of that group and become less favorable to the independent."

This notion would hold truth in a society where hyper-rich and corporate interests effects on governmental legislation were proportional to the majority of the citizens. Unfortunately for the United States, or at least her working class "employed majority", this has proven to be very questionable. I fail to see how the voice of the majority can be heard over that of a 1% that controls more wealth than the bottom 50%, especially in the United States. I'm not bashing Hayek on his point made in this portion of the chapter as much as I'm curious as to how he'd respond to the gross permutation the wealth distribution in the United States has taken. Clearly, this is a major problem that needs solving; does the solution lie in government intervention? If yes, what sort of intervention? Higher tax brackets? Limits on political influence?
If the solution lies outside of government intervention, where then?

Wednesday, February 23, 2011

Comment Trouble

It’s Wednesday night and I am having trouble coming up with a comment. I’ve read all of your posts and comments, yet I still am feeling a huge sense of let’s call it “comment-block”. I still would like to earn my $15 dollars however am in a tight spot, as I can’t make a comment.

…so I am going to argue for inequality under the law for our SWEET scholar’s post system in order to allow myself to have an equal outcome to all of you amazing not “comment-blocked” peeps (as I feel very disadvantaged in my disposition of “comment-block”). Under this system I will ask that this additional post is counted as a comment. Bum, bum, bum and soooo now we can go down a slippery slope of making decisions based on normative assumptions. Next we will have someone arguing that hey I have “post-block” so I should get paid to write “hey-na-na-na” as long as I write “Garrett rules” in the title of the post or simply just “na-na” I think that the reason why Hayek is quick to dismiss obtaining equality through unequal law is that he knows we live in a world absent of full knowledge and therefore it is filled with subjectivity.

So-ha I do have a comment to Lacey’s post (PS I liked your connection to “To Kill a Mocking Bird” that was very cool and “un post-block” of you) in regards on this idea of having our cake and eating it too. I don’t think we can find a way to obtain a minimal amount of equality without falling down the rabbit hole, as it would rely on normative assumptions, as to how we should change the rules and who we should change the rules to benefit and in the end I have no idea as to where lines could be drawn

PS- Just in case this can’t count as a comment because it is not posted as a comment I would like to note that my econ-home-dog-“Garrett rules” even though it is not clearly inserted into my title of this post. ;-)

Tuesday, February 22, 2011

Merit, Value, Majorities... and Knowledge

Good evening. This post comes a bit later than I would like, with my apologies; we've had downed power lines from snow and ice for the past two days – so inconsistent internet access. I'll try to keep this brief, because last week's post was so long, and because I don't want to let the best be the enemy of the good… and I want to get this posted now.

Most of your comments were on chapter six; for this reason, and because chapter seven dovetails with much of part two, I'll focus my comments on equality, value and merit.

Ah! More Hayekian epistemology, and more implications of the knowledge problem! Hayek's comments on merit v. value, and equality before the law, all come from his theory of knowledge.

On equality versus merit, Hayek's argument goes back to his statement that we are guided by "signs or symbols, such as prices offered for [our] products or expressions of moral or aesthetic esteem for [our] having observed standards of conduct…" (28). Reward based on merit would be arbitrary – who gets to determine what is deserving of merit? Through what process? What if there are competing definitions of merit? "Value to others" (as opposed to merit) is more clearly expressed and not arbitrary; it represents demonstrated preference, as opposed to stated preference; how much are consumers willing to pay (in the case of products), or what expression of esteem are they willing to give?

This reminds me of two short stories. The first is drawn from Walter Williams' microeconomic classes. What if, he asks, he were to spend his evenings and weekends engraving the Declaration of Independence on a grain of rice? How much would you be willing to pay? $10,000? $1,000? Or, more likely, $5 or even less? But he spent all those hours working on the masterpiece… well, the market is sending him a clear signal that he is misallocating resources in a world of scarcity.

Likewise, a development economist (Bill Easterly, I think) tells the story of an economist visiting a developing country, who sees a public works project being completed by workers using shovels. He asks why the workers are using shovels instead of machinery, and is told that it's because somebody wanted to create jobs. "Oh," says the economist. "I thought you were building a bridge. Why don't you use spoons instead of shovels?"

So much for labor theory of value!

Hayek also talks about law. I think it's important to think of law as knowledge; there will be more on this in section two, so I'll keep it brief. Basically, we live in a world of limited, diffuse, knowledge. We overcome that knowledge problem through institutions (the mark of a good institution being its capacity to communicate and generate knowledge, and to provide proper incentives). The law is just one of those institutions, as it provides knowledge about how we are to treat other people, and what the boundaries of another's personal sphere are. But more on that in the next section. For now, I'd just like to emphasize what I see as the key point on knowledge and equality – and limited government – in this chapter, from p. 88. First, no person has sufficient knowledge, or the capacity, to determine ends for another. Second – because we live in a world of interdependence, where we overcome our individually limited knowledge through institutions that allow us to use the knowledge held by others – acquisition by any member of the community of additional capacities to do things that might be valuable to others (BUZZ: "valuable" to others… not merit!), means a gain for the entire community.

Does all this mean no redistribution, at all, ever? Well, the problem with redistribution, basically, is that it means that one person is imposing his ends on others. Indeed, the proper level of redistribution is arbitrary and/or determined by majority rule (see chapter seven for problems with that). What is, indeed, the threshold of poverty? Of need? And how far do we redistribute? And who decides? What are the boundaries? And why not continue until the reduction ad absurdum of the Harrison Bergeron story (by Kurt Vonnegut, Jr.) shared in one of the comments?

That is not to say that people should never provide support for each other. But we must ask what KIND of support? If it's voluntary, we'll have no violation of ends of some by others – and the person doing the supporting can do so in a more efficient manner because that person has the relevant knowledge. We come to Milton Friedman's four ways of spending money; think of proper knowledge and proper incentives here. (1) your money on yourself; (2) somebody else's money on yourself; (3) your money on somebody else; somebody else's money on somebody else. We come also to the insights of Frederic Bastiat on "what is seen" and "what is not seen" (see Sure, maybe there are some outcomes that are more desirable than what we have. And sure, maybe – just maybe – we can achieve them. But at what cost? And what are we giving up? And can we even know what we're giving up… given our knowledge problem and the difficulties of social engineering and central planning? We're back to Harold Demsetz's Nirvana Fallacy…

A final question… what is "society"? Who makes it up? Who decides in a society? How are preferences aggregated?

I'll keep this brief, because (a) I promised a shorter post this week; and (b) much of this material will be covered in greater depth in section two.

For now, I'll simply comment on… you guessed it… the knowledge aspects of democracy. Majority rule has its advantages, to be sure – it's a pretty good method of aggregating preferences, and it's certainly desirable that a majority should be involved in decision-making. But majoritarianism is insufficient, especially if it becomes (as it has today) its own end. Majoritarianism has no limits, on its own, but itself, and can quickly become tyranny of the majority if it does not operate within rule of law. If it does not, it quickly becomes the imposition of the majority's ends on everybody else, in clear violation of the knowledge problem. What is more, democracy can, through its "coercive, monopolistic and exclusive character" (110) thwart the process of institutional self-correction.

It's been said that democracy is two wolves and a sheep voting on what they should have for dinner. Freedom is a well-armed sheep contesting the result of the vote. Many more questions will surface in section two on democracy and rule of law, so I'll leave you with my questions on merit, value and equality.

And I'll close with the delicious quip by E.M. Forster: "Two cheers for democracy: one because it admits variety and two because it permits criticism. Two cheers are quite enough: there is no occasion to give three."

Sunday, February 20, 2011

But I want to eat my cake too!

Hayek states “Nothing, however, is more damaging to the demand for equal treatment than to base it on so obviously untrue as assumption as that of the factual inequality of all men” (86). I can’t help but recall Atticus Finch’s monologue from To Kill a Mockingbird where he is saying that all men are not created equally but there is one place where they should be treated equally which is in a court of Law; ironically Harper Lee published To Kill a Mockingbird the same year Hayek published The Constitution of Liberty, perhaps they knew each other, or perhaps this is simply just not a new thought.
I find it depressing that Hayek thinks that the “equality before the law which freedom requires leads to material inequality” (87). I find it depressing because I think I agree with him. I guess I am just the type of person who wants to have her cake and eat it too… Why can’t equality be a two way street? Why (as Hayek points out multiple times) does equality in one area lead to inequality in the other… My interpretation of chapter 6 is that while the state can enforce equality as far as minimal laws and government are concerned, the state cannot enforce material equality without taking away personal freedom.
But is there a point where the government should step and say, this is just to much of a disproportionate distribution of monetary wealth? I understand when Hayek argues to the extreme side of government manipulation of equality, but is there a point in the middle where it is okay?

A Merit Based Farm

Those that believe in merit based systems must have an interesting world view. Let me elaborate on how a merit based and result based farm would work and differ.

Merit based:
Let us suppose a crippled oaf want to raise crops. He struggles his way onto his field and tries very hard, harder than anyone else. he haphazardly plows his field and incorrectly sows his seed at a glacial pace during the incorrect season. Ordinarily there would be no crop to harvest, assuming a crippled oaf could infarct harvest a crop. The good news in that because this is a merit based farm the crops in fact sense how hard this man has tries and despite everything being done wrong the infarct grow in abundance and self harvest. If you believe the word works this way social equity in the way to go, however if you are skeptical read on.

Results based:
Let us suppose a smart well boded farmer wants to raise some crops. He is fast and efficient and hates farming. He is so fast and smart he invents new machines to assist in farming and spends very little time and energy farming. He raises a plentiful crop and becomes wealthy. He is rewarded for what he produces only. If this person was in the merit based world he would unfortunately starve to death for he tried very little.

Also let us suppose an inept farmer attempts to raise crops. He fails but tries very hard. No matter, he goes hungry and pursues other economic activities until he can produce enough to survive at another other venture.

If you the merit based is a good depiction of reality, go ahead and support measure to reduce inequity. However if you believe the results based scenario is a better depiction of reality you would be best off minimizing coercion and embracing one of its positive results, inequity.

Equality Before the Law

Hayek starts chapter six highlighting the damaging assumption that all men are created equal. I was glad to learn that Hayek feels that a human is the outcome of both nature and nurture (their genetics and environment). I find this interesting and it shows a bit more how in Hayek was ahead of his time. This this book was published in 1960 during the time when behaviorism was popular and many scholars truly believed that you are a creation of your environment. This kind of logic is imbalanced and is based on the false preposition that all men are created equal. I really like how Hayek starts of dismissing it. Embracing individuality is very important and if we want to live in world that cherishes personal liberty we must allow people to be themselves. Hayek then makes a very interesting point, if we were to successfully aim for equality this could only be done through treating people differently.

“From the fact that people are very different it follows that if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently.”

This is an interesting world to think about. Many out there would state that we don’t have equality before law I would argue that we don’t have absolute equality before the law, but comparatively we do have it in the US then in other countries. It is noteworthy that Hayek mentions this statement as it seems to be a logic game in its set up. He defines that if we treat people similarly under the rule of law they will end up in different outcomes, then he reverses his statement than then the only way to get equality would be for the state to impose different laws and standards for people. A world with absolute diversity before the law for the sake of equality is one interesting to ponder. The closest thing I’ve read to this was a science fiction short story in high school which aimed at reaching equality by placing handicaps on people (so the talented people needed various levels handicaps). This kind of logic probably would be unpopular and if a society wanted to impose a law system like the one Hayek mentions that would encourage equality it would probably be aimed at lifting up the people at the bottom rather that those at the top. For example this is a reason why progressive tax structures are typically popular. This though implicitly would still hold some back in the name of equality. This though, is a system which I wouldn’t enjoy, as differing laws for differing individuals to keeping them equal would be a complex and confusing system in reality…this is simply because it is fighting the core of human nature our unique selves.

Is Coercion the Only Way?

Well, it seems the SWEET attention is on Hayek's merit v. results thread. Aaron already brought up one thought experiment: do the plants care how hard the farmer is trying?

Hayek tackles the inherited wealth and the clear advantage given to the children of rich parents. Last semester we discussed differential advantage relating to education (see I wrote "If you give the same resources to different people you will have different results." I still hold this opinion. What's more, I think Hayek would agree. As I continue I do not imagine this will be the case.

If you gave the same people different resources you would have different results. For example, one cannot tutor their children if they work continually for food and shelter. Their love for their children may be TWO standard deviations above the median love and still the child may not learn to their potential. Yet the same parent with more money and free time can have their child tutored so effectively that mental pathways are markedly improved over the average. Thus wealth has obtained and surpassed the potential. This is simply a truth, evidenced by food stamp and low income daycare programs.

Hayek presents that the only modification to distribution of opportunity is by suppressing the advantage of one group. When was it decided that there is no alternative to this? Why assume equality means handicapping some people? Imagine a fast and a slow runner; the faster could be given weighted clothes or the slower could receive extra training. It seems to me that support in some situations would be beneficial to society with negligible impact on the success of those already well suited. Hayek implies that we must be coerced and lose our liberty to build a more equal society. Perhaps, but perhaps not...

-This is quite interesting, and I look forward to later chapters in greater depth on these questions.-

And now for something completely different

Hayek writes "there exists a curious contrast between the esteem most people possess for [family as an institution] and their disdain of the fact that being born into a particular family would confer on a person special advantages." I admit to this dichotomy in myself. I am reminded of a friend who refuses to discuss or acknowledge his trust fund. He hates thinking that he hasn't earned everything in his life, and worries that opinions of him would change if his trust was common knowledge. It's too bad; I know few men as deserving as him. He is probably right though. So, although his contribution to society is great, our cultural derision remains. Quite curious indeed.


In this weeks reading the most interesting thing to me was from chapter #6: Equality, Values and Merit. The first thing that stood out was the quote by Oliver Wendell Jones, Jr. at the very beginning of the book, "I have no respect for the passion for equality, which seems to me merely idealized envy." Right off the bat I thought to myself, "Hold on, what's the story." But in reality, if you look at SOCIAL equality, there is more then meets the eye.

As I see it equality can be split up into three categories: first, there is equality of law, which has all people accountable to the same rules of law, second equality of rights, which has all people entitled to the same rights as everybody else and thirdly social equality. The first two I whole heartedly agree with. Everybody should be under the same rules of the game and have the same rights as civilians. However in regards to enforcing social equality, I'm not so sure.

In order to achieve complete social equality, almost certainly the state has to take something from another group and give it to another, knock a certain group of people down a peg or two or provide opportunities for only particular individuals. Sounds a bit like communism, haha. Basically, what has to be done is to step on the toes of citizen's liberties to benefit the few. I feel that people should have liberty to become who and what they want to be. And really, if they don't like their situation in life in almost all cases all they have to do is change it. Simple as that.

This may be a touchy subject, but one of the best examples of this I can think of is affirmative action. Why should somebody be advanced ahead of those with better qualifications simply because they are of a particular race? This isn't to say that they should be kept back, absolutely not, but in all honesty if the affirmative action situation were reversed there would be riots and rightly so. People are individuals and as such should be taken so as one at a time. They should not be condemned or given special rights because they are of a particular group. I feel this is true equality.

Liberty = Inequity

I began this post a while ago and, due to a bad connection, it was eaten by the data heaven of the internet. sniff*

So, I shall re-sum my opinion of Hayek's argument that liberty and equality do not coincide. As usual, Hayek is being vague while discussing this subject (He argues that this is necessary to construct an emotionally distant argument, but yet he eliminates far too many truths in the process and leaves contextual examples lacking any merit.)

Equality is a stepping stone to building a free society. In the context of democracy, building a free society from equality has only served a to be a divisive cognitive dissonance as individuals have pursued happiness coercively through corrupted institutions, such as slavery. But this is a result of a flawed framework of thought, not an effect of striving for equality. The goal is unspecified freedom, not institutionalized utopianism, otherwise we may as well stop dying for lost causes.

It is true that we must not assume that liberty means equal treatment for everyone...and that everyone should receive the same treatment overall. Different individuals face different needs. Redistribution of wealth does not accomplish the goal of a fair outcome for all. If the wealthy have wealth because they are endowed with the ability to produce something that is considered valuable to society, the less endowed who maintain a different skill set are not less equal, however, If you teach him the basic skill to produce something of value, he is better off than if you were to give him the profits of the wealthy. If you give an impoverished man an indefinite amount of food and money, he will want and indefinite amount of food and money, but his skill remains at the same level.

Work Smart, Not Hard

Hard work vs. efficient work is an interesting debate. One Hayek covers during the last portion of chapter six.

It is an American ideology that 'Hard Work' is both respectable and desirable. Or as Hayek points out, deserving of moral merit. Hayek puts this sentiment in a fairly familiar tone on page 95, "If we know that a man has done his best, we will often wish to see him rewarded irrespective of the result; and if we know that a most valuable achievement is almost entirely due to luck or favorable circumstances, we will give little credit to the author." The tendency is to assign value not based on results but based on merit.

Merit is in Hayek's vernacular defined as involving great effort and labor.
According to Hayek, judgement based on merit is bad. Not only is it exceedingly difficult to measure the amount of effort one puts into a task, it is impractical to ignore their natural talents. Basically Hayek feels that measurement of results is the only ethical or effective way to assign value. To quote him, "we do not wish people to earn a maximum of merit but a maximum of usefulness at a minimum of pain and sacrifice and therefor a minimum of merit."
This is the basic concept of comparative advantage. Efficient work is king.

Bothersome. What if one's natural talent is their willingness to put fourth an incredible amount of effort? What about the people who yield great results due to their diligence and hard work?
It is my opinion that we should not only value that which is efficient but also that which deserves merit. The individual who pursues their comparative advantage is on the right track but I feel praise should be rewarded when that individual works hard, thereby gaining a level of merit on top of some inherent efficiency.

Merit is not an inherently inefficient concept, but when held above all else it is meaningless.

Tuesday, February 15, 2011

Posting Way Too Much...

Good afternoon, Alaska. Hayek's journey continues with reason and responsibility this week.

Again, I think it's helpful to view these two chapters through the lens of Hayekian epistemology. In a world of limited, dispersed, and tacit knowledge, how do we coordinate anything, how do we make plans? Answer Part One: through institutions, and by recognizing the limits of our limited reason in a world of limited knowledge. Answer Part Two: through responsibility, by making sure the feedback mechanism works, so that institutions will provide the right knowledge and incentives.

Chapter Four is classic Hayekian intellectual history. Those of you who are mildly intrigued can read his 1945 piece, "Individualism: True and False" (also found in the 1948 compilation Individualism and Economic Order); it's AWESOME (yeah, it changed my life and my intellectual approach. Really). Those amongst you who are really interested should check out Hayek's 1952 The Counter-Revolution of Science: Studies on the Abuse of Reason, where he details the intellectual history of… the abuse of reason, specifically by the legacy of the French Enlightenment. So there's the "separate book" that Hayek mentions (49).

The two most important lessons I see in this chapter are the limits of reason, and institutional correction.

On the limits of reason, Hayek is working squarely in the heritage of the Scottish Enlightenment. If I may, I'd like to indulge in a little bit of intellectual history (or perhaps you can indulge me). Until roughly the 17th century, the orthodox mode of argument was basically Aristotle, as modified by Aquinas, and the deductive thinking of the disputatio. That is, you started with accepted authorities – as revealed by the Church and the Ancient Greeks to be truths. Then you used deductive thinking to show how your observations about the world conformed to the established truths (de-ductive, i.e. start with the principle, and draw conclusions from that). For example, the authorities tell us that the Earth is the center of the universe (accepted truth), and we see the sun rise and set daily. So, from the known truth ("Earth is center of the universe"), we can say something about our observation (the sun rotates around the Earth, which explains day and night). This mode of argumentation comes down to what intellectual historian Allan Charles Kors has called "the presumptive authority of the past." Along comes the 17th century and the "modern revolution" (a misnomer, as we'll see in a second, because there were really two modernities, AKA "individualism, true and false," AKA the British and the French).

The moderns disputed this type of logic, rejected the presumptive authority of the past, and rejected deductive reasoning from accepted authorities. We thus had a new way of thinking, best illustrated by inductive thinking (as opposed to deductive). Instead of starting with accepted authority and explaining how our observations of the real world conform to that authority, we start by observing the world, and then draw conclusions from our observations.

Now, this "modern" revolution had two basic strains. Hayek describes this in chapter four, so I won't belabor it, but I do want to comment on the institutional implications (and thus the implications for liberty). The French Enlightenment broke completely with tradition, thinking basically that everything could be designed from human reason (think Descartes, the quintessential French Enlightement character, and his "I think, therefore I am."). The consequences, as Hayek describes, are things like social engineering, centralized planning (from expert thought rather than "random emergence" or "irrational" markets), and a rejection of tradition.

The Scottish/British Enlightenment, on the other hand, was much more cautious. As Hayek describes it, this strain of Enlightenment was acutely aware of the limits of reason, and the place of spontaneous order – but also how reason (itself limited) and knowledge are nestled within (a) rules and institutions, which provide knowledge that we don't have, as described in earlier chapters; and (b) moral and values, which also provide knowledge (of a certain kind) that we don't have, and rules that we can't simply design, but have emerged over time.

The above should not lead us to the conclusion that reason is useless (which, it seems to me, is a bit what the Postmoderns do, but that's another story. Whatever, man. It's all relative). Instead, part of the use of reason, for a Scottish Modern, is finding the limits of reason (69); the abuse of reason (as in the French tradition) is rejected, but not the use of reason (69). Likewise, reason is seen to operate within a matrix of institutions, morals, traditions, etc., all of which convey knowledge which we don't have in our minds. This is "not an abdication of reason, but a rational examination of the field where reason is appropriately put in control." (69).

The extremes are obvious. No person, no committee, no government agency, has sufficient knowledge (or a reason sufficiently powerful) to control the entire economy – which is why central planning must fail. On the other hand, if you turn off your alarm clock tomorrow morning on the assumption that spontaneous order will do your homework and your dishes, you're in for a bad surprise. The challenge is recognizing the boundaries in either case. So, a factory, for example, seems like something that can be centrally managed. On the other hand, the Koch Foundation and Koch Industries (our generous sponsors) have done quite well by decentralizing, as appropriate (see Charles G. Koch's The Science of Success). So there are no easy answers.

This also has implications for institutional change; Hayek give us good advice: "In all our endeavor at improvement we must always work inside this given whole [of tradition/civilization/organism], aim at piecemeal, rather than total construction, and use at each stage the historical material at hand and improve details step by step rather than attempt to redesign the whole." (70, footnote omitted).

Now, I'm not one for hagiography of the American founding; I think much good (but not all) came out of it, and we lucked out on the public choice considerations… but… this pretty much describes the US founding, no? Many aspects of change and design (new institutions and agencies set up the constitution), but all squarely within existing traditions (common law, local self-governance, federalism).

Finally, this whole discussion should help explain why Hayek seems like such a moderate – and why some more radical libertarians have accused him of being a socialist. Sure, he'd probably love to wave his magic wand, do away with the welfare state, and impose a free society. But Hayek is too cautious, and too aware of his own limitations to do that. (This reminds me of an old story. Apparently, somebody once asked Mises, OK, fine, you've got all these great policies, but you can't get them implemented. If you were dictator of the world, what would you do. Without missing a beat, Mises replied: "abdicate.")

In sum, you can think of the Ancients as (basically) rejecting change; the French Enlightenment as rejecting tradition; and the Scots (led by Edmund Burke and Hayek), boldly stepping into an unknown future with one foot, leaving the other foot firmly planted in tradition.

I'll keep this comment brief, because I've already written too much. This chapter strikes me as a necessary explanation of the mechanism of institutional learning and evolution. To recap, first, institutions help overcome our limited knowledge; second, institutions provide incentives to act a certain way; third, institutions evolve over time, as bad ones are rooted out, and better ones emerge. But this can only work within a system of responsibility, i.e. one where individuals face the consequences of their actions (chapter five, esp. 71 and 76). If individuals are protected from the consequences of their actions, they can't learn (think "moral hazard"), because they won't have incentives or knowledge from the process. So institutions no longer work as learning mechanisms, and institutions won't evolve.

I won't comment on the opportunity to do the wrong thing and make mistakes, because (a) well, that's how we learn; and (b) it drives the conservatives around here crazy, so I get plenty of that anyway (see 79). I can comment in future posts, or I can return to this when we discuss the Postscript.

I do want to mention briefly one key point (82) about being rewarded in a free society, not for our intentions, but the value we create for others. I think this is more obvious in the sense of the discipline of the market. But Hayek the social theorist goes further than Hayek the economist. In a world of limited knowledge, we are guided by "signs or symbols, such as prices offered for [our] products, or expressions of moral or aesthetic esteem for… having observed standards of conduct." (28) Thus, institutions (whether market or social institutions) provide knowledge, with which we can act. Hence also the idea of "voluntary conformity," by which we voluntarily submit to rules that we do not understand (66), because institutions give us the incentive to do so… but, in the grander scheme of things, those institutions are giving us information about appropriate conduct (more on that in later chapters).

Phew. I was afraid I'd have a short post this week, because I had two or three central points, rather than many small points. A few questions.

1. Does Hayek satisfy you on the problem of institutional correction? Free society + Responsibility = Institutional Evolution? What about path-dependence? What are the limits? When can, or should, we step in with corrections, if piecemeal, based on our limited reason, and limited knowledge?

2. What about meta-ethics? Several of you raised this, and I, after all these years of reading Hayek, don't have a satisfactory answer. On the one hand, morals change over time (this is simply historical observation), and rules (of conduct, of morality) emerge – this is the Hayekian nomos, or rules of general conduct, he discusses later. But does that mean that morality is entirely an accident of history (because entirely emergent)? Are there standards outside of history, or does history create the standards? I'm now reading C.S. Lewis's The Abolition of Man, in which he asserts that there are eternal rules, outside of history – and that no appeal to value from outside those rules ("the Tao") can make sense. Maybe. On the other hand, given his own limited knowledge, and given that moral rules have changed over the centuries… how does he know?

3. Many libertarians accuse Hayek of being moderate, compromising… either too socialist in his refusal to dismantle the welfare state completely (see part three, unassigned)… or too conservative, because he won't make a radical break from tradition, even if he doesn't like it. On the other hand, could it not be said that the more radical libertarians (and anarcho-capitalists), with their dreams of doing away with the current interventionist system, are themselves central planner of a sort, engaging in the abuse of reason, in the French tradition?

Have a good week. Sorry I wrote so much. I love this stuff. NW

Sunday, February 13, 2011

What is responsibility? This is a question most parents try to teach there children. Even so we find ourselves pondering this question in the last chapter. It seems the finding include it means there is causation for one. It is necessary for a free society. It is something certain people can not have such as idiots, infants, and the insane. It is something that courts attempt to assign. Unfortunately it is something that after reading the chapter I find hard to explain with words yet it seems that I intuitively understand what it is and I expect many others have the same impression. I have two final thoughts, first I challenge someone to explain to me what responsibly is and make me understand in English words and second I would like to draw attention to the line about women drawing more utility from making others happy than men do. Comments please.

I am much happier this week. Hayek seems more focused these two chapters. I had to revise my working notes a number of times as Hayek often anticipated challenges I had with one section with his next section. In return, I can see many of the points he wants to make before he makes them.

Evolutionary morality

Like a few of you, some of the points made that I most enjoyed were Hayek’s beliefs a set or moral values that were evolved, that society has acquired rules and values as are practical (“practical” being anything that leads to its furthered existence). Hayek complicates this with some mention of meta-ethics or a meta-morality that should guide the expression of moral values in the political sphere. This is understandably a difficult subject, as it’s almost trying to bridge from “is” to “should.” At this point, I could do with a clear statement on what moral system he’s approaching it from, or the irrelevance of that question. Coming up with more moral principles to solve the problems the previous moral principles created?

The concept of an evolved morality also lies at odds with the concept of “progress” as evolution is not progress, but simply adaptation and fitness, furthered reproduction. It can make leaps and bounds or small steps, but there is no end goal or unifying direction. There are also many places where evolution could be improved upon by an intelligent designer: certainly there are places where biology is superior to robotics, but in many places the improvement that can be made by calculated singular design over organic growth is evident. I keep on thinking of the many games and equilibriums in my game theory class, where an existing system keeps on arriving at a non-pareto-optimal situation until a third party enforces carefully created new rules to benefit all the actors.

How can Hayek say anything is right, if morality is evolved?

I look forward to discussing this Thursday, as I think this will help alleviate some of the underlying tensions and conflicts we've during our discussions thus far.

social evolution

I found it intriguing how Hayek credits the original idea of evolution to social theorist as opposed to biologist, and goes as far as to say that, “there can be little doubt that it was from the theories of social evolution that Darwin and his contemporaries derived the suggestion for their theories.” Although when two cents of thought is put into his logic, it does in fact make sense. Evolution as I understand is a process that takes (genetically speaking) millions of years for a species to acquire a specific trait, looking at evolution in terms of society’s moves much faster, and is much easier to see the path of advancement. On page 63 Hayek states:” The existence of individuals and groups simultaneously observing partially different rules provides the opportunity for the selection of the more effective ones”. In this context Hayek is referring to voluntary rules and morality and how they advance, and it easy for me to see this happening today in our country in regards to issues like the gay marriage debate, we now have states that allow gay marriage and those that don’t who is to say what “gradual change” our country will see in this area over the next fifty years.
Hayek also refers to something called “voluntary conformity” and says that it might be a condition of beneficial working of freedom. I would just like to raise this concept up for debate because I disagree with Hayek. There is no such thing as voluntary conformity it is an oxymoron.


I have to say, I enjoyed the reading. Although difficult at times for me to grasp, I thought a lot of what Hayek had to say was quite noteworthy. The one section that stuck out most to me was item number 7 on page #62: The Moral and the Social. The various ideas that were put forward in regards to this were, in my case, enlightening.

Without a doubt, the thing which stood out most to me was when Hayek quoted Edmund Burke in saying that individuals "could easily find the morals which suited it." Boom! This has been seen time and time again throughout history. You can see everywhere people being of a mindset which was detrimental to their fellow man in the name of what's right. One of the most notorious and more modern examples being Adolf Hitler's careful use of appeal to the people of Germany to turn against people which were painted and seen as immoral themselves and less then human. Another example can be the current world wide crisis of terrorism where you have people, in the name of God and what's right, killing others.

While I firmly believe that there are certain self evident truths held by everybody, lets face it, nobody likes to be lied to, there are a great many "morals" which are peddled for a number of reasons. We must always be careful what we believe and question all that is presented to us and be careful in believing the wrong "morals."

Time is the Hero

All my inklings of Hayek's Theistic leanings are disbanded as I reach into the inner makings of Chapter 4. Hayek looks at the "French Tradition" and British institutions which spawned a movement of democratic liberalism and socialism and applauds the British philosophers that have deducted how "...the origin of institutions, not in contrivance or design, but in the survival of the successful."

Civilizations are the product of many men and growing knowledge and wisdom of what systems work over time, not by any particular design, but by a random selection of the "survival of the fittest", the institutions which stand the obstruct test of time.

Chief Justice Hale, "...Long experience makes more discoveries touching conveniences or inconveniences of laws than is possible for the wisest council of men at first to forsee."

He goes on...

"It is not necessary that the reasons of the institution should be evident unto us. It is sufficient that they are instituted laws that give a certainty to us, and it is reasonable to observe them though the particular reason of the institution appear not."

Once we are floating on our evolved, man-made utopian island, we won't even find it necessary to look back and deconstruct the process of how we got here. I like Hayek's thinking...

Homo Economicus

On page 61, Hayek states that "It would be only a sleight exaggeration to say that, in the view of those British philosophers, man was by nature lazy and indolent, improvident and wasteful, and that is was only by the force of circumstances that he could be made to behave economically or would learn to carefully adjust his means to his ends." Hayek refers to this idea as 'homo economicus' as a figment actually derived from the Scottish tradition. I however will disagree.
These are the core aspects of man. Perhaps these are problems I see in myself and will therefor place them upon my brethren but I will assume that others do in fact suffer these issues. I am likely putting my assertion forward to soon in the reading but my point is to argue that the 'failings' that make up homo economicus are essential parts of any living creatures existence. Not only that but these are wonderful parts only due to the fact that circumstances will forcedly curb them.
Yes people are lazy, but would it be unreasonable that laziness is the push for innovation?
Yes people are indolent but is that not the cause of critical thinking? A society of trust is a society of fools.
Without improvidence we could never move forward in our thinking. The possibilities before us are endless and to build the foresight for all of them is impossible.
And our wastefulness? We could not learn or grow if we did not indulge in overconsumption.
With the assumptions placed on the human condition let me make myself unclear and point out that I hate these failings. I appreciate what they can bring, but any unnecessary imprudence in unacceptable. The institutions of society and the government are our best efforts at limiting humanities' imprudence. This assumption leads us to a value judgement of where we must put ourselves on the spectrum between governmental and societal institutions.
Homo Economicus is an excellent thing to test ourselves against but at what point are our 'morals' overreaching?

Human Action vs. Human Design and Sushi

Yesterday while eating out at Tokyo Express on a very lovely pre-valentines dinner date. For about five to ten minutes my boyfriend and I ignored our fantastic food and stared at the T.V. Normally, we both are not fans of the news, but we watched intently as Egyptians were all working together cleaning up the areas which they had been utterly destroyed only a few days ago. Complete strangers were helping each other move out burned up cars from the street and they were all smiling intently with looks with satisfaction. I believe that the current events in Tunisia and Cairo fit in well with a lot of what Hayek is mentioning and by watching this process I see first-hand the application of a society knowing so much more than the “expert” President Mr. Mubarak ever could know resonates deep done in my core much more than any example given in the text.

In chapter four, Hayek starts his discussion by presenting two main schools of thought in the realms of looking at liberty and how these developed in the 18th century... One of these is the French tradition, which believes, “In pursuit and attainment of an absolute collective purpose.” The French tradition is often referred to by Hayek in this section as having an emphasis on human design. The other school of thought which Hayek notes it on the right train of thought though it is dying is one which was built up on theory by British (actually, mostly Scottish :) philosophers, known as the British principle of liberty where it is obtained by “freedom in spontaneity and the absence of coercion.” The focus of this principle is referred to human action.

Human Action vs. Human Design

I feel that both of these schools of thought are very much alive today. I feel that in living in America we actually are presented with both outlooks. Naturally, people really don’t like to be controlled however we have all at some point have probably felt like we have been used as pons in a scheme of some one else’s design. When one is been coerced and is aware of it they then find them self-filled with feelings of disgust (unless they are that 5% of the population who enjoys being coerced for whatever reason..but we’ll leave this group out of the example). However, at the same time we have all probably at one time or another used our freedoms to just act and pursue our own dreams. Somehow magically an order stems from the chaos of each individual acting for them self and we get a sense of the British school of thought presented reflecting on theory such as Adam Smith’s invisible hand of the market place.

I will try to for here on out avoid using normative thought, as to which of these schools are better or worse and why, as this is something thoroughly presented by Hayek and one can just read it in the chapter. Instead I would just like to express that both schools of thought on freedom are alive and definitely can be looked at as being on a spectrum. We have human action on one end and human design on the other. What is amazing is the situations in front of our eyes, like the velvet revolutions in the 1990’s and what is currently occurring in Egypt is when an area dramatically shifts it school of thought to another in a short time frame.

In the end it’s all tied to the people. Like Hayek brought up about how the Roman constitution worked better than anything of its time was that it was constructed by many over multiple generations. I feel that when we see the people being held down until they act (protests are a good example of spontaneous order) and then something happens to shift how the philosophy of the society’s construct relating power upon spontaneous acts of people rather than a focus on control of them.

Thursday, February 10, 2011

Good afternoon, from ice station Hillsdale to ice station Fairbanks. Yeah, yeah, it's not as cold here as it is there, but we're thinner blooded. It hit zero last night.

So what better to warm up than Hayek's chapter two? Chapter three is pretty good; it's pretty amazing, in fact, and has some good materials for macro and international development (especially if you consider that Hayek wrote this in 1960, well before the New Institutional Economics and New Development Economics intellectual revolutions). Parenthetically, Gerald Scully shows in his 1988 book, Constitutional Environments and Economic Growth, that income inequality is higher in (a) poorer; and (b) less free countries (and that there's a strong positive link between economic/political freedom, growth, and income). But it's nowhere near as awesome as chapter two, IMHO.

Chapter two bowls me over every time I read it. In many ways, I think it summarizes the Hayekian project, and his surprising approach to liberty: not utilitarianism (or not completely); not rights; but… epistemology and cognitive theory. Wow! Good stuff!

This is my favorite Hayek (so favorite, in fact, that I wrote an article about it: "The Sensory Order and the Social Order: Parallels Between Hayek's Cognitive and Institutional Theories." I'm happy to send copies. I argue there that Hayek's entire institutional project is offered as a solution to his cognitive theory: limited and tacit knowledge. Happy to send copies… if you wish, and don't have enough to read yet 

A lot of the background can be found in Hayek's seminal 1945 article, "The Use of Knowledge in Society." Basically, knowledge is scattered throughout society, and doesn't exist anywhere central; when we do have knowledge, we can't even always articulate it. Think of gut feelings, social interactions… or telling a friend how to tie a bowtie or succeed in college or make friends. This includes technical knowledge (remember that no individual can make a pencil, as explained by Leonard Read in "I, Pencil," because it takes too many components: miners, smelters, lumberjacks, ship captains, bankers, etc.). It also includes economic knowledge (what will the price of lead be? What are the alternate uses? Who will demand lead? What will economic conditions be?).

Based on this limited knowledge, how do we function, let alone have the thriving, dynamic economy we see? Well, says Hayek, we've got institutions to overcome that. In addition to their role in providing good or bad incentives (cf. chapter five), institutions play a very important epistemic role (p.27). They are key to discovering knowledge, and transmitting knowledge – and the latter, both over time, so we don't need to reinvent the wheel with each generation, but can grow and progress – and among contemporaries, so that economic activity, coordination, and harmonious social life are possible.

As an economist, Hayek points out the role of "prices offered for…products," (28) obviously, as guides for economic action. But, beyond prices, Hayek as social theorist also emphasizes "expressions of moral or aesthetic esteems for…having observed standards of conduct." He'll come back to this in his later explanation of the law as providing information about the protected spheres of others, and the limits of individual action.

This is, to me, so insightful that it's obvious. And so obvious that it's forgotten… especially by social engineers who think that (a) we can collect knowledge centrally; (b) decision-makers and/or experts can make economic decisions for the rest of us, even though they lack the particular knowledge of time and place (Hayek 1945) or what Leonard Read calls "millions of tiny know-hows." Hayek, was, of course, writing against the 20th century tide of central planning. As Garrett points out, Hayek is also worried about the philosophical and scientific foundations of this centralizing/engineering attitude, as he writes in his 1952 collection of essays, "The Counter-Revolution of Science: Studies in the Abuse of Reason." Great reading, and a frontal attack on Descartes, rational constructivism, Comte, the legal positivists, central planners, and others who would apply the laws of physical science to the social sciences.

Back to chapter two… and some difficulties. But first, one of my favorite quotations, because it's so simple and straightforward (p.30): "Man learns from the disappointment of his expectations." There you have it. Wow.

So, let me close with two general questions for discussion (these are still bugging me after all these years), and one comment

Hayek recognizes, and I agree with him, that we're going to make mistakes – and that "our faith in freedom does not rest on the foreseeable results in particular circumstances but on the belief that it will, on balance, release more forces for the good than for the bad" (p. 31) I've seen a number of people reject this faith in freedom – from left- and right-wing approaches. Many fear that freedom could lead to bad outcomes, so we should curb it. Hayek argues that there will be more harm (lost learning), on balance, from limiting freedom (and its potential bad consequences) than from the mistakes of freedom. Of course, Hayek points out that this will only work if institutions offer a feedback mechanism of (a) learning; and (b) consequences/responsibility (cf. chapter 5). So, the best we can do, given our limited knowledge, is get institutions right, provide for "a maximum of opportunities for accidents to happen" (p. 29), and have faith in freedom.

In a world of sheer uncertainty (we don't know what we don't know… so we can't take steps to remedy our ignorance until we've discovered what we don't know), the best we can do is prepare, and facilitate learning. Besides, Harold Demsetz's Nirvana Fallacy reminds us to compare apples to apples – and not oranges to Nirvana. So, sure, freedom will lead to mistakes. But we ought not compare those mistakes to Nirvana and conclude that we need intervention or central planning or limits to freedom. Instead, we should ask ourselves, given our ignorance, can we really do better by planning, or trying to plan, outcomes?

But, I wonder, are there cases where the mistakes are so bad that we should actively avoid them? And what if the mistakes break the feedback mechanism (for example if the unanticipated outcome of a political change is a loss of liberty and a growth of central planning)? This ties in with the next point, on institutional emergence and growth.

Hayek seems pretty confident that the best institutions possible will emerge from a feedback mechanism of freedom (if after some mistakes) because bad institutions will be weeded out. But are there problems with path-dependence (bad institutions emerge, and the expected cost of changing them for good institutions exceeds the expected benefit)? And are there any appeals outside of history? In other words, how do we judge the value of an institution? And, if we don't like institutions, or they somehow need to be corrected, how do we do this, and along what criteria? How do we know when our limited knowledge is sufficient, or sufficient justification, for engineering a change?

There will be more on this.

I've often made the claim that Hayek is a three-beer rights theorist. In other words, get three beers in him, and he'll start talking about our natural rights to life, liberty and property, and self-determination – thus making a moral case for freedom. But he's way too cautious, and recognizes his own limits… hence his appeal to epistemology and cognitive theory, rather than rights or ethics. This will be developed, in Hayekian deliciousness, when he talks about the protected sphere of the individual, and how no person has enough knowledge to impose ends on another.

But we'll get to that, and I've probably written too much already. Let me know if these comments are helpful, please, or if you'd like something different, whether length or format. Have a good discussion, and a good weekend. NW

Sunday, February 6, 2011

I wish I had a bit more to say. Unfortunately, unlike most of you, I found the content of this week's reading a bit lacking. If you haven't yet begun to read chapter two, I would recommend skipping it. It is a meander from empty statement to aimless philosophizing and "insights" into the human condition. Stoner philosophy seems as useful to me. For example: Hayek takes a full half paragraph run-on sentence to say "You can't know what the next discovery will be" (33). Anyone who has the education necessary to even be able to get through Hayek's somewhat dense and vague style likely already gets this idea. If he was trying to make some point further than this, then it is likely that I lack the education to get through his dense style to find it (don't tell the graduation office).

Would it kill him to give an example or two of what's he talking about or how it's relevant when he makes these very general statements? If you don't want to use any examples, that's fine, but don't expect me to take you seriously when you say that we should apply this armchair system to something real without ever having done so before. Perhaps he will address some of these things later, but attempting to make valid his system first seems...tricky. I'll have more to say on that Thursday.

Chapter three is a little better. While some sections to have the same issue, many actually have coherent points, if ones that could be restated in a quarter of the word-count more clearly. He even mentions Japan's attempts to imitate American technology!

It does leave me a little confused when he simultaneously seems to view the idea of "progress" as an ambiguous good (41) while rabidly defending it from those darn egalitarians, though. "The question whether, if we had to stop at our present stage of development, we would ... be better off than ... a hundred or a thousand years ago is probably unanswerable." Countering that with "Progress is movement for movement's sake ... having learned something new, that man enjoys the gift of his intelligence" is not exactly convincing. I would say he didn't even want to address or consider what "Progress" is, but then what were all those pages about what "Progress" is, then? Fluff?

I'm going to take some more time to think on this, and maybe reread for things I missed. See you Thursday!

Love The Rich

Politically in our society it seems so easy to hate the rich. It is easy to propose to take from the rich to provide for the many. Robin Hood is a hero after all. We ought not to look at the rich as oppressors and exploiters, but path blazers and visionaries. With out the success (material) there would be no ground work for the success of the poor.

The rapid economic advance that we have come to expect seems in large measure to be the result of this inequality and to be impossible without it... new things will often become available to the greater part of the people only because for some time they have been the luxuries of the few.

In sport of this perspective I would like to discuss computer technology.

I am writing this out home on my computer. The technology in it was probably available many years ago, perhaps 5 to 10. During that time frame some rich people purchased it and operated computers superior to all most all others of the time. Today they are probably running computers that I may afford in several years. The point being that when they entered the market they drove down the price through economies of scale. This made the product more affordable and even more slightly less rich people entered the market. This process repeated until eventually enough people entered the market and I was able to purchase this computer myself. In turn people like me though economies of scale again will reduce the price further more so even poorer people will enjoy computers of equal value. Some might call it trickle down economics.

I expect to be able to purchase the equivalent of a top of the line computer today in the future for the same reasons. However, lets suppose our society becomes more "fair," suppose through "progressive" taxation we all where made to have a much more equal standard of living what would happen? If we had no rich to purchase todays top line computers who would drive the quantities through the factories to further reduce price and stimulate even further more orders until the price drops to a level I would purchase at? If there where no rich people to buy dvd players ten years ago would I be able to purchase one now?

This cares over into all sort of real life government policies. I am very thankful for the rich and I hope the wealth inequity continues to grow regardless of whether I am at the top or at bottom of the economic ladder.

Pontificate this

One of the things that stuck out to me about the reading was from the beginning of Chapter #2.
"Many of the Utopian constructions are worthless because they follow the lead of the theorists in assuming that we have perfect knowledge." I think this is what, in essence, a lot of people get hung up on. It seems to be the idea of many, especially in politics, that if we do this or that then all of our problems will be solved. While that would be cool I don't think that is in the realm of possibility of happening. Indeed, many matters of the theoretical, while interesting, bear almost no weight in everyday "real" life. What we can do as far as economic/social systems are concerned is choose the option that is the lesser of two evils so to speak. No system will be without its corruption yet we are responsible for choosing the system that is will encourage the most amount growth and yield the least amount of unpleasantness possible and to the best of our knowledge.

Diminishing Marginal Utility on Knowledge Derived vs. Detrimental Mistake

One of my favorite super bowl commercials this year advertises a website for car reviews. I think Hayek might chuckle and nod at its point. This point is loosely that we benefit from the mistakes of others, or restated "the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen."

I also enjoyed our author's point that "the less likely the opportunity, the more serious will it be to miss it when it arises.", also from the second chapter. All of this seems well and good, but I am inclined to think we are missing some of the story.

An important assumption is that the mistake-education process yields maximum positive results. I challenge this assertion. Hayek does not appear to consider that a mistake may be more detrimental than the learned knowledge. The first oil spill informs our future choices and reduces the likelihood of a repeat, but ONLY if the lesson is applied. Each repeat of the mistake in new settings partially increases our knowledge, but how much is really learned? Is enough learned from that mistake to counter the detriment of these mistakes? Would society not better benefit from rules to limit our detrimental mistakes (assuming well crafted rules).

Nor is it shown to my satisfaction that mistakes would not continue to be repeated to the net detriment of the society. On some points, sure: I know that only I can prevent forest fires and I should always assume the gun is loaded, etc. But on a great many points I simply don't know the idea is established, or I think the evaluation of my society is wrong, or maybe I am not engaged in the outcome and don't find the risk significant enough to stop my action. Then, if I do some detrimental thing that every idiot and their brother knows I shouldn't do, have I truly added to the pool of human knowledge? Have I added significantly enough to counter the losses I have caused?

The inevitable question is how another system would better address my concerns. To that question I have no answer. I prefer the average of one thousand dice rolls to the result of a single role; I prefer the aggregate of society to the whims of a select group. By this I concur with the general aim of Hayek and his Austrian peers. I suppose my difficulty is with the absolute nature of his claims. In our discussion last semester we debated extensively on the merits and flaws of a praxeological approach to economic theory. I still maintain that there are no absolutes, and that we cannot speak in absolutes unless we generalize and obfuscate. While it is helpful to deal in generalities, it is incomplete by definition.


Hello and wow…I didn’t expect Hayek to go in the direction he goes in, in chapter three. This idea of progress is certainly fun to toy with.

Personally, I believe that this idea of progress as most people conceptualize it is imbued with the stand point which reflects a bias stemming from how the western world views time. This bias is linearity. We tend to think, “ok if we start at point A we’ll then move to point B then C” but what if there is a random portal which could trigger unknowingly and we would end up at a point of an upside down R. Why constrain the way we view the concept when there are so many ways we could hypothetically view progress: it could be circular, or maybe even three dimensional. Hayek presents that progress is more than a simple mathematical formula with one independent variable and a dependent one…no! we find it is indeed more complex. Progress is something which predictions can’t be made by plugging in numbers. Below is a cool quote where Hayek presents a way of viewing progress.

“think of progress as a process of formation and modification of the human intellect, a process of adaptation and learning in which not only the possibilities known to us but also our values and desires continually change. As progress consists in the discovery of the not yet known, and the most we can expect is to gain an understanding of forces that bring it about…Human reason can neither predict nor deliberately shape its own future. Its advances consist in finding out where it has been wrong.”

Specifically, I love the quote “Human reason can neither predict nor deliberately shape its own future” Perhaps, this could potentially occur if you had a “one man world” which we mentioned at our last meeting not only now would you have the right to do anything in this world, but you could at times be able to shape your own future because you’re the only one in it. However, we do not live in this fictional world. Our world is much more complex. In a complex world it makes sense to believe you can move forward by looking in hindsight at what you have done wrong.

I thought of an interesting metaphor for Hayek’s explanation of progress. In many ways it is similar to that of the way in which a child develops. Kids learn new knowledge during this time they find their personal values and desires change (so much is going on!). The child’s ideas don’t necessary make them develop much, rather, a lot of development is reactionary. As you learn things like “oh, the stove is hot” from your mistake of touching the stove rather than from your child reasoning of “I am going to touch the stove and life will be better.”

Well, I hope everyone has a great week and I’ll see you all Thursday!

Call Me a Pirate or Up the Bid...

"As a Man Thinks in His Heart, So is He..." Notates that our mental state and thus our status and being exerts that we as human beings can actually achieve our dreams due to the capacity of a positive state of mind that seeks the knowledge to become what we are striving to be. We can accomplish anything we set out to accomplish by obtaining the knowledge to do so.

This agrees with Hayek's premise in part as it states: "The mind can never foresee its own advance. Though we must always strive for achievement of our present aims, we must also leave room for new experiences and future events to decide which of these aims will be achieved". We can never know the future, unless we obtain knowledge from an entity or being that exists outside of time.

This argument of liberty and the perfect knowledge necessary to eliminate a "zero sum" game can be made all within the context of your own worldview, and whether you relate liberty and knowledge to the amount of trust in society due to regulations or the lack thereof.

Hayek's statement of the truth of our general outlook states that "...Our attitude, when we discover how little we know of what makes us co-operate, is, on the whole, one of resentment rather than wonder or curiosity. Much of our occasional impetuous desire to smash the whole entangling machinery of civilization is due to this inability of man to understand what he is doing."

Are the rules of the game fair? Every man that barters wants to know. We go to appraisers to find out whether we've gotten a good deal on an item that we've purchased from a dealer, an auction, or a pawn shop because we want to fill in the missing information that could've saved us millions. Or the information that could bring millions of dollars of value to the property we have obtained.

Making the rules of trade simple and fair encourages trade, but may or may not increase trust in them. There will always be a lack of information to fill in the details of what we've been missing in order for a "fair trade" or even an efficient trade to occur, and as a result, we resent the system.

But even if we DID have all the information necessary to understand whether the rules of trade are fair, would that make the game fair or any less "zero sum" or inefficient? Not unless individuals are completely predictable, which we know is not so.

I can't help but wonder if we need set of guiding principals that surpass our fragmented knowledge of what works and hasn't worked in the past. Shall we settle with the current system and the idea that the forces of civilization could be spun by fragments of coercion and horded knowledge? Or will we look outside ourselves to seek a different outlook?