F.A. Hayek: Economics, Political Economy and Social Philosophy, by Peter J. Boettke

In the Great Thinkers in Economics series, buy it here.  Here is a related podcast.  This book is the result of Pete thinking about Hayek for now 35 (!) or so years.  There are good criticisms of me on pp.61-65.

Comments

Boettke is brilliant. And he is crazy. One can be both simultaneously. His preference for "radical liberalism" is another way to express faith in markets and institutions (thus, Hayek) over people, even people of good faith. Boettke has expressed this in an extreme case, the financial crisis of 2008: his preference would have been to let markets determine the depth of the collapse of asset prices (as opposed to the market intervention to halt the collapse). Since I am a consistent critic of a policy that relies on rising asset prices to achieve prosperity, I have to be sympathetic with Boettke's case. But am I willing to experience the possibility of a great depression? No. My preference is to use better tools to achieve both stability and prosperity (better than rising asset prices which, ipso facto, cannot produce stability). To be clear, Boettke doesn't promote rising asset prices as the path to prosperity; indeed, just the opposite. The problem is how to get from where we are to a better place (radical liberalism) without experiencing a calamity in between.

Counselor please...you've been reading too much textbook economics. Repeat after me: evidence shows the "long run" is the "short run". Money is largely neutral. There's no money illusion nor much sticky prices/wages. Hence, the bailout was unnecessary and largely just protecting the status quo from losses. Since the Great Recession was a liquidity crisis (not a solvency crisis like they were saying), the bailout owners largely paid back the TARP money, and the status quo was preserved. I would have, like Boettke, like to have seen more blood in the streets to prevent moral hazard. The next Great Recession will be even more severe IMO since there's so much moral hazard.

You don't understand Boettke (of the Austrian school) or me. Boettke and I have common ground in that we don't believe inflating asset prices (whether with zero interest rates or quantitative easing) is the path to prosperity. If you own assets, maybe you disagree. What Boettke promotes is a "radical liberalism" in which government is so powerless that it cannot do any damage, or any good either. Would the world be a better place, would you be in a better place, if Paulson, Bernanke, and Geithner had adopted the Hayek answer to financial crisis: deflation.

^correct.

Sorry counselor, you and many Austrians are ignorant of what "money illusion" means, when you say "we don't believe inflating asset prices (whether with zero interest rates or quantitative easing) is the path to prosperity". Because when you unpack this quote, you implicitly believe in money illusion and sticky prices aka "money is NOT neutral". I don't have time for a tutorial, but this is your 'prior'. In other words, you think inflated asset prices (aka inflation) is BAD whereas Keynesians and monetarists think it is GOOD. But counselor, what the data shows--and I was once like you and believed inflation was bad and diluting the money was bad--is that inflation is NEITHER good NOR bad. It just is. Short of hyperinflation, the fact the dollar depreciates every year means very little. Nor does inflation in asset prices mean much. What matters is the 'real' economy. Real GDP = Nominal GDP minus inflation. As long as Nominal GDP is greater than inflation, you get real growth. Brazil, as our TR friend would agree, was a success in post WWII in growth despite high (in the teens) inflation since real GDP was positive (NGDP > inflation).

Maybe a better way of putting it is this: inflation does not matter (whether high, low or zero). Well, except maybe in hyperinflation, where even I agree that menu costs eat into real GDP. I've made this into a tutorial but could not help myself. See you in another thread amigo.

Put me in the camp of "I don't think the central bank and its levers really have a significant impact on the economy". I am also in the camp however that believes that "good" monetary policy, however minimally effective, prevents inflation which is good.

You're right to say that so long as GDP outpaces inflation we see growth, but you fail to ask, "growth for who?" An individual may see a return on a stock of capital, but what if you don't own capital? What happens to the return to labor when the margins shrink? Well, the business class can either invest in inflation-offsetting ventures in the stock market, or they can invest in capital ventures or creating businesses. So long as they stay above the margin, things are good. Then we run into demand depression, and all the money flows out of the business cycle and back into the stock market. That capital chases and chases looking for increasingly difficult gains until a bubble forms. You know what happens next.

Wow, that is expensive.

Wake me when Bottke is willing to publish a document which contains:

1. A compendium of statements he made during the period running from the beginning of 2008 to the end of 2011 about the future course of the economy.

2. A non-evasive explanation of the disparity between what he said and what has actually happened in that time.

Not holding my breath.

would be quite interesting to observe Hayek fans when computational modeling approaches and ai will start to alter economy. As Tyler says it's not necessary that ai will bring more socialism, but still that will be economy which Hayek never could contemplate where many spontaneous processes could be observed and even directed. I think due to some slowdown in growth of computational power it will take some time (maybe more than 30-50 years) this new features to be prominently visible (still in spite of wikipedia and other information aggregators it is not very visible to real fans of Hayek), but still it is now possible to see how new information technologies will lead to an economy in which many of Hayek insights will look outdated.
there is need for new approaches to think about new trends to utilize information in economy as seems it will be quite a time before machines could start to provide philosophical hints.

there was a book mentioned here a few years ago, discussing the Soviet central planners, as individual talented human beings working to "plan the economy" for the "benefit" of the "workers". Sure they - the planners - are now considered a universal joke, but in their world, they were considered really smart people, and some of them - believe it or not - knew a lot more about differential equations and regressive analysis than 99 percent of the people who have ever taken a differential equation or regressive analysis class.

Sure they should have known better, but they were born where they were born and were isolated. Like almost everybody who has ever lived. To study history is not as depressing as you might think when you imagine what people could have done if they were only slightly smarter. I mean, I like Shakespeare and all, but can you imagine how much better he would have been if he spent just a few hours a month writing Tolkien fanfic? but he was born in the wrong country and the wrong century for that ....

Similarly, the way people talk about AI these days .... Sydney or the Bush, as they used to say, back in the day. Henry Hill said it better ,describing the different types of pool players ....

and yes, "regressive" was Aristophean English, regression was the expected word.

Aristophanes is worth reading, if you have the time

A must read. Bought it on Kindle.

$116 ! I don’t think there will be much demand from those who pay for their own books.

And yet, public policy institutes with well endowed donors just might be tempted to buy such wisdom and insight in volume amounts - and not even care about a discount.

Luckily, Prof. Boettke is not Speaker of House - 'Long a target of Republicans, Mr. Wright began his political fall from grace in 1988, after the public-interest lobby Common Cause urged a House ethics probe into sales of the speaker’s book of speeches and essays.

Mr. Wright was suspected of circumventing House rules on outside income by accumulating about $54,000 in royalties from bulk sales of his 1984 book “Reflections of a Public Man.”

The accusation was that in lieu of campaign contributions or speaking fees, which were tightly regulated, groups with business before the House made bulk purchases of the book. House rules exempt copyright royalties.' https://www.washingtonpost.com/politics/jim-wright-texas-democrat-who-was-speaker-of-the-house-dies-at-92/2015/05/06/2b5d116c-f406-11e4-bcc4-e8141e5eb0c9_story.html?noredirect=on&utm_term=.ee04d80bcefa

One should note that such things are fully bipartisan - 'Gingrich went on to become speaker after the Republican takeover of the House in the 1994 midterm elections. But ethics charges would tarnish the end of his tenure in Congress, as they had Mr. Wright’s, and he resigned in 1999. When Gingrich, as speaker, faced criticism from the ethics committee over a $4.5 million book advance, Mr. Wright tweaked his former antagonist. By comparison, Mr. Wright said, his own book royalties were “small potatoes.”'

A little pricey for those of us who have to pay for their books.

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