Why We’re Reading Hayek Again

Matt Ridley, author of a splendid book, The Rational Optimist, that has won the Manhattan Institute’s Hayek Prize this year has a terrific article in the Wall Street Journal over the weekend (“From Phoenecia to Hayek to the ‘Cloud’”) that mentions the very passage from Hayek that I’ve mentioned several times here on Power Line.  Ridley reiterates the central Hayekian idea that I’ve been pounding into the heads of my students this semester in the course I’m teaching for the Ashbrook Center at Ashland University: “central planning cannot work because it is trying to substitute an individual all-knowing intelligence for a distributed and fragmented system of localized but connected knowledge.”

Prompted by my occasional posts here about Hayek, I’ve heard from a number of friends wondering what prompts this sudden focus on Hayek.  And the simple one-word answer is: Obama.  He is the anti-Hayek in every way imaginable.  But there’s more to the story than that.

Truth is I hadn’t read Hayek much for nearly 15 years before Obama came to office, and for a simple reason: it didn’t seem like we needed to.  With the fall of the Berlin Wall and the end of the Cold War, it seemed like classical liberalism (the proper term for free market libertarianism) had been more or less vindicated worldwide on the level of principle, even if practice would require decades of clearing away the tangles of irrational and counterproductive government intervention in markets.  But it seemed to be proceeding slowly in the right direction nonetheless: privatization was taking place on a wide scale, trade liberalization advanced (such as NAFTA even under a Democratic president) and many regulatory regimes were being swept away or reformed here and abroad: energy, telecommunications, finance, transportation, etc.  Some of these didn’t work out right.  Electricity in California, for example, though this was more an example of how a partial de-regulation goes wrong.  Finance is more complicated.  The lesson that should have been learned from the failures or mistakes of regulatory reform would actually be highly consistent with Hayek’s understanding that the rules of the marketplace are subtle in many cases.  But that’s not the lesson learned from the supposed “failures” of deregulation, which should be understood more as government failures than market failures.  Instead, we panicked and the old ideas of Keynesian-style interventionism came back from the dead.

It should have been more clear starting a decade ago that the momentum for classical liberal economic philosophy was fading.  More broadly, when the next large economic upheaval came with the collapse of the housing bubble, there was renewed sentiment for massive political intervention in the marketplace.

But let’s be fair here: this decay affected both parties starting well before 2008.  It was, after all, a Republican Congress that passed the Sarbanes-Oxley law in an irrational panic after the fraud and accounting fiascos of Worldcom, Enron, etc.  Note that nothing in Sarbanes-Oxley seems to have prevented the housing bubble or Solyndra.  (To the contrary, it was overwhelmingly multiple government stupidities that caused the housing catastrophe, but that’s a long story for another day.) So for that problem we have now added Dodd-Frank, and its related progeny.

And another tough question we need to ask of ourselves: Does anyone really think McCain would have been fundamentally different than Obama if he’d won in 2008?  Maybe as to degree.  It is hard to imagine McCain going along with the reckless “stimulus” spending, but his interventionist credentials are solidly established with a single regulatory monstrosity that bears his name: McCain-Feingold—the campaign finance regulation that treads directly on the most central of individual liberties, the First Amendment’s free speech guarantee.  The Bush administration had its own minor league “stimulus” bill before it left office, too.  Another uncomfortable question should therefore be on our minds: do we have much confidence that the two GOP front-runners, the technocratic, managerial Romney (who would have been a “Progressive” 100 years ago, and may still be essentially one today, a bit like Newt), or the good-old-Texan Perry, have a firm grasp of any of this?  And hence the determination to unwind it if they arrive in the Oval Office?

In short, we forgot the arguments.  We were in much the same position as conservatives in the 1930s, caught flat-footed and unprepared for the shock and awe of the big government blitzkrieg of the New Deal.  For a long time now I have asked how come there was so little articulate opposition to certain key steps, especially Supreme Court atrocities that eroded individual economic rights such as Carolene Products or the palpably absurd Wickard v. Filburn decisions, just to mention two totems from that time?  For the same reason we were relatively mute or incoherent about the crisis of 2008.

So we’re all re-reading Hayek’s work because we’re at a moment that requires going back to basics, and building from the ground up as conservatives did in the decades right after World War II when the conservative movement rose up to challenge the momentum of socialism everywhere.

Even though Hayek’s Constitution of Liberty was published in 1961, it is astonishing how much of it reads today as the perfect critique of the entirety of Obama’s economic and regulatory philosophy.  It is impossible to summarize the many points of contact between Hayek’s rich treatment of liberty and the rule of law and what we’re doing wrong today, so I’ll just keep doing what I’ve been doing and offer small, digestible chunks.  Here’s a passage from chapter 14 of Constitution about how the rule of law properly understood should indicate the limits of government power, or the bounds of the state:

The rule of law is therefore not a rule of law, but a rule concerning what the law ought to be, a meta-legal doctrine or a political ideal.  It will be effective only in so far as the legislator feels bound by it.  In a democracy this means that it will not prevail unless it forms part of the moral tradition of the community, a common ideal shared and unquestionably accepted by the majority.

Does anyone think the liberal Democrats who said openly in the health care debate that “Congress can do anything it wants to” have any recognition of the principle Hayek points out here?

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