Marginalia

Corey Robin has written a long article arguing that Austrian economic thought and marginalism in general is descended from Nietzsche. Hence, Hayek et al are a bunch of aristocrats dedicated to oppressing society. I'd be happy to be persuaded that the marginalists -- at least as Robin uses the term, which isn't the only way -- are Nietzschean, but Robin's article didn't do it. Too many strong assertions based on tenuous evidence, and Robin is not exactly an impartial observer. This follow-on John Holbo post -- while exceptional in many ways -- doesn't do it either. Partially because it rests so heavily on a peculiar (I think) reading of this quote from Hayek in The Constitution of Liberty:

To grant no more freedom than all can exercise would be to misconceive its function completely. The freedom that will be used by only one man in a million may be more important to society and more beneficial to the majority than any freedom that we all use.

This does not have to mean that "some people’s freedom is a lot more valuable than other people’s freedom", as Holbo wrote in a previous post and quotes here. In light of the rest of Hayek's work (or even the rest of the passage from which this quote is pulled: see below) it is strange to argue that this passage means anything like what Holbo thinks it means: "Ideally, we would find that one man and even make all others his slaves, if that is what it took to let him exercise his freedom to the fullest. Hayek thus affirms a freedom monster argument somehat analogous to the classic pleasure monster reductio."

The Hayek quote refers to the exercise of liberty, which may not be universal even if the liberty is extended universally. Hayek is arguing that it does not follow from the fact that the exercise may be non-universal that the liberty should be restricted. Instead, those who would exercise their liberty should be free to do so. In fact, there are a million liberties. None of us can act on all them, but all of us will act on some of them. Restricting liberties that the majority isn't exercising may be tempting, but it would be wrong to do so since the exercise of liberties leads to the improvement of society. That's the argument.

To get from Hayek to Holbo's interpretation of Hayek you have to take a few steps. First you'd have to ignore the footnote on the very passage Holbo pulls, which contains this quote (from some people I've never heard of): "If there is to be freedom for the few who will take advantage of it, freedom must be offered to the many." How does that imply enslavement of the masses for the benefit of one? Suppose I proposed universal suffrage while acknowledging that many people will stay home on election day. Would that make me anti-democratic? It's a strange argument.

Hayek believes that social progress occurs partially through experimentation, the results of which are ex ante unknowable. The "unknowable" part is extremely important for Hayek. It's how he can simultaneously support a welfare state and public provision of public goods while opposing egalitarian redistribution and social ownership of the means of production. "Knowable" advances can be socially planned, and Hayek was fine with using the power of the state to do so. ("It is the character rather than the volume of government activity that is important.") Unknowable advances cannot be planned but are nevertheless desirable, thus experimentation must be allowed through constitutionalization and encouraged by the preservation of (market) reward for experiments that succeed. Holbo is correct that this is Millian -- J.S. Mill's "utilitarianism" is dynamic, not static: society benefits at time t+1 from the exercise of individual liberty at time t. Whether this is actual utilitarianism or something else is, I suppose, the question -- but wrong when he implies that Mill, by way of Hayek, was Nietzschean.

Hayek seems to believe that the majority of society will choose not to experiment because they are risk averse -- "The freedom that will be used by only one man in a million..." emphasis added -- or because they are exercising some other liberty, but it is socially optimal to have somebody doing some experimenting. Those who are interested in doing so, those who will exercise their liberties while others do not, should be allowed to do so, since society will benefit if they succeed. The rest of the passage in The Constitution of Liberty quote above goes:

The less likely the opportunity, the more serious will it be to miss it when it arises, for the experience that it offers will be nearly unique. It is also probably true that the majority are not directly interested in most of the important things that any one person should de free to do. It is because we do not know how individuals will use their freedom that it is so important. If it were otherwise, the results of of freedom could also be achieved by the majority’s deciding what should be done by the individuals. But the majority action is, of necessity, confined to the already tried and ascertained, to issues on which agreement has already been reached in that process of discussion that must be preceded by different experiences and actions on the part of different individuals. 

The benefits I derive from freedom are thus largely the result of the uses of freedom by others, and mostly of those uses of freedom that I could never avail myself of. It is therefore not necessarily freedom that I can exercise myself that is most important for me. It is certainly more important that anything can be tried by somebody than that all can do the same things… What is important is not the freedom that I personally would like to exercise but what freedom some person may need in order to do things beneficial to society. This freedom we can assure to the unknown person only by giving it to all.

How can one (e.g. Holbo) read this and come away thinking Overman? It's more like the open source movement. Which makes sense, since Hayek's view on this goes back to his 1945 essay "The Uses of Knowledge in Society". He argues there that because much knowledge is local, and centralized planning cannot incorporate local knowledge, that centralized planning will fail. This argument is what he's drawing from to say that the exercise of liberty by some -- who are in possession of local knowledge not available to all -- is not suboptimal.

Now, possibly you could argue that Hayek's view of the masses is too dim (even though he includes himself in them) and that is where the aristocracy comes in and takes us to Nietzsche. Or possibly you could argue that the "knowable" advances are greater than the "unknowable" advances. Indeed, this is the argument against which Hayek dedicated himself to in writing The Constitution of Liberty, which was published in 1960 -- a time after Sputnik when Paul Samuelson was predicting that the USSR's GNP per capita would surpass the US's within a generation or so -- so you'd at least be meeting him where he is. The question Hayek is trying to address is whether society will benefit more from planning or from spontaneous emergence. He obviously believes it is the latter. He may be wrong, but not because he's a Nietzschean.

The better argument is the one made by Amartya Sen: it is not necessarily local knowledge which precludes some from exercising certain liberties, but rather material opportunity. It may not be that some will not exercise their ability but that they cannot do so. In this case they are not free. Hayek says almost nothing about this directly, but does say that just because some are free does not mean that all should be enslaved. Those who can exercise their freedom should do so, as this will provide benefit for society.

This is the point, I think, that Hayek goes astray. His argument about the importance of local knowledge and decentralization falls apart when those with local knowledge cannot employ it and opportunity is centralized. His claim that innovations by the few will benefit the many is empirical: sometimes they do, often they do not. His argument that order is spontaneous is contingent, in other words, not a law of nature. Complex systems can, and do, break down. To simply admit does not require giving anything else up.

But, again, this is not Nietzschean. Which is why Objectivists do not like Hayek. This is an argument that Hayek should revise his beliefs to include a role for a marginally bigger -- although not fundamentally different -- state, or some other redistributionary apparatus. This is doable using Hayekian language, even if Hayek himself and many of his supporters recommend a minimalist state. Hayek is reconcilable with somewhat-modest forms of social democracy, in other words, and social democracy is reconcilable with a deregulated-but-redistributionary political economy.

But to do that you'd have to admit that Hayek was not quite a moral monster. Corey Robin is dedicated to showing that the right wing is authoritarian in all its guises. He believes that when Hayek writes "Why I Am Not A Conservative" he simply cannot be trusted: he's a reactionary like all the rest, and all the rest are motivated first and foremost by a lust for exploitation and oppression. There is nothing inherently wrong with this intellectual project, and I've learned a lot by following it. But it is inherently limiting at the same time, and it commits one to answers before questions have even been asked.

Let's Stop Shooting Ourselves in the Foot

Phenomenal from Ezra Klein:

I have a plan that will raise wages, lower prices, increase the nation's stock of scientists and engineers, and maybe even create the next Google. Better yet, this plan won't cost the government a dime. In fact, it'll save money. A lot of money. ...

Here's the plan: More immigration. A pathway to legal status for undocumented immigrants. And a recognition that immigration policy is economic policy and needs to be thought of as such.

The mistake we make when thinking about the effect immigrants have on our wages, says Giovanni Peri, an economist at the University of California at Davis who has studied the issue extensively, is that we imagine an economy where the number of jobs is fixed. Then, if one immigrant comes in, he takes one of those jobs or forces a worker to accept a lower wage. But that's not how our economy works.

With more labor - particularly more labor of different kinds - the economy grows larger. It produces more stuff. There are more workers buying things, creating demand. That increases the total number of jobs. We understand perfectly well that Europe is in trouble because its low birth rates mean fewer workers - and that means less economic growth. We ourselves worry that we're not graduating enough scientists and engineers. But the economy doesn't care if it gets workers through birth rates or green cards.

This hits me in all the right spots... I love it when my principles and pragmatism run together. Of course, the benefits from immigration are not symmetric. The immigrants themselves benefit the most, of course, and on normative grounds I believe there is a strong case to be made for much laxer immigration policy. In fact nearly everyone benefits (economically) from immigration... it's just that low-skilled workers benefit the least:

A study by Harvard economists George Borjas and Lawrence Katzj found that although immigrants raised native wages overall, they slightly hurt the 8 percent of workers without a high school education. A subsequent study by Peri found that even unskilled workers saw a benefit from immigrants - but it was much smaller than that of highly skilled workers.

So why don't we pursue a more liberal immigration policy? It could be because people don't understand the graph above (from the Hamilton Project via Klein); they focus on the valleys ("anchor babies") and not the peaks. It could be because people fear cultural or societal change that comes from changing demographics -- the Huntington hypothesis. It could be because they are part of the 8% of low-skilled, uneducated workers who could be hurt by facing new competition in labor markets.

I suspect all three play a role, but the second is the strongest. Which is a shame, because it prevents a rational policy.

I believe that labor mobility is the greatest civil rights issue of our time. Even if immigration didn't make almost everyone better off, it is still difficult to rationalize international segregation on ethical grounds. Thankfully, we're not faced with that conundrum. Liberalize immigration policy and our world becomes more just, more wealthy, and more balanced. What's not to like?

The U.S., Europe, and Economic Freedom

Alex Massie on comparative political economy:

Indeed, the Heritage Foundation's Economic Liberty Index suggests that, actually, there's little to no necessary contradiction between social liberalism and economic freedom.

For instance: Heritage hammers Denmark and Sweden for high levels of government spending but both countries are ranked "freer" than the US in matters as non-trivial as business, trade and investment freedoms. Indeed, Sweden and Denmark each score better than the United States in seven of the ten areas measured**. (Britain comes out 5-4 ahead of the US with the property rights fixture ending in a draw. Germany is tied 5-5 with the Americans. Canada, Australia and New Zealand also do better than America.)

This would probably surprise a lot of people in both the U.S. and Europe. The Heritage Foundation is a rock-ribbed conservative think tank, not some squishy-left house, so these results can't really be accused of left-wing bias. The U.S. does rank higher than some of those countries in overall economic freedom, because it wins bigger in some categories than it loses in others, but the point is that different countries prioritize different goals. In fact, different countries have different conceptions of what constitutes freedom in the first place, and this shows up in the rankings. This leads to the scenario we see now: a lot of countries ranked pretty close to each other in overall economic freedom, but with strikingly different formulas to get there.

There's a widely-held belief in the U.S. that Europe is a socialist wasteland, and a myth in Europe that America is a cowboy capitalist casino. But just because this belief is common does not mean it is not wrong. (I once shocked a European when I said that the U.S. financial sector was more heavily regulated before the crisis than the European financial sector; this person refused to believe me and in fact laughed in my face, but it's a true statement.) European economies are not at all monolithic, and cannot be lazily categorized in any one way. Different European societies choose different political and institutional arrangements that emphasize different outcomes, and some of these are to the right of America.

In terms of the marketplace of ideas, this is a very good thing. When different states follow different paths in organizing their domestic economies, it allows us to compare ideas to see which work better than others. It allows us to adopt positive aspects of other systems while avoiding others' mistakes. It gives us the ability to draws the lines where tradeoffs must be made, and decide intelligently how to make those choices. I think Patri Friedman's "seasteading" movement is pretty pie-in-the-sky, but political competition can be as good as any other type of competition, and there's certainly nothing wrong with learning from others' successes and failures.