Austrian School Economist Hayek Finds New Fans



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Austrian School Economist Hayek Finds New Fans

by Tamara Keith November 15, 2011 Morning Edition



Second in a three-part series

 

professor friedrich von hayek from austria receives his nobel prize in economy from swedish king carl gustaf, december 1974.

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Professor Friedrich von Hayek from Austria receives his Nobel Prize in Economy from Swedish King Carl Gustaf, December 1974.

These days it can feel like the country is unsteady — politically, economically. In a search for the way forward, scholars and politicians often turn to their fundamental beliefs. NPR is taking a look at some of the most influential philosophers whose ideas molded the present and could shape the future. You might not know all their names, but you're certainly familiar with their ideas. They are woven into the fabric of our society.

The Nobel Prize-winning Austrian economist Friedrich Hayek's arguments for free-market capitalism and against socialism and central planning made him a popular figure in 1940s America — and again today.

Hayek argued for humility among economists and politicians. And that, says George Mason University economics professor Don Boudreaux, was his most important contribution. Boudreaux is one of the people behind Cafe Hayek, an economics blog with a Hayekian point of view.

"The economy will always be more complex, will always confound you in your attempts to mold it to your designs," Boudreaux says of Hayek's economic philosophy.

In other words, the economy is too complicated for politicians to avert recessions and unemployment without unintended consequences that may well be worse. This was one of the ideas in his most famous book, The Road to Serfdom. In it he made a nuanced case against central planning, something Boudreaux says had been gaining steam among Western intellectuals since at least the Great Depression.

"It's a fatal conceit that we can control our destiny as a society, consciously. We can't do that. It'll lead to results quite the opposite of what its best intentioned proponents believe," Boudreaux says.

The book was first published in 1944 and later reached millions through a Reader's Digest condensation. A new edition came out in 2007 without much fanfare. Bruce Caldwell, a professor at Duke who specializes in the history of political economy, edited the new edition. Caldwell says interest in The Road to Serfdom started to build after the bank bailouts and passage of President Obama's health plan.

"Some people called it socialized medicine and of course Hayek was known as an opponent of socialism, so people were interested in it for that," Caldwell says.

But that's not what made it a best-seller. In June 2010, Glenn Beck — then on Fox News Channel — spent an entire hour-long show encouraging his audience to read The Road to Serfdom.

"This book was like Mike Tyson in his prime. Right hook to socialism in Western Europe and in the United States. But the influence didn't stop there," Beck said at the time. "It has inspired political and economic leaders for decades since, most famously, you know who loved this book? Ronald Reagan."

Caldwell says people listened.

"The next day it was No. 1 on Amazon.com, and it stayed there for I think 10 days and stayed in the top 100 for a couple of months. It was like an Oprah moment for old Fritz Hayek," Caldwell says.

Hayek had been dead for more than 15 years, and just like that, his book was flying off the shelves. These days, saying that you're reading Hayek — or others from the Austrian school of economics — is almost obligatory for conservative politicians.

In a recent debate, Ron Paul cited the Austrian school. This summer Michele Bachmann said she lies on the beach reading Hayek's mentor, Ludwig von Mises. And when asked at a campaign event in Iowa to name some books that have shaped him, Rick Perry gave a shout out to The Road to Serfdom.

"Freiderich Hayek's book is one that had an impact on me, understanding that John Maynard Keynes absolutely knew nothing about economics," Perry said.

Hayek and the more influential and well-known Keynes feuded over economic theory and the proper role of government for years. Western governments generally bought into Keynes' idea that with well-timed public spending, you could level out the dips in the business cycle. Recently, though, Hayek has been making a comeback.

Freshman Rep. Justin Amash, a Republican from Michigan, can say he was reading Hayek back before Hayek was cool.

"I've got a framed portrait of Hayek on my wall," Amash says.

In his Capitol Hill office, Amash has framed photos of about half a dozen Austrian economists, but the one of Hayek is big, almost rock-poster big.

"And then I also have the signature of F.A. Hayek and I have that framed," he says.

Amash, who was elected with Tea Party backing, discovered Hayek's work five years ago and has devoured his books and essays since. He says Hayek's ideas have informed just about all of his votes in the House.

"A lot of legislators, members of Congress, think they can decide how society functions from these offices here, and they don't really have the dispersed knowledge that society has to make those kinds of decisions," Amash says.

Boudreaux thinks he knows why so many politicians are citing Hayek.

"He's got the intellectual creds. He's not someone who can be dismissed by people on the other side — in this case, by people on the left — as a flake, as someone who was just ranting and raving, as someone who failed to understand the great nuances of the market and politics," he says.

But Boudreaux also believes Hayek and The Road to Serfdom are misunderstood, and he suspects some of the big names claiming to read Hayek may not actually be reading his dense academic texts. He says The Road to Serfdom wasn't written as a political tract.

And, in fact, Hayek scholar Caldwell says Hayek was concerned when he arrived in America in 1945 for a book tour and discovered his book was being championed by partisans.

"He was surprised and dismayed that it had been taken in a party spirit, [as] the intent of this book was not to endorse one party or the other," he says. "It was to make certain points about the feasibility of certain institutional arrangements that responsible people were promoting."

However, Caldwell thinks Hayek would be pleased at all of the attention his work is getting — even if some of it is extremely partisan.


On Capitol Hill, Rand's 'Atlas' Can't Be Shrugged Off

by Andrea Seabrook November 14, 2011 Morning Edition

 

First in a three-part series

ayn rand, the russian-born american novelist, is shown in manhattan with the grand central terminal building in the background in 1962.

Enlarge AP

Ayn Rand, the Russian-born American novelist, is shown in Manhattan with the Grand Central Terminal building in the background in 1962.

These days it can feel like the country is unsteady — politically, economically. In a search for the way forward, scholars and politicians often turn to their fundamental beliefs. NPR is taking a look at some of the most influential philosophers whose ideas molded the present and could shape the future. You might not know all their names, but you're certainly familiar with their ideas. They are woven into the fabric of our society.

Ayn Rand is best known for her novels The Fountainhead and Atlas Shrugged. The ideas behind them — her philosophy — have sunk so deeply into our political thought, most people don't even recognize them as her ideas anymore.

But Rand does have important admirers, like House Budget Committee Chairman Paul Ryan, R-Wis., and former Federal Reserve Chairman Alan Greenspan. Recently, House Speaker John Boehner channeled Rand when he said, "Job creators in America basically are on strike."

Underpinning that statement is a philosophy Rand introduced through her best-selling novel Atlas Shrugged. However, when it was released in the late 1950s, the book wasn't exactly embraced.

Rand's 'Objectivism,' Explained

CBS News journalist Mike Wallace interviewed Rand years before he first appeared on the program 60 Minutes.

"Throughout the United States, small pockets of intellectuals have become involved in a new and unusual philosophy, which would seem to strike at the very roots of our society," he says, introducing the 1959 segment.

Wallace is in a chair, on a stark set, holding his notes and a cigarette. Across from him sits Rand, a native Russian, small and sharp and a little nervous. Wallace asks her to outline the idea she calls "objectivism."

It is, she says, a system of morality "not based on faith" or emotion, "but on reason."

Rand wholly rejected religion. She called it a weakness, even a parasite — one that convinces people their purpose is to work for the betterment of others. In fact, she says, for man, the truth is just the opposite.

"His highest moral purpose is the achievement of his own happiness," she says.

Wallace asks Rand how her philosophy applies to politics and government. And his question reveals a journalist's assumptions about the America of that time — with Eisenhower in the White House and Leave It to Beaver on TV:

"One of the principal achievements of this country in the past 20 years, particularly — I think most people agree — is the gradual growth of social, protective legislation, based on the principle that we are our brothers' keepers."

Like welfare. Social Security. Fair labor standards. Public health programs.

"How do you feel about the political trends of the United States?" Wallace asks.

"I feel that it is terrible that you see destruction all around you, and that you are moving toward disaster until and unless all those welfare state conceptions have been reversed and rejected," Rand answers.

These programs are destroying individual liberties, Rand says, especially the freedom of producers, entrepreneurs, businessmen. The government has no right to take their property, she says.

"I imagine that you're talking now about taxes," Wallace says. "And you believe that there should be no right by the government to tax. You believe that there should be no such thing as unemployment compensation, regulation during times of stress."

"That's right," Rand replies. "I am opposed to all forms of control. I am for an absolute, laissez-faire, free, unregulated economy."

By now, these ideas should sound familiar.

A Prediction Of The Future?

At the time, Rand's novels were almost universally panned. Her ideas were called "the height of immorality." Her followers, the objectivists, were seen as a radical sideshow in politics and economics.

But now?


"Every time you submit to a regulation, it diminishes your liberty," says Republican Rep. Steve King of Iowa, speaking just off the House floor a few weeks ago. King says he loves Rand.

Freshman Rep. Mick Mulvaney, a South Carolina Republican, has read Rand's novels six or eight times each.

"It's almost frightening how accurate a prediction of the future the book was," Mulvaney says.

In Atlas Shrugged, which Rand considered her masterpiece, the wealthy corporate producers are the engines of the American economy, but they are constantly stymied by invasive legislation and terrible government regulations.



the painting of ayn rand by nicholas gaetano that was used for a u.s. postage stamp.

Enlarge Mark Wilson/Getty Images

The painting of Ayn Rand by Nicholas Gaetano that was used for a U.S. postage stamp.

That's exactly what Florida Republican Rep. Allen West sees happening in America today — and, he says, it's very dangerous.

"If you start to demonize a certain segment of your society that are the producers, eventually they'll stop," he says.

That's just what they did in Atlas Shrugged. Rand's wealthy heroes go into hiding, leaving behind the welfare class — Rand calls them "the moochers" — and the government, or "the looters."

Put in today's language: "Job creators in America basically are on strike."

This idea that Boehner put forth in a recent speech before the Economic Club of Washington, D.C., could have come straight from Atlas Shrugged.

Businesses, Boehner said, need to be set free. Instead, "they've been antagonized by a government that favors bureaucrats over market-based solutions. They've been demoralized by a government that causes despair, when what we really need is to provide reassurance and inspire hope in our economy."

Boehner uses the language of slavery when he says, "We need to liberate our economy from the shackles of Washington."

Thriving Ideas

Back in that 1959 interview, Wallace asked Rand why — if her ideas were so right — Americans, in their democracy, hadn't voted to protect the all-important producer class.

Her answer? Because the people hadn't been given that choice.

"Both parties today are for socialism, in effect — for controls. And there is no party, there are no voices, to offer an actual pro-capitalist, laissez-faire, economic freedom and individualism," she said. "That is what this country needs today."

If Rand were alive today, she might be pleased to see that, more and more, Americans do have that choice. And her ideas are alive and well-represented in the U.S. Capitol.

Keynes' Consuming Ideas On Economic Intervention

by David Welna November 16, 2011 Morning Edition

The last in a three-part series on thinkers who have had a lasting influence on economic policymakers.

the ideas of john maynard keynes, seen here around 1940, had great influence over the economic policies that followed the great depression and world war ii.

Walter Stoneman/Getty Images

The ideas of John Maynard Keynes, seen here around 1940, had great influence over the economic policies that followed the Great Depression and World War II.

On his deathbed the year after World War II ended, John Maynard Keynes is said to have remarked that his only regret in life was that he did not drink more Champagne. For Keynes, consumption — economic or otherwise — was what made the world go 'round.

A long-dead British lord and economic theorist seems an unlikely subject for a rap video, but this one, made last year by George Mason University economist Russ Roberts and filmmaker John Papola, has been a hit on YouTube.

There's not much that survives of Keynes' own spoken words, but he can be heard in an old British newsreel, in which he delivered a stern admonition.

"We must free ourselves from the bondage of old ideas," he said.

One of the "old ideas" Keynes sought most to debunk was the notion that economies in trouble would naturally fix themselves, thanks to the magic of the marketplace. Princeton economist Alan Blinder says Keynes put his finger on a key economic problem — namely, that insufficient demand leads to growing unemployment.

"It's very simple, that if there aren't enough buyers, the sellers won't produce," Blinder says. "And if they don't produce, they don't hire workers. And if they don't hire workers, the workers don't have income — and if the workers don't have income, they can't buy stuff."

Keynes was, after all, an economist of crises. The economic stimulus he prescribed for an ailing economy, he made clear, was merely a short-term remedy. In the long term, he wrote, we're all dead.

In Keynes' seminal 1936 book, The General Theory of Employment, Interest and Money, he argued that markets do indeed fail, and that if individuals or private enterprise cannot or will not spend in the short term, then the government must, to boost employment.

"The first priority, in Keynes' view, is to get the economy moving in the short run," Blinder says, "so that we have a bigger economy later."

That's because what Keynes really hated was to see money that could be lent not being lent — or people who wanted to work not finding jobs.

"Keynes' top objective was to re-employ resources that were not being utilized," says economist Jared Bernstein, a self-avowed Keynesian who until earlier this year was Vice President Joe Biden's top economic adviser.

For Bernstein, Keynesian economics amounts to the government doing all it can to foster job creation.

"It's government spending in the context of creating jobs, utilizing underutilized resources," he says. "If you're making weapons, or if you're hiring schoolteachers — it amounts to the same thing in the context of a Keynesian framework."

Keynes developed his theories in the midst of the worldwide Depression of the 1930s. They had a broad impact. At his 1933 inauguration, President Franklin Delano Roosevelt declared the primary task facing the United States was to put people to work.

"It can be accomplished in part by direct recruiting by the government itself, treating the task as we would treat the emergency of a war," Roosevelt said, "but at the same time, through this employment, accomplishing greatly needed projects to stimulate and reorganize the use of our great natural resources."

And for many decades after the Great Depression, American leaders — both Democratic and Republican — followed the Keynesian prescription of government intervention to boost sagging economies. As recently as 2009, a newly inaugurated President Obama went before Congress to make the case for more government spending to curb growing unemployment.

"I reject the view that says our problems will simply take care of themselves, that says government has no role in laying the foundation for our common prosperity, for history tells a different story," Obama said.

The president did get a somewhat smaller economic stimulus package than the one he requested from a Congress led by Democrats. But after Republicans took control of the House this year, the emphasis on Capitol Hill has switched to controlling deficit spending. Still, economist Bernstein says the Obama administration remains true to Keynesian thinking.

"Just look at the American Jobs Act," he says. "That's a $447 billion stimulus program, and they may not want to label it that, because of political reasons, but certainly the measures in there would be very recognizable to Keynes, as precisely the right way to help temporarily offset the contraction in private sector demand."

Nonsense, say congressional Republicans. South Carolina Sen. Richard Burr bashed the president's jobs plan last month, in the GOP's weekly radio address.

"Some in Washington, including the president, are suggesting that we simply spend more money," Burr said. "We've already tried that. It did not spur job growth then, and it won't now."

And GOP presidential hopeful Gov. Rick Perry has said, "John Maynard Keynes absolutely knew nothing about economics."

Perry did a little Keynes-bashing during a swing through Iowa last August.

"Two times now in American history, we've had this country go through an experimentation with, with Keynesian economics," Perry said. "And I will tell you, particularly in this latter attempt, it has been a huge experiment that has failed miserably for the American people."

general theory of employment, interest and money

General Theory of Employment, Interest and Money

by John Maynard Keynes

Perry spoke shortly after Congress enacted a big deficit-reduction plan as part of a deal to raise the debt ceiling. As that budget-cutting legislation reached the Senate floor for a vote, Illinois Democrat Dick Durbin greeted it with a lament.

"We are having the final interment of John Maynard Keynes," he said. "He nominally died in 1946, but it appears now that we're going to put him to his final rest with this agreement."

Later, outside the Senate chamber, I asked Durbin to elaborate.

"What I was referring to was the fact that we decided to cut spending, despite the fact that we're deep in a recession," he said. "Every economist that I respect and talk to says that there are things that government can do to move the economy forward. The president's jobs bill is a good illustration. So this notion of cutting spending in a recession — I think it just makes it worse."

For Keynes, running budget deficits during a slump was a lesser evil than slashing budgets and letting unemployment rise. Princeton's Blinder acknowledges that Keynes' influence may have waned, at least for the moment. But the British thinker's ideas are a long ways from dead, he says.



"If we go back to recession, in the United States and in the world, I'm quite confident you're going to see governments around the world turn to Keynesian policies," Blinder says.

Just as there are no atheists in a foxhole, he adds, hard times have made a Keynesian of many a free-marketeer. As former President Richard Nixon put it some 30 years ago, "I am now a Keynesian."


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