Saving Private Hayek

UPDATE: 3:30pm links to other reviews (all great) of the Fukuyama review at end of this post F.A. Hayek continues to be the most mis-characterized economist of all time.  As if Glenn Beck were not doing enough damage, now even someone I greatly respect -- Frank Fukuyama-- has gotten Hayek wrong yet again. In a review of a new edition of the Constitution of Liberty in the NYT book review, Fukuyama says at the end:

In the end, there is a deep contradiction in Hayek’s thought. His great insight is that individual human beings muddle along, making progress by planning, experimenting, trying, failing and trying again. They never have as much clarity about the future as they think they do. But Hayek somehow knows with great certainty that when governments, as opposed to individuals, engage in a similar process of innovation and discovery, they will fail. He insists that the dividing line between state and society must be drawn according to a strict abstract principle rather than through empirical adaptation. In so doing, he proves himself to be far more of a hubristic Cartesian than a true Hayekian.

To say Hayek's skepticism about government was based on "great certainty" is not just wrong, it is so much the opposite of  Hayek, it's like accusing Michele Bachmann of excessive belief in the Koran.

Hayek's view of knowledge was that it was partial and dispersed among many. The market gave individuals the incentives to apply this knowledge, and coordinated the uses of this local knowledge in a way that rewards each of us who knows best about any particular narrow area. (Frank notes this insight in an earlier paragraph, which makes the paragraph above even more puzzling.)  Government usually lacks both the incentives and the coordination mechanism. In government we don't know who knows best, so which knowledge wins the argument could often be wrong.

This does NOT imply the caricature that Hayek always opposed government action. As Fukuyama notes:

It may, however, surprise some of Hayek’s new followers to learn that “The Constitution of Liberty” argues that the government may need to provide health insurance and even make it ­compulsory.

A government based on individual liberty will have some feedback and reward mechanisms that would produce better government outcomes in such areas than under tyrannical outcomes, and will make possible some kinds of government innovation and discovery that Fukuyama likes. But the political feedback mechanisms even under liberty (like majority voting, protesting, freedom of speech, or lobbying) are much cruder and less likely to align individual and social payoffs than the market feedback mechanisms, so one should be cautious about the scope of activities in which government programs will be effective.  One should be particularly wary of large-scale government plans that require a type of centralized knowledge that Hayek argued forcefully does not exist (down with Robert Moses, up with Jane Jacobs!)

To sum up,  Hayek's skepticism about government was NOT based on his certainty, as Fukuyama would have it,  but on his awareness of his ignorance. (and everyone else's)

Us public intellectuals who are communicating ideas of Hayek to a broader public are NOT fond of ideas that highlight our own ignorance, so one prediction that can be made with a higher degree of certainty than usual is that Hayek will continue to be misunderstood.

UPDATE 3:30pm 5/9/11: Links to other reactions to Fukuyama: Pete Boettke, Don Boudreaux, David Boaz, Don Boudreaux again with more, and, intriguingly, Hayek himself. (HT to Knowledge Problem for bringing them all together.)

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2500 years of Development in 100 Seconds

This marvelous video from 498 BC to 2011 AD shows the location and concentration of events mentioned in Wikipedia at different dates.

A History of the World in 100 Seconds from Gareth Lloyd on Vimeo.

Taking that as an informal history of development, the main takeaway is that for most of history, things were mainly happening along the line between Birmingham and Baghdad.

PS as far as your kneejerk reaction that "Wikipedia is Eurocentric",  could this be because Development has also been Eurocentric until recently?

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Why no looting in Japan?

Amidst the heartbreaking devastation in Japan, many have noticed (especially this blog from the Telegraph) how much social solidarity -- and little stealing -- there has been. The Telegraph blogger Ed West notes vending machine owners giving out free drinks, in contrast to large-scale looting after Katrina. Economists have been saying for a while that trust is a good candidate to be a major determinant of development. Think how much contract enforcement is critical to make trade and finance possible. Think how much easier contract enforcement is when nobody tries to cheat. This is supported by empirical studies correlating per capita income with a measure of trust, like that shown below, which is computed as ...oh forget that, the current example is much more compelling.

Responding to tragedy, the Japanese have resources because they are rich, and it was their social solidarity that helped get them there.

HT Karina Zannat for pointing me to this.

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Tax Rates and Development

One of the clearest theoretical predictions in all of economics is that a high marginal tax rate on the income from an investment would depress the investment rate, and thus hinder growth or development.  Yet nobody has found much evidence across countries or over time to confirm that prediction, although many have tested it (including this author a long time ago). The lack of evidence for a theory means either bad theory or bad data. The first could certainly be a problem, and the data for comparable "effective" marginal tax rates are also notoriously bad ("effective" takes into account deductions, credits, and all the million complicated beasts lurking in every tax code).

However, a new paper by Simeon Djankov, Andrei Shleifer, and co-authors in a top economics journal (ungated here) utilizes a new standardized database on corporate tax rates by PricewaterhouseCoopers. They find that high corporate tax rates lower investment, FDI, and entrepreneurship (entry of new businesses) across countries.

Unfortunately, we are in a time of both fiscal crisis and ideological polarization, in which the stakes on this debate are high, and both sides would like to manipulate evidence. This post is addressed to the open-minded people who just want to know what the evidence is (both of you!) Will this study change any minds?

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New location for New Directions in Development

The location of our annual conference- this Friday March 4 from 10 am to 4 pm- has changed! Due to unexpected but welcome demand for conference seats, we've moved the venue one block further north to:

The Great Hall at Cooper Union 7 East 7th Street, New York City Click here for Google Map

The conference is free and open to the public, but pre-registration is required.

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Recipe for success

1. Toil for years at a career that doesn't support you, mainly helping others redo their work 2. Produce a few deeply flawed products with occasional flashes of talent

3. Finally produce something that breaks all the rules for what your customers want.

4. Resist all suggestions for changes from your collaborators, who describe it as undoable. 

5. Unveil the work to shocked incomprehension from the hostile audience and critics.

6. You die in misery 3 months later.

Congratulations, you have just produced the most successful opera of all time.

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Aid Watch Thanksgiving Thanks

It's not commonly known that the most skeptical and critical people usually have a strong sentimental least if I can extrapolate from introspection.... So here goes for what Aid Watch is sincerely thankful for:

For the largest reduction in world poverty in human history, which has already happened in our generation.

For the largest improvement in health and life expectancy in human history, which has already happened in our generation.

For all those who contributed to these successes: whether individuals operating in private, social, nonprofit, charitable, civic, public, aid, or international realms.

For all those who helped themselves and those around them escape poverty through their own efforts.

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Lennon vs. Bono

I watched last night a remarkable documentary on the life of John Lennon called “Imagine.” For my generation, it’s pretty much automatic that Lennon is our hero, and I am no different.

But then I thought, do I have a double standard? I criticize celebrity musicians today like Bono for taking on a role like “Africa expert,” because we would never put rock stars in charge of say, Federal Reserve Policy. Yet Lennon was also a politically active celebrity rock star – why shouldn’t I make the same criticism of his career?

Well, I still think there is a big difference between Lennon and Bono. Lennon’s anti-war activities courageously challenged the power of the status quo, so much so that he was frequently harassed by the police and FBI.  Bono’s support of aid to Africa and the MDGs is more like a feel-good consensus that does NOT challenge Power. Celebrity counter-weight to established power seems much more constructive than celebrity expert.

Bono did photo ops with George W. Bush; Lennon doing a photo op with Richard Nixon would have been inconceivable.

Lennon had a real impact protesting the Viet Nam war. Where are Bono and today’s other celebrity activists on the injustices and human rights violations of the War on Terror, Iraq, Afghanistan, Guantanamo Bay?

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The Coffee Party Manifesto

The Coffee Party is alarmed that our discourse has been hijacked by Partys named after other Beverages. The Coffee Party is for all the reasonable people, which happens to be correlated with drinking good coffee. Here is our manifesto:

  1. The Coffee Party has had the privilege to meet people from many different creeds and races, and despises fear-mongering towards any one group.
  2. The Coffee Party also hates xenophobia towards immigrants. We don’t plan to vote for any candidate who first exploited an immigrant for nine years and now wants to deport her.
  3. And ixnay on Yet Another Xenophobia aimed at particular trading partners, falsely blamed for our economic woes. The Coffee Party likes free trade -- how else are we going to get our Coffee?
  4. While we’re at it, we don’t want Homophobia or Misogyny either.   
  5. The Coffee Party wishes the tax debate would also discuss whether we are getting our money’s worth. We have a tax-bloated government here at Coffee Party HQ, so why did they cut the one government activity we actually find useful – subways!?#!
  6. Suppose you had to make an agonizing decision whether to endanger the mother of your child by going through with a pregnancy. Pick one: (1) you and the mother should decide yourselves, (2) some Old Fart on a Bench or Legislature should decide for you.  The Coffee Party does not consider this a difficult pick.
  7. The Coffee Party wonders why all candidates from all parties have forgotten to mention that we are still waging war for reasons no longer clear, not to mention still violating civil liberties of both citizens and foreigners?
  8. Speaking of wars, how about ending the War on Drugs, which is so destructive  to our inner cities and to the source countries? (link to Nick Kristof){Wait a minute, we could even tax pot and restore subway service! (see 5) }
  9. Oh yes, Development. Frankly, the candidates are doing so badly on our issues 1 through 8, the Coffee Party is not expecting much from them on Global Development. At this point, we would just ask them not to destroy industries in poor countries with some arbitrary trade policy decision.
  10.   Our country is based on the ideals that ALL "are by nature equally free and independent,” and have “inalienable rights, among them life, liberty, and the pursuit of happiness,” men and women, blacks and whites, gays and straights, immigrants and natives, Christians and Muslims, Jews and Gentiles, citizens and foreigners, rich and poor. The Coffee Party wants our country back.
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Columbus Day: Christopher as a typical Entrepreneur case study

America was discovered accidentally by a great seaman who was looking for something else; when discovered it was not wanted; and most of the exploration for the next fifty years was done in the hope of getting through or around it. America was named after a man who discovered no part of the New World. History is like that, very chancy.

from Samuel Eliot Morison

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Search for bone marrow donor for Devan

UPDATE 5/18 the family has announced a potential donor has been found for Devan! Thanks to all of you who spread the word & we should all keep campaigning for donor registering, particularly for non-Europeans. This is a very different post. 4 year old Devan's life is at stake. He needs to find a matching bone marrow donor and he has 11 weeks left. The family are particularly looking for people of mixed South Asian-European ancestry like Devan. The procedures for testing and donation are painless. If you go to Devan's web site, you will see the details.

I do not know Devan or his family. But a friend of mine does and he asked me to help spread the word. I really don't know if I am violating the unwritten rules of blogging with this post. If so, feel free to tell me. My attitude is forget the rules, why not use all social media possible if it could save a child's life. If you agree, please help spread the word and widen the search.

UPDATE 5/16 10:45am : some conversation on Twitter about this:

gentlemandad @bill_easterly so is it good aid to focus on one child's needs?

I think @gentlemandad raises an uncomfortable but legitimate question: do I have a double standard on trying to help one family with a tragic situation who is within my social circle (with one degree of separation -- friend of a friend) vs. my activities on this blog to try to help a lot of families with tragedies in faraway lands?

Other responses on Twitter to this stream:

knowgreen @bill_easterly Nothing about that struck me as an aid platform. Maybe add a line w/ link to have people register their bone marrow.

PDTglobal Instinctive human compassion and good aid is not a zero sum game.

The question is should I intellectualize and generalize to the usual areas of debate on this blog, or just respond  to the tragic plight of 4 year old Devan?

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