The Road from Serfdom - an interview with F.A. Hayek

http://reason.com/archives/1992/07/01/the-road-from-serfdom/print

by limist • 16 years ago

52 36 16 years ago

roel_v• 16 years ago

Ironic how he singles out Spain as a country that was in a position to make itself into a shining beacon of fiscal responsibility, to be emulated by the rest of the world.

stretchwithme4• 16 years ago

Here's what he said about Spain:

"Spain, which has to choose a new constitution. It might be prepared to adopt a sensible one. I don't think its really likely in Spain, but it's an example. And they may prove so successful that after all it is seen that there are better ways of organizing government than we have."

It seems to me he is only referring to Spain's potential new constitution, that they might adopt a sensible one.

sitmaster• 16 years ago

Wow look at how clearly he answers the questions. Half his answers begin with a "Yes" or a "No." Can you imagine someone thinking and speaking this clearly these days?

matwood• 16 years ago

Yeah, whether or not you agree with Hayek, he is obviously a smart guy who has no problem articulating where he stands on an issue. I wonder if it's a generational difference. My grand parents for example have no problem telling you what they think and their reasoning on why.

zacharyvoase• 16 years ago

I like to think of it as having the courage of one’s convictions. It’s one of the most admirable qualities a person can have.

nfnaaron3• 16 years ago

"... socialism was bound to fail as an economic system because only free markets--powered by individuals wheeling and dealing in their own interest--could generate the information necessary to intelligently coordinate social behavior. In other words, freedom is a necessary input into a prosperous economy."

Gormo• 16 years ago

I think in hindsight we can broaden this argument: human beings do not have the capacity to understand most dynamic complex systems sufficiently to engineer any particular macro-level outcome, and should instead focus on optimizing specific micro-level components to produce the desired micro-level results.

Considering the increasingly common failures of risk-aggregation systems in a number of contexts (not just economic: look at the cascade of failure that triggered the 2003 East Coast Blackout), we should be increasingly conscious of this as technological improvements allow us to act unilaterally at increasingly large scales.

jbooth7• 16 years ago

Blanket assertions about socialism and capitalism are fundamentally silly.

Nobody thinks it would be efficient to privatize the federal highway system and turn everything into a toll road.

I've been biking recently, but I used to take the subway. That's socialist. Taking a cab would be capitalist. Did I care? Not really.

Normal market goods are almost always better served by private markets. They may need to be regulated if the create significant externalities or pose risk to the economy at large.

The metric should be common sense, not -isms. When picking a software platform, I pick the one best suited to the job at hand. I'd like to see some of these so-called big policy thinkers apply the same principle.

nfnaaron3• 16 years ago

I was really most interested in the last sentence, which needed the text before it for context. Certainly systems tending toward economic freedom are more efficient at serving actual wants and needs. On the other hand I do like efficient travel on tax-paid highways, and detest driving around Chicago (assuming they still have toll roads?).

anamax3• 16 years ago

> They may need to be regulated if the create significant externalities or pose risk to the economy at large.

You're assuming that regulation solves those problems. It need not. In fact, it can actually make them worse and/or create them.

For example, regulation forced US banks to own lots of fannie and freddie stock as part of their "regulated assets". When that stock tanked, they all took a huge hit.

The power and impact of the bond rating companies is also a product of regulation.

Oh, and the "mortgage pool insurance" - also a product of regulation. Regulators wanted banks to hold more of those securities but needed to make them appear safer - hence "insurance". Oops.

Regulation IS systemic risk.

And that's the best case - the inevitable regulatory capture makes things even worse.

And if you think that any of the big financial institutions approach/exceed "too big to fail", the US govt is way beyond that. (The correct response to "too big to fail" is "too big to exist", not additional regulation.)

Perceval2• 16 years ago

I've been biking recently, but I used to take the subway. That's socialist. Taking a cab would be capitalist.

None of those activities are inherently socialist or capitalist. Individual actions, responding to one's own preferences, tastes, needs, and incentives, can't really be socialist or capitalist.

Socialism and capitalism are macro-systems about how the fruits of labor should be distributed/exchanged.

Kadin• 16 years ago

> Nobody thinks it would be efficient to privatize the federal highway system and turn everything into a toll road.

Not sure it's safe to say that. The usual arguments against making the Interstate system toll-based are practical ones: it would be a pain to operate, you'd have to have tens of thousands of tollbooths, you'd create giant traffic jams, etc. (Anyone who's ever driven down the Jersey Turnpike, pre-EZPass, can understand the horror that a lot of people think this would necessarily entail.)

But from an economists' view it would probably be very efficient. Right now there's not much of a direct linkage between road users -- those who cause wear and tear to the roads -- and those who end up footing the bill. The net effect of this is a huge government subsidy to over-the-road trucking. Trucks get to drive on the roads for free and, due to their high axle loads, do the most damage to the road. The public foots the bill for maintaining and repairing that infrastructure. It's an externalized cost on the part of trucking companies.

Using tolls (based on miles driven and axle weight, perhaps) would force internalization of these costs into the goods being transported, which would be more efficient from a classical economic perspective. You'd be making the price of the widget in the store more accurately reflect the inputs it requires to make it and bring it to market, which is generally regarded as a Good Thing. It might also have the side-effect of making other transportation methods (rail, ship, air) more competitive in certain edge cases.

Such a scheme might be impractical, difficult to implement, or prone to siphoning for purposes other than road maintenance, but it's not inherently less efficient.

[Edit for punctuation.]

Empact• 16 years ago

Taking the subway isn't socialist - the subway is just run by a vaguely socialist institution. The question is what sort of institutions create better results (e.g. better subways): is it competitive, accountable ones, or monolithic, monopolistic, unaccountable ones?

For example, you imply that a subway is better-managed by a government agency, but in NY at least the subway system was built in rapid order by a few competing private concerns between 1905-1940. In 1940 those competing entities were unified into a government monopoly, and the system has since stagnated for 80 straight years. See this visualization for evidence that expansion essentially halted in 1940: http://www.diametunim.com/shashi/nyc_subways/. The current big expansion being undertaken is the 2nd Avenue line, which was literally on the planning maps in 1929: http://en.wikipedia.org/wiki/Second_Avenue_Subway.

tokenadult• 16 years ago

Nobody thinks it would be efficient to privatize the federal highway system and turn everything into a toll road.

The key word there is "everything." It is efficient to turn some parts of the Interstate Highway system into toll roads, and if you have driven in certain states you have seen that done.

"The Indiana Toll Road is part of the U.S. Interstate Highway System which runs 157 miles through Indiana connecting the Chicago Skyway to the Ohio Turnpike."

http://en.wikipedia.org/wiki/Indiana_Toll_Road

"Historically, the Chicago Skyway was signed as, and was widely considered to be part of, I-90 from the mid-1960s forward. However, around 1999, the city of Chicago realized they had never received official approval to designate the Skyway as I-90. The city subsequently replaced most of the 'I-90' signage with 'TO I-90' signage. However, the Illinois DOT has always and continues to report the Skyway as part of the Interstate system, and the Federal Highway Administration apparently still considers the Chicago Skyway an official part of I-90.[7]

"The Skyway's official name, referring to it as a 'toll bridge' rather than a 'toll road,' is the result of a legal quirk. At the time of its construction, the city charter of Chicago did not provide the authority to construct a toll road. However, the city could build toll bridges, and it was found that there was no limit to the length of the approaches to the bridge. Therefore, the Skyway is technically a toll bridge with a six-mile-long approach. This also is part of the reason that there are no exits available until after one has crossed the bridge and paid the toll."

http://en.wikipedia.org/wiki/Chicago_Skyway

Where it is most economically efficient to operate a road as a toll road rather than as a road supported by general taxation depends much on local geographical factors. Note that Adam Smith has a very thoughtful discussion of the economics of road tolls (he considered them a remarkably fair form of taxation) in his 1776 book The Wealth of Nations. Many of his economic arguments apply well to taxation of gasoline to fund road projects.

xenophanes2• 16 years ago

> Nobody thinks it would be efficient to privatize the federal highway system and turn everything into a toll road.

David Friedman does. I do. Don't pretend that people you disagree with don't even exist.

> I've been biking recently, but I used to take the subway. That's socialist. Taking a cab would be capitalist. Did I care? Not really.

What are you talking about? Capitalism is capable of producing bikes and subways.

stretchwithme4• 16 years ago

I think private highways would be better.

The current system doesn't provide incentives for using this resource wisely. Seems there's no restraint on demand when something is given away for free.

If we ran our hotels that way, we'd need to build twice as many hotels, just as we have to overbuild highways now.

And you say blanket statements about this stuff are fundamentally silly? I agree.

nfnaaron3• 16 years ago

"Nobody thinks it would be efficient to privatize the federal highway system and turn everything into a toll road."

Different definitions of "efficiency" notwithstanding ...

A privatized road doesn't have to be paid for by toll, that's merely how we mostly do it. We could easily contract maintenance and operation of a road to a company, and that company is paid by the government from tax funds.

Kadin in another reply to your comment describes the trucks that use the road "for free," paid for by all the other tax paying saps. In reality the receivers of the trucker's goods also benefit from that truck on the road (and the truck company and its employees pay into the same tax funnel as the receiving citizens).

Imagine a village not connected to the main highway. Some of the villagers walk out early one morning to the highway, and flag down a truck full of stuff.

"Mr. Trucker, we sure would like to buy some of your stuff, if you would only drive your truck to our Small Mart."

Mr Trucker replies "I surely can't drive my truck over your unimproved land. I'll be back next year; if you have a proper road, I'll drive my truck over and you can buy some stuff."

The village people delay construction on their YMCA and redirect their efforts to building a beautiful road. The next year they flag down the trucker and say "Mr. Trucker, we now have a road that goes directly to Small Mart. Just $10 to drive your truck over it."

Mr Trucker says "I don't see why I should pay $10. I'm not going to do it, I'll just drive down the highway and find another village."

The village people look at each other, admit that they could really use some more stuff in Small Mart, and agree to let the trucker drive "for free."

While waiting for his truck to be unloaded, Mr. Trucker buys a big soda and a burger, $2.99 plus tax and thus helps pay for the road a little bit at a time. The trucker is happy, and so are the village people.

CWuestefeld• 16 years ago

The rules of the game that the gold standard requires [say] that if you have an unfavorable balance of trade, you contract your currency. That's what no government can do--they'd rather go off the gold standard. In fact, I'm convinced that if we restored the gold standard now, within six months the first country would be off it and, within three years. it would completely disappear.

I wonder to what degree we can use this to explain the PIIGS problems in Europe. Of course, they don't have a gold standard. But for a given nation in the Euro, the value of the currency is fixed: they have no means of manipulating it to take pressure off their fiscal problems.

muerdeme• 16 years ago

I don't have a link handy on my phone, but The Economist discusses this issue in an article this week about Europe's existential crisis with the currency system. I think one of Italy's ministers mentions joining the EU specifically to force the parliament to quit running budget deficits, so tying their own hands was probably part of the deal for everyone to some extent.

Perceval2• 16 years ago

I think this is the story you're referring to: http://www.economist.com/world/europe/displayStory.cfm?story...

arvinjoar• 16 years ago

What Hayek said is that the bubbles popped pretty early on (which is a good thing) because they could not be maintained and continued by the institutions that existed back then. That the bubbles popped is a good thing. A gold standard keeps the inflation stable, because gold can't be printed. Hayek goes on to say that a gold standard would not work because governments have an incentive to "cheat" and blow up giant bubbles, which cannot be done successfully with a gold standard.

I think that currency should not be issued by governments at all, the absence of government issued money would mean competing currencies, and in a situation where gold competes with other currencies, gold often wins the confidence of the people.

evanrmurphy• 16 years ago

That would be an interesting item to deregulate. I've always been fascinated that the U.S. government doesn't mandate an official language [1] and just incidentally uses English for most purposes (with Spanish becoming increasingly relevant). As far as I can tell, it hasn't caused any major problems for the country and may be a better way to handle the issue. Could currency be the same way?

[1] Language being another item that governments tend to regulate.

stretchwithme4• 16 years ago

and yet countries have gone on the gold standard before and maintained it for hundreds of years.

many countries have also accepted having the value of their currency set to a standard beyond their control. China's was pegged to the dollar for a long time, despite its long term debasement by the US, which has lost a lot of its value since it became the reserve currency at Bretton Woods.

It turns out that gold doesn't screw you over as much as relying upon the US dollar.

ytilibitapmoc• 16 years ago

This quote,

"Reason: Is Britain irrevocably on the road to serfdom?

Hayek: No, not irrevocably. That's one of the misunderstandings. The Road to Selfdom was meant to be a warning: "Unless you mend your ways, you ll go to the devil." And you can always mend your ways.

Reason: What policy measures are currently possible to reverse the trend in Britain?

Hayek: So long as you give one body of organized interests, namely the trade unions, specific powers to use force to get a larger share of the market, then the market will not function. And this is supported by the public because of the historic belief that in past the trade unions have done so much to raise the standard of living of the poor that you must be kind to them. So long as this view is prevalent, I don't believe there is any hope. But you can induce change. We must now put our hope in a change of attitude.

I'm afraid many of my British friends still believe, as Keynes believed, that the existing moral convictions of the English would protect them against such a fate. This is non- sense. The character of a people is as much made by the institutions as the institutions are made by the character of the people. The present British institutions contribute everything to change the British character. You cannot rely on an inherent "British character" saving the British people from their fate. But you must create institutions in which the old kinds of attitudes will be revived which are rapidly disappearing under the present system.",

on the (historically) current effect of unions is priceless.

delackner• 16 years ago

Sorry for the long quote, but I have tried to reduce its length as much as possible while retaining meaning:

"" [...] the idea that things ought to be designed in a 'just' manner means, in effect, that we must abandon the market and turn to a planned economy in which somebody decides how much each ought to have, and that means, of course, that we can only have it at the price of the complete abolition of personal liberty. ""

This seems to me to be a false dichotomy. If the state sets artificial prices on some goods, say basic foodstuffs, this does not automatically lead to the complete destruction of market forces, it simply produces an artificial input in the market, leading to an equilibrium that likely to be different from the natural equilibrium.

As an aside, I was really thrilled by his description of meeting Alexander Solzhenitsyn.

The Road from Serfdom - an interview with F.A. Hayek

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