President Obama is trying to sell still another “jobs” program, oblivious to the fact that his last stimulus package failed to create permanent jobs. Like many politicians and academics, he is convinced that government can “grow the economy,” despite overwhelming evidence that such Keynesian programs are ineffective.
The president and his supporters are in the grip of what the economist F.A. Hayek once called the “fatal conceit” -- the idea that politicians can manage an economy according to some overall plan. Their efforts to create “green” jobs, stimulate the economy, redistribute income and manage costs in the health care system are all examples of the fatal conceit run amok. A large and modern economy, made up of hundreds of millions of participants who make spending and investment decisions by the minute, is far too complex to allow for centralized coordination. Such efforts, Hayek warned, invariably make a difficult situation worse.
Born in Austria in 1899, Hayek developed his skeptical views about power and planning in response to the catastrophes he witnessed in Europe during the first half of the 20th century. The classical liberal order of representative government and free markets had contributed to a century of relative peace and prosperity from 1815 to 1914. The rise of nationalism and socialism undermined the old order, leading to three decades of war, dislocation and depression. For Hayek, the solution to the challenges of the 20th century was to be found in the renewal of the proud tradition of classical liberalism.
Hayek set forth his views most clearly in 1944 in his now classic work, “The Road to Serfdom,” where he argued that any effort to organize society around a common economic plan will inevitably lead to a loss of freedom and a return of the common man to a condition of servitude and dependence. Hayek reminded his readers that Hitler was not just a nationalist but a socialist as well, and that his brutal tyranny developed out of a malignant synthesis of these ideas. Market liberalism, in contrast to both ideologies, follows no overall plan but allows progress to emerge out of the coordinating actions of free individuals.
Hayek wrote the book partly in response to John Maynard Keynes, the British economist who had argued a few years earlier that government could lead the economy out of depression through deficit spending. Keynes believed that this would stimulate consumer demand and private investment.
Hayek was skeptical of Keynes' theory on economic grounds, but even more so on political grounds. Efforts by the state to manage the economy will certainly fail, he argued, but they will not be abandoned. Every failure would instead lead to more ambitious and extravagant policies to reach the elusive goals, until more and more aspects of the economy are brought under government control. This, Hayek argued, was “the road to serfdom.”
Keynes was convinced that war and depression ended all hopes that the liberal order of the 19th century could be revived. His theory represented an effort to place the market system on new intellectual foundations. But Hayek was equally convinced that the tradition of Adam Smith and “The Federalist” had to be renewed as the basis for a restoration of liberty and progress. The intellectual opposition between Keynes and Hayek still underpins many of our current debates.
Keynes may have exercised the greater influence in political and academic circles over the second half of the 20th century, but the tide is turning today. Disappointment with state-centered approaches is leading to a renewed interest in Hayek's thought. Last year, “The Road to Serfdom” reached the top of Amazon's list of best-selling books, and last week, the Manhattan Institute hosted an event in New York City to recognize the book published in the last two years that best reflects Hayek's vision of political liberty and free markets. That award -- the Hayek Prize -- went to the British author Matt Ridley for “The Rational Optimist,” a book whose very title aptly communicates Hayek's faith that the direction of human affairs bends toward freedom and progress.
Original Source: http://washingtonexaminer.com/opinion/columnists/2011/09/manhattan-moment-hayeks-wisdom-rediscovered