Hayek, Social Insurance and Serfdom

Regarding this post at Ezra Klen’s blog by Dylan Matthews, I note, that, apparently, there are many being motivated these days by things partisan to actually read up on what the guy wrote. But Matthews misunderstands Hayek. Hayek, being a liberal, and not a libertarian, always viewed a role(albeit a limited one) for government planning(particularly in areas such as social insurance) in terms of “planning for competition,” but never in terms of “planning against competition.” To me, this is not a particularly subtle distinction, but for some, it apparently is. Most assuredly, Hayek would not have been a supporter of “The Health Care Affordability Act,” which, in effect, ossifies politically connected monopolies operating under the auspices of a Command Planning Board.

From a liberal perspective, it would have been far more preferable to have scrapped our perversely incentivized 3-tier model bloat and enact some sort of dual single-payer/free market(the free market component would operate outside the government model, without any insurance for the most part, where prices would be set according to supply and demand). From a libertarian perspective, the preferable model would be to junk government medicine altogether for free market medicine. Social Insurance would be replaced by mutual aid collectives.

Kenneth Arrow’s famous paper, “Uncertainty and the Welfare Economics of Medical Care,” which is the bible of market failure in health Care, argued that the institutional deviations from a “Free market” in health care in post WW II America were the result of socially organic processes naturally arising as a result of such things as “uncertainty” and “information asymmetry.” The rise, however, of international medical tourism markets empirically argues against the likes of Arrow, instead implying that institutional organization in medicine is far more rooted in Public Choice than market failure.

Returning to Hayek, it should be noted that as I have pointed out on numerous occasions, the Road to Serfdom was a critique of State Socialism, the Fabian Socialism advocated by the likes of George Bernard Shaw that was in intellectual favor at the time, and that this critique derived from the Socialist Calculation Debates. In a previous post, I noted that Shaw, when he was a much younger man, had gone toe to toe with the radical libertarians(in particular, Benjamin Tucker), considering them at the time to be the most articulate and coherent intellectual opposition to the State Socialist paradigm. Shaw made an economic argument against the libertarians, in particular an economic argument against classical economics. When classical economics was overthrown by Neoclassical economics–in particular with the rise of Walrasian Neoclassical equilibrium theory–the Socialists had a mathematical economic model paradigm to underlie their social theory. World War I was seen to have made the empirical case, with centrally planned European war economies able to maintain high employment without any business cycle. From this, a case was made that a Walrasian auctioneer(the central planner) of sorts could supplant or at least simulate the role of the market in terms of equilibrium analysis.

It should be pointed out that in academic economics at the time, in particular in the context of era of global war, this opinion held much sway. It was attacked, however, by notable adherents of a second generation of the Austrian School that proceeded the historical school(noting the historical school played a pivotal role in formulating the marginalist revolution that lay at the foundation of Neoclassical economics). In particular, I’m referring to Mises and Hayek. Mises’ contribution perhaps swayed the academic profession that the Walrasian auctioneer could not supplant the need for any function of the market, but not that the Walrasian auctioneer could not simulate the function of the market. From a historical perspective, Mises is said to have lost the Socialist Calculation debate. Hayek, in addressing why the market could not be simulated by a central planner, would eventually formulate the Knowledge Problem critique. The Knowledge Problem was a generation before it’s time, and really wouldn’t be appreciated until the birth of the information age, when economic scholars would conclude that Hayek, in the end, won the debate.

Hayek, meanwhile, at the end the WW II, when WWII central planning exuded overconfidence among the elites about the role of planning in the future, at a time when the role of knowledge and information in society was grasped by few outside of Hayek himself, wrote a political tract that articulated why a Walrasian auctioneer operating in any political institutional and cultural setting would lead to the same institutional result: serfdom. Hayek articulated why things like Fabian Socialism and National Socialism would lead to the same things. Hayek, however, did not view serfdom as the end game of liberalism. That, actually, was George Orwell’s point of view, that capitalism or socialism under liberalism led to the same thing: totalitarianism.

Hayek’s Road to Serfdom was a critique in a historical context aimed at the idea of a “liberal” Fabian Socialism. It was not a critique of the “mixed economies” that would actually emerge, nor did Hayek ever write that liberalism could not adjust. Hayek’s book, if not for Reader’s Digest publishing a condensed version it’s pages, likely would have ended up experiencing the same fate of relative obscurity his other political books suffered from. And it should be noted that Hayek, dismayed perhaps, for being considered an icon of the right, would reject that label with his essay, “Why I am not a Conservative.” All you have to do is read that essay to figure out why the likes of Glenn Beck, who attempt to integrate Hayek with a religious fundamentalist tradition to forge a partisan critique against Obama, is the very personification of the thing Hayek was condemning in his essay.

As a side note, I should probably point out that radical libertarians might side with Orwell to an extent over Hayek, that Capitalism and Socialism under liberal political institutions, in the end, result in the same thing, or at least something that is closely related. In the United States, it is not national Socialism that is the issue, it’s National Corporatism. One or two more internal terrorist attacks, and we are going to experience the full brunt of this. In this sense, I think a Hayekian analysis applies to our current context. But it’s not exactly the same argument Hayek made in The Road to Serfdom.

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