Does anyone in Washington, D.C. believe in liberty?

Continuing the earlier discussion about the Detroit bailouts, there is a broader debate taking shape:

Obama Chief of Staff Hopes to Exploit the Economic Crisis to Expand the Growth of Government: In earlier posts I have emphasized the risk that the combination of economic crisis and unified Democratic control of Congress and the White House would lead to a vast expansion of government. It looks like key Obama advisers and congressional Democrats are thinking along the same lines. As Obama Chief of Staff Rahm Emanuel puts it, the crisis is "an opportunity to do things you could not do before...You never want a serious crisis to go to waste." The WSJ article from which the quote comes makes clear that the "things" Emanuel has in mind are government policies that "pick winners" by subsidizing particular industries on a massive scale - as Congress is already doing with the finance industry, auto industry and others

Given the serious flaws in this kind of central planning, it is highly unlikely that even a well-intentioned federal government could do a better job than the market in choosing which industries to fund. On this point, F.A. Hayek's critique of government planning is still relevant - even more so than I thought when I defended Hayek's continuing relevance earlier this year. In the real world, of course, it is highly unlikely that government planning decisions will be determined by experts whose only concern is the public good. Rather, politically powerful industries will use their influence to lobby for bailouts and other government assistance that will probably be denied to the politically weak - irrespective of the true merits of helping the industries in question.

Interest group pressure has already played a key role in the congressional vote on the finance industry bailout, and it is likely to be equally important in structuring the massive future bailouts to come. Once Obama takes office, we are likely to see some $500 billion to 1 trillion in additional bailout spending - and that may be just for starters. Interest groups will play a major role in allocating this money, and they are already ramping up their lobbying efforts.

The end result will probably be an enormous transfer of resources from taxpayers and wealth-producing industries to interest groups with political leverage. That is likely to serve the interests of those groups and of the political leaders in charge of doling out the government largesse. But it will also impede economic growth by transferring resources away from productive firms to those that are failing.

Go to the article itself and follow the links.

Here are excerpts from one of them:

Jesse Larner has an interesting and much talked-about article on F.A. Hayek in the left-liberal journal Dissent...Larner gives Hayek credit for his pathbreaking critique of socialist central planning. But he argues that Hayek's thought is largely irrelevant today.

To very briefly summarize Hayek's two most important ideas, he argued that socialism can't work as an effective system for producing and distributing goods because it has no way of aggregating the necessary information about people's wants and needs. By contrast, the price system of the market is a very effective method for collecting and using information about people's preferences and the relative value of different goods. Hayek's 1945 article "The Use of Knowledge in Society" is the best short statement of this argument. Hayek also argued that government control of the economy under socialism necessarily leads to the destruction of democracy and personal freedom. The central planners' control of the economy enables them to crush potential opposition and strangle civil society. This, of course, was the main argument of Hayek's most famous book, The Road to Serfdom (1944).

Larner concedes the validity of both of these Hayekian claims. But he suggests that they are largely irrelevant today because the modern left has mostly abandoned central planning and because Hayek failed to recognize that "collectivism" could be a "spontaneous, nongovernmental, egalitarian phenomenon," not just a totalitarian order imposed by the state. He also suggests that "Hayek doesn’t seem to grasp that human beings can exist both as individuals and as members of a society, without necessarily subordinating them to the needs of an imposed social plan (although he acknowledges that the state can legitimately serve social needs, he contradictorily views collective benefits as incompatible with individual freedom)."

Larner makes some defensible points. For example, he is right to imply that Hayek's arguments are more compelling as a critique of full-blown central planning than of more modest forms of government intervention. It is also true that full-blown economic central planning has a lot less support among left-wing intellectuals today than fifty or sixty years ago. Nonetheless, Hayek's ideas are far more relevant to our time than Larner thinks.

I. The Persistence of Central Planning in Left-Wing Thought.

Although the modern mainstream left no longer favors central planning of the entire economy, many left-wingers do favor government control of large parts of the economic system. Most European leftists and a good many American ones favor government control of the health care industry, which constitutes some 10-15% of the economy in advanced industrialized society. Some forms of government planning are favored not only by left-wingers but also by many moderates and conservatives. For example, government owns and operates some 90% of the schools in Western Europe and the United States. However much we take public education for granted, it still represents the socialization of a vast swathe of the economy.

In addition, many mainstream liberals such as Cass Sunstein and Supreme Court Justice Stephen Breyer (as well as some conservatives and moderates) favor giving broad regulatory authority to "expert" government bureaucrats. This is not quite the same thing as government ownership of large enterprises. But it has important ideological affinities with it, to the extent that both policies rely on central planning by expert government bureaucrats. Hayek's arguments in "The Use of Knowledge in Society" are certainly relevant as potential critiques of these various forms of planning - both those that involve government ownership of large enterprises in health care and education and those that rely on regulations administered by expert bureaucrats. If Hayek is right, all these planners and experts don't know as much as they think they do, and certainly can't aggregate knowledge as effectively as the free market can.

Finally, it's worth noting that even full-blown socialism isn't as completely dead as Larner assumes. For details, see my September 2007 post on "Why the Debate Over Socialism Isn't Over."

Fundamentally, most liberals and leftists still look to the state to plan large portions of the economy and other aspects of our lives. So too do many conservatives and moderates, as witness the rise of "big government conservatism" under George W. Bush. Today's advocates of government planning are more modest in their ambitions than the mid-twentieth century socialists whom Hayek criticized. But they are not modest enough to make his arguments irrelevant.

II. Hayek and "Voluntary" Collectivism.

Larner also criticizes Hayek for ignoring the possibility that "collectivism" could be voluntary rather than imposed by the state. He suggests that Hayek was wrong to ignore the thought of socialist anarchists such as Proudhon and Kropotkin, who favored communal enterprise without state control.

Much depends on what is meant here by "collectivism." To the extent that it simply means voluntary cooperation between individuals and groups in civil society, Hayek not only didn't ignore it, he was a great advocate of it. Throughout nearly all his major works, Hayek stressed the importance of voluntary social cooperation and repeatedly emphasized that individuals can't progress or even survive for long without civil society institutions and traditions that are the product of cooperation. Hayek's famous theory of "spontaneous order" was of course based on the idea that society progresses through the development of social norms and customs produced by voluntary cooperation in civil society. Hayek favored free markets and strict limits on government power in large part because he thought that they fostered such voluntary cooperation better than government planning does. Far from denying that "human beings can exist both as individuals and as members of a society, without necessarily subordinating them to the needs of an imposed social plan," Hayek wrote that:

[T]rue individualism affirms the value of the family and all the common efforts of the small community and group . . . [and] believes in local autonomy and voluntary associations . . [I]ndeed, its case rest largely on the contention that much for which the coercive action of the state is usually invoked can be done better by voluntary collaboration.

Some relevant earlier writings can be found here:

"Who You Gonna Call?" The Little Platoons
Sometimes What is New is Old: Misguided Incentives Drive Public Sector Taxation
Thoughts on the Law & Social Order
On the meaning of social justice
Moving Beyond Loyalty to the Rule of Law Mixes Law & Politics
The Radically Different Visions of Tax-Eaters Versus Taxpayers

ADDENDUM

Obama's rewriting of history continues. It is smart politics and the media will comply with repeating the mantra, likely leading to myths becoming viewed as historical facts.