A simple Hayekian test for conservatives

(Dan here…Eric will be posting some of his work.  He has read many econ blogs but has not published in the econ blogosphere.  He is experienced otherwise…welcome  Eric.)

Bio for Eric Kramer

I am an economist and lawyer by training and I am currently writing a book on political economy and the role of government.  The book defends the liberal idea that government should actively regulate markets to promote efficiency and to ensure that opportunity and prosperity are widely shared against the leading arguments for limited government, especially the consequentialist arguments of Friedrich Hayek and James Buchanan and their intellectual heirs.  Prior to starting work on the book, I was a finance and strategy executive for The Plymouth Rock Companies for many years.


by Eric Kramer


A simple Hayekian test for conservatives

Hayek believed that non-economists are frequently dissatisfied with the hardships, risks, and inequities created by capitalism, and that they frequently support harmful government regulation of markets because they do not know how markets work.  As Hayek recognized, this puts economists in a difficult political position.  Successful persuasion requires a perception of common values, but when economists argue against popular, common-sense efforts to address the perceived hardships and inequities of unregulated capitalism, they risk being dismissed as apologists for the wealthy or as ideological extremists.

Hayek was sensitive to the political challenges he faced as an advocate for lightly regulated capitalism.  He famously emphasized – and arguably exaggerated – the values he shared with his socialist opponents.  He recognized that economists cannot simply urge people to reject bad policy proposals, that they needed to offer constructive solutions to the problems created by capitalism.  To be sure, Hayek sometimes does lapse into harsh criticism of egalitarians and a rigid rejection of welfare state capitalism, but at other times I believe he endorsed a larger role for government than he personally approved of to preserve his own credibility.

Here is a simple Hayekian test for today’s economic conservatives.  When you are tempted to make an argument against government efforts to help people who are experiencing some hardship, ask if the argument is likely to be persuasive to people experiencing the hardship and to those who care about them.  If not, then your argument is not only likely to be ineffective, it is likely to discredit you, and it may make people distrust economists and perhaps even intellectual elites generally.  Ask yourself if this is really what you are trying to accomplish.

Here are some familiar examples of what I have in mind.  Suppose someone argues that the government should do more to boost the incomes of the poor.  You respond by claiming that taxation is theft.  You may try to back this claim up by making up stories about solitary people in a state of nature acquiring previously unowned objects.  Or perhaps you try to change the subject by replying that the best way to help the poor is to do less for them, because that will increase economic growth, or that the best way to fight poverty is to increase immigration because the poorest people live in developing countries.

Or suppose someone argues that health insurance should be available to people with pre-existing conditions, or that the government should pay for clotting factors for people with hemophilia.  You argue against these proposals with vague talk about the efficiency of the market, without explaining how someone with a serious illness will be able to afford insurance in an unregulated insurance market.  Maybe you suggest, as Milton and Rose Friedman did in Free to Choose, that a negative income tax can replace direct subsidies for hemophiliacs, even though it is obvious that a person scraping by on a negative income tax rebate will not be able to afford clotting factors.  Or perhaps you express confidence in the ability of private charity to cover people who fall through the cracks of a deregulated system, casually citing experience from earlier generations when health care was far less expensive and effective than it is today.

Ask yourself if these arguments are likely to be persuasive, or even seem relevant, to the poor, or to people with pre-existing medical conditions, or to the parents of children with hemophilia.

Conservatives frequently claim that liberals engage in wishful thinking about politics.  They tell us that we need to look at “politics without romance”, as the public choice economist James Buchanan put it.  But when conservatives make arguments for limited government that are clearly not going to be persuasive to people suffering from economic hardships, when they change the subject or engage in whataboutism (“economic growth!”, “immigration!”) or oppose imperfect policies without proposing politically realistic alternatives, they are the ones engaging in political wishful thinking.  They aren’t thinking carefully and realistically about how politics works, or about how economists can use their real but limited influence in ways that most benefit the public.