“I don’t want to do nothing, there’s plenty to do
The question I ponder is who plans for whom?
Do I plan for myself or leave it to you?
I want plans by the many, not by the few.”
–“F. A. Hayek” in “Fight of the Century”
By now I’m guessing most readers of this column have seen round two of the Hayek-Keynes hip-hop video battle, otherwise known as “Fight of the Century.” Russ Roberts and John Papola have F. A. Hayek and John Maynard Keynes battling it out again, this time in a boxing ring and congressional hearing as they explore alternative cures for recession. The chorus nicely contrasts Keynes’s “top down” with Hayek’s “bottom up” approach. As with the first video, the lyrics provide a pretty accurate picture of the two different ways of dealing with a recession.
There’s much in the second video worth talking about, but I want to focus on “Keynes’s” claim that “Hayek” would do nothing but wait for markets to equilibrate. This is a common argument made against Austrian perspectives on the business cycle. Even critics who can understand the desire to avoid creating another boom will often say that “people are really suffering, so shouldn’t we do something about it?” They might even be willing to take the risks involved with what Roberts and Papola call the “hair of the dog.” I think Austrians and libertarians need to have a response to this line of argument.
Who Does the Doing?
The lyric that leads off this column is a powerful way to respond: It’s not that we want to do nothing. Rather we want many people to respond rather than “the few” who would direct resources in any government response. There are two ways of reading this. In the video the most plausible interpretation, especially given another line contrasting the “entrepreneurship” of the market with the “central plan” of stimulus spending, is that we need to free up markets so that individuals, households, and small businesses can get on with the work of creating valuable employment and the products people want. Considering that knowledge is dispersed, contextual, and often inarticulate, it makes sense to leave the “planning” to the many, who have the knowledge relevant to productive resource allocation. If policymakers would just get out of their way, they can get the economy going again.
But the critic might respond, “That takes time – what do we do about the unemployed now?” In the video this is the Keynes question that lands the strongest blow in the boxing ring, leaving Hayek reeling from the punch. Roberts and Papola have it right – that’s a tough question.
A really good response might invoke a second interpretation of that stanza I quoted. The “plans by the many” need not refer only to production and the more narrowly economic things we might do. They can and should also refer to the ways in which the institutions of civil society — from houses of worship, to ethnicity-based organizations, to communities coming together — can facilitate mutual aid to those who are out of work or otherwise suffering during a recession. It’s not just the restarting of the economy that comes from “the center” in the Keynesian worldview, but also the immediate relief efforts. Hayekian knowledge considerations apply here too, and such immediate relief efforts are likely to be less effective than decentralized ones that are more fine-tuned to the needs of specific communities.
Well, says the critic, that’s all fine in theory, but you can’t really can’t expect that to happen in the 21st century. Yes, actually we can. We’re seeing it this week in the decentralized and highly effective response to the tornadoes in the South. We saw it where it was allowed after Hurricane Katrina. But do economic crises work the same way?
Unfortunately, one of the legacies of the very Keynesianism under consideration here is that it has deeply embedded in the culture the belief that the responsibility for addressing economic hardship lies with the State — whether it’s getting the economy back to full employment or providing immediate assistance for those currently in need. The result of this cultural shift has been the crowding out of the multiplicity of forms of mutual aid that worked so well in the early twentieth century. In an ideal world, it would be not just “plans by the many, not by the few,” but also “help by the many, not by the few” through which free people “do something” in response to the bust of the business cycle. Sadly, that response is less likely today precisely because we have made “Keynes” the master and the hero. Until we recognize that the “pretence of knowledge” applies not just in the economy in the narrow sense but also across society as a whole and all that government does, we will make it difficult to do the decentralized “somethings” that are necessary and most effective in times of crisis.