“Three things happened to change people’s thinking in recent years,” he continued. “First, they have seen how badly the public sector can mess things up. With competition, things seem to go better. Innovation happens. The world is more focused on variety than quantity. Secondly, markets are able to do things that people used to think required government coordination. Markets make it possible to rent videos in every town in America, with no public involvement. There is now a skepticism about the view that you have to have the public sector to get things done. And thirdly, a gradual refinement in economic science has led to an upward revision in elasticities, in how systems respond. There is a greater response to tax rates than people used to think. If you interfere with property rights, business responds by going elsewhere. Maybe it is because economies are more global.
“What’s the single most important thing to learn from an economics course today?” X asked. “What I tried to leave my students with is the view that the invisible hand is more powerful than the hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That’s the consensus among economists. That’s the Hayek legacy.”
(quoted from Daniel Yergin and Joseph Stanislaw, The Commanding Heights, New York: Simon and Schuster, 1998.)
QUESTION: Who is X?
READER COMMENTS
Jesse
Mar 18 2009 at 5:32pm
Dow 36,000?
Bill Kruse
Mar 18 2009 at 5:33pm
Larry Summers. He still has this conviction, I think. But he’s powerless against Rahm Emanuel, so he goes on news shows and talks tough, while resigning himself to the lowly role of chief economic rationalizer of Obama-Pelosi-Reid-Emanuel economic policies. Very sad.
Les
Mar 18 2009 at 5:36pm
I think what you said is correct, and is understood by good economists.
But I very much doubt that its understood by laypeople. In my perception many laypeople who would never ever think of performing brain surgery or biophysics, unhesitatingly hold forth on economics as if they were experts – never dreaming that they are too ignorant to recognize how painfully ignorant they actually are about economics.
Sid
Mar 18 2009 at 5:42pm
Larry.
It’s obvious the point you are trying to make. So then, pray tell, how do you suggest getting private markets to organize when they have broken down?
For many reasons, I do not like an interventionist administration. I also do not like a financiers who claim to be acting on the interest of the market when their true goals are selfish.
But what is worst is the compromise we find ourselves in where a comfortable status quo has emerged for bankers and politicians funded by your children’s future.
Greg Ransom
Mar 18 2009 at 7:23pm
Who said this?
“The market is the best mechanism ever invented for efficiently allocating resources to maximize production. And I also think that there is a connection between the freedom of the marketplace and freedom more generally.”
Economists should recognize the first sentence as a statement of “The Hayek Hypothesis” and the second sentence as a statement of “The Hayek-Friedman Hypothesis”.
Who said it? Barack Obama, about 9 months ago.
Blackadder
Mar 18 2009 at 7:24pm
Larry Summers?
John S.
Mar 19 2009 at 7:48am
Sid,
Every weekday and some weekend days, I drive to my place of employment and spend 10-12 hours of my time doing a variety of things for my employer. In return for my services, my employer gives me some money. I don’t do these things for the benefit of my community or society. I don’t do it because I like my employer. I do it because of my own “selfish” reasons.
I am equally sure that you and everyone who reads these blogs engages daily in activities for your/their own selfish reasons.
The difference I think is the magnitude of income versus unit of person. If one person receives x, and another one person receives 1,000,000*x, we all get upset about that second person being “greedy”.
I submit to you that we are all greedy and selfish. Should we all not be punished for our mutual nature?
I’d like to propose another word for the debate: envy.
I, too, am envious of those who are doing so well when others are not doing too well. But I am not sure that I am willing to smote our freedoms for income equity.
wintercow20
Mar 19 2009 at 11:14am
Sachs?
Hugo Pottisch
Mar 19 2009 at 2:31pm
Kaynes sees the market as a complex instrument.
Hayek sees the market as a simple ecology.
A complex instrument can be mastered.
A simple ecology can be observed and respected and we can throw stones into the ocean.
Of course we want to be able to make it rain. Of course we do not know how. E.g. Our best ecologists E O Wilson on how little we know about a hand of soil or ecosystems in general (at least the stock-market and the economy belong to the simplest ecosystem there are on the planet) http://www.ted.com/index.php/talks/e_o_wilson_on_saving_life_on_earth.html
This discussion is tiring. When I realized that the market is a simple ecosystem – I first started appriecating how little we know about complex ecosystems. Then I realized that we can only observe & learn at this point. The ONLY action that we could do is not compatible with human nature – namely to stop doing things. Not just stop doing new things but also stop doing old things… This has and never will work due to our “inferiority” complex and identity crisis (I am digressing).
Then I realized that what we’ve been observing for decades if not centuries now – is worse than what we have seen in the economy over the last few months. When comparing the economy to the ecology – we are currently booming.
Take mammals and birds. We have 80% unemployment and raising according to the FAO Statistical Database. 55 billion animals on welfare? Check it out here: http://faostat.fao.org/site/573/default.aspx#ancor
Sid
Mar 19 2009 at 4:32pm
I have no problem with selfishness, as a virtue or otherwise, John S. Indeed, I wouldn’t be working for ex-AIGFP staffers if that was the case for me too.
However, and perhaps I should have been clearer in my statement about bankers, you can’t take your analogy to that extreme: their actions harm the very system they claim to protect.
Personally, I have had plenty of opportunity in my banking career to progress my salary & bonus but always at a price (telling a little white lie to a client here or shafting a fellow employee there) I did not want to take. And before you think it was because of moral reason – it was not – I do not care for the stress and complexity that would come with it.
Now just think about that when you consider the career paths that the CEOs of major banks have taken.
Comments are closed.