Soros on Hayek
Yesterday, I attended an invitation-only event at the Cato Institute, featuring a new edition of the Hayek’s The Constitution of Liberty. [UPDATE: now available on youtube]. The panel consisted of Bruce Caldwell, Richard Epstein, and George Soros. In terms of volubility, Caldwell was overshadowed, but he was my favorite among the panelists.
[UPDATE: For more Caldwell on Hayek, see this essay on ten insights that apply today.]
Epstein spoke so rapidly that I cannot be sure that I got what he was saying, but he seemed to suggest that Hayek would have been better off incorporating the concept of a social welfare function. I actually think that is one of the more tenuous concepts in all of economics, and it is hard for me to see how Hayek could have wanted or needed it in his work.
Soros equated Hayek with the Chicago school of economics. In particular, Soros blamed Hayek for promoting rational expectations and the efficient markets hypothesis. I doubt that anyone else on the panel or in the room shared this view of Hayek. However history views Hayek, I do not expect him to get credit for anticipating Fama or Lucas. In fact, as Frydman and Goldberg point out in Imperfect Knowledge Economics, rational expectations runs counter to Hayek’s theory of local knowledge, which is one of his most important contributions. I do not see how Hayek could approve of any form of representative-agent modeling.
Soros expressed regret over political polarization. My sense is that this is what the Left complains about when it is not doing well. It would be interesting to correlate stories on polarization with polling data on support for Democrats. My guess is that when the latter is high, the press is less likely to describe the public as polarized.
Soros framed the choice as one of believing that markets always work or believing that markets sometimes fail and therefore we need government. Afterwards, a few people said to me that they wanted to intercede with the line “Markets fail. That’s why we need markets.”
Suppose we were to hold Soros up to the standard: how well do your arguments impress those who disagree with you?
My sense is that he did poorly by that standard yesterday. However, who among us does well by that standard?