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Here’s a second response to Fukuyama’s review of Hayek’s Constitution of Liberty:
Reviewing F.A. Hayek’s The Constitution of Liberty: The Definitive Edition, Francis Fukuyama writes that “there is a deep contradiction in Hayek's thought. His great insight is that individual human beings muddle along, making progress by planning, experimenting, trying, failing and trying again. They never have as much clarity about the future as they think they do. But Hayek somehow knows with great certainty that when governments, as opposed to individuals, engage in a similar process of innovation and discovery, they will fail” (“Friedrich A. Hayek, Big-Government Skeptic,” May 8).
Hayek was guilty of no such contradiction. Mr. Fukuyama wrongly convicts Hayek on this count by mistaking government planning and “muddling along” as being “a similar process of innovation and discovery” that occurs so successfully in the private markets that Hayek championed. The two processes aren’t remotely similar.
Plans in private markets are decentralized; government plans are centralized. Private-market planners risk their own money; government planners risk other-people’s money. Plans in private markets face constant competition from rival private plans; government plans are monopolies which face no such competition. This competition prevents plans in private markets from growing in scope to outstrip the knowledge and capacities of persons who make and carry them out. No such competitive check constrains the scope of government plans. Finally, plans in private markets – unlike government-made plans – often cross-pollinate with each other to inspire the creation and discovery of entirely new possibilities that would remain unknown without such decentralized planning within competitive markets. Government ‘plans’ almost inevitably suppress such possibilities of cross-pollination, creation, and discovery.
Sincerely, Donald J. Boudreaux
Or, more eloquently, as Hayek raps to Keynes in “Fight of the Century“:
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.
Finally, my friend Tibor Machan nicely challenges Fukuyama’s pronouncements about Hayek’s system of ethics.
{ 13 comments… read them below or add one }
Even without your last, and brilliant, response, Fukuyama’s premise is flawed. He distinguishes between “governments” and “individuals” as if they are a separate organic entities. In fact, government decisions are made by the same human beings whose flaws he critiques, with another layer or series of layers within which they, if his premise of human failure is correct, are bound make additional mistakes. He disproves his own argument without having the objectivity to realize it. Hayek can know with great certainty that central planning will fail because it is done by more of the same flawed humans with less motivation to succeed than those who possess their own expertise and incentive. Perhaps Fukuyama is auditioning to be a “Bureaucrat Czar”.
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Most importantly:
Most plans FAIL. People aren’t good at planning. MOST plans FAIL. ALL people are bad at planning. ALL PEOPLE are BAD at planning.
With a multiplicity of private plans, this is a problem only for a few people directly involved, and it’s almost never fatal for anybody. There’s always a backup down the street — in fact, that’s why private plans usually fail: The customers all switched to the guy down the street. The good ones rise to the top; the bad ones run out of money.
It’s a genetic algorithm.
With government plans, when they fail, and they do fail even more often (because the incentives are always perverse), there is no backup and everybody suffers.
If Fukuyama can’t grasp that, he is functionally a moron.
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And often when they fail, the conclusion is that not enough money was spent because they believe that spending money (with good intentions) is all that matters in achieving success
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An individual planning for himself is far more likely to get the results he seeks than if his neighbor,or worse, some legislator or bureaucrat, plans for him. Both the knowledge and incentives are wrong when someone else does your planning for you.
When millions of people are planning, some portion of them are likely going to do the right thing, even if by sheer luck. They then provide examples for others to follow. In the case of businesses, some will discover the lowest cost way to satisfy a need while others fail and start over, with the positive examples leading the way.
There certainly is no contradiction to say that government plans are likely to fail while individuals planning for themselves produce better results.
Of course much of central planning is not about helping individuals achieve the results they seek, but instead attempts to insert the goals of the central planners. Which is another reason why they usually fail to produce the intended results.
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I was just looking at the review, which I hadn’t read all the way through last time, and I can’t believe how he makes such statements like this: “Voters in the United States and Europe took seriously the arguments about the dangers of big government and reversed course after the 1980s. Indeed, the pendulum swung so far backward that financial markets were left dangerously unregulated prior to the financial crisis.” Dangerously unregulated? Really? Definitely not by Hayek’s standards. Of course he doesn’t cite actual examples, probably because he knows just about nothing about it. There have been examples of deregulation, but they’re very limited, for example, loosening rules on S&Ls, eliminating bans on interstate banking and repealing Gramm-Leach-Bliley. People like Fukuyama always speak in vague terms about “deregulation” but seldom talk specifics or ever note that financial regulation has overall been growing, a lot.
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Sir Don, This is the kind of post that keeps me coming back to the Cafe as the best blog on the internet.
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I will second that.
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I will second that motion!!
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If Fukuyama continues with this line of “scholarship” we can look forward to his endorsement of naive/vulgar Keynesianisms in the near future.
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To be fair I would say that there are cases in which Government can act just like the private sector and Muddle through to a conclusion by trial and error.
One example of this would be warfare, another would be big projects like for instance the Space program.
However, those would be special considerations, in most cases Government adopts a plan, and tries to work it’s plan, whether that be Welfare, or urban housing, or public health care, or minimum wage. etc.
And it works that plan regardless of whether it is causing more harm than good. Because the “best and the Brightest” decree it, and they are smart, they went to the best universities, and they could never be wrong.
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Plans in private markets are centralized in individuals; government plans are centralized in capital cities. Private-market planners risk their own money; government planners risk their own government’s money. Plans in private markets face constant competition from rival private plans; government plans face constant competition from rival governments’ plans.
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Crystal clear. This is the best ever, Prof. Don.
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