[As Jason Soon points out over at Catallaxy, once again Kevin Rudd is sounding off about F.A Hayek, and once again he's got Hayek's ideas badly wrong. Regular commenter and RMIT Professor of Economics Sinclair Davidson has stepped into the fray to clear up the confusion, which I'm pleased to post here. Sinclair quite rightly speculates as to the reasons for Rudd's hatred of Hayek, and comes up with some interesting ideas on that score.
My theory - for what it's worth - is that Rudd is a serious intellectual and policy wonk who appreciates the power of Hayek's most popular work, The Road to Serfdom. Anyone with half a brain can burn through this book in a day and grasp Hayek's profound arguments against command and control economics; unsurprisingly, RTS has played a large part in the development of many conservatives and libertarians. Rudd, methinks, wants to cut the stream off at its source - SL]
John Maynard Keynes famously said that there was no harm in sometimes being wrong, as long as one was promptly found out. Kevin Rudd is being promptly found out – yet he refuses to change his mind. Take, for example, his most recent attack on Friedrich von Hayek. Rudd was shown up as being a Hayek-ignoramus 18 months ago. Rudd had misquoted, misinterpreted, and even falsified Hayek’s arguments and views. He was quickly corrected.
Rudd now argues that we need not chose between Leonid Brezhnev and Hayek. Indeed. Brezhnev was a communist dictator who presided over a stagnating economy that eventually collapsed for the very reasons Hayek had foretold. Hayek, on the other hand, was a Nobel Prize winning academic who had argued that people should be free to live the lives they choose. In particular, Hayek was hardly the doyen of open-slather dog-eat-dog competition that Rudd portrays.
Rudd has proposed an activist and interventionalist approach to the economy. His ETS scheme is perhaps the greatest act of social engineering in Australian history, his FuelWatch scheme is a price-fixing exercise, and his Industry Policy is all about picking winners. These are all schemes that Hayek would have criticised.
Hayek’s great contribution to economics was an understanding that decision-making relied on having detailed information. Government very often has masses of data, but no good information. Rudd’s economic agenda relies on his government knowing more about individuals and their personal circumstance than they themselves know.
Rudd makes much of “market failure” yet seems entirely oblivious to government failure. Hayek has told us why and when governments’ fail. Most government intervention fails because the costs outweigh the benefits. Look at FuelWatch; the ACCC analysis showing that it would save even 2c per litre is now discredited. Hayek especially emphasises that efforts to control and manipulate incomes and prices are doomed to failure. These are harsh implications for a hard-line social democrat government.
Government does have an important role to play in the modern economy; but not the role Rudd wants for it. The Rudd government wants to replace market signals with government. Rudd has learned from Brezhnev’s failure. He is not so crass as to simply issue commands. Rather, the Rudd government is devising a series of schemes whereby they can influence markets and prices. The ETS is a scheme to raise energy costs and generate revenue. Their industry policy substitutes government preferences for consumer preferences. Hayek warned against all this.
Why pick a fight with a long dead and somewhat obscure academic? Rudd is attempting to appropriate the language and rhetoric of free-markets while expanding the role and scope of the state. He claims to recognise the power of markets to generate economic prosperity, but believes that government design is better than human action. He needs Hayek’s argument without Hayek’s conclusions.
Australians have every reason to be wary of Rudd’s plans for Australia. Hayek has warned us that government is very powerful yet less effective than its proponents believe. Rudd knows Hayek and his arguments, yet will proceed regardless. In this, Kevin Rudd suffers from the ultimate fatal conceit.
20 Comments
SD,
I’m sure he’s smart enough to know all that. But having things like FuelWatch are good politics. It shows he’s doing something about something you can’t do anything about, and if it goes wrong, he can just blame the ACCC — you can’t lose. The ACCC said we’d save 2c after all…
Also, personally, I can’t stand this picking winners idea. But if you pick things that sound good (e.g., “we’ll be leaders of nanotechnology”), then the average person on the street thinks that their money is being spent better than usual — and they may be right, since the choice isn’t between money well spent and money poorly spent, it’s between money poorly spent or money spent even more poorly. Again, since there essentially no way to evaluate the lost money, it’s a sure winner politically — no-one thinks about how the money could have been better spent distributed across Australian industries/individuals — they only see examples of individual things, so as long as you get one shitty outcome, you’re a winner.
Conrad – I don’t know. Rudd is a smart guy, but he does seem to have a blind spot on economics. In particular his economic policies seem to be exactly what Hayek said governments should not do (in The Constitution of Liberty and also in LLLIII).
GroceryWatch is going to be bad politics, I think. That website is beyond useless – yet it shows the aggregate information that policy makers rely on for their decision making. It exactly highlights Hayeks point about information and local knowledge.
Sinclair, this post has put its finger on my discomfort with the Rudd government’s economic policies. I feel as though it makes big showy announcements that are designed to look good to the average punter, but will not actually effect the desired change in the economy.
Furthermore, I feel deeply worried about the ETS proposal as something which may have grave unintended social consequences. However, on a global level, any cut in emissions by Australia makes a negligible difference to global carbon emissions: hardly worth doing on a practical basis (although I am sure there are many who will argue that we need to “make a political statement”).
Maybe the blame has to be placed on Rudd’s advisors, on Hayek that could be David McKnight who wrote a book full of errors, some of which Rudd has repeated. This is a critique of McKnight, which he has read and replied that no changes are required for the second edition of the book. Words fail…http://www.the-rathouse.com/2008/McKnight.html
I’m with you on this Rafe — I think it’s most likely that Rudd’s advisors are exceptionally bad on this issue (not that it makes much difference — so few people would know about this sort of stuff that I think Rudd could say essentially anything and get away with it). A second alternative is that they’re basically scared of Rudd (he apparently has a rather bad temper), in which case no-one is going to tell him when he is wrong. A third alternative is that his advisors are a bunch of ass-kissers and woudn’t tell him even if didn’t have a bad temper.
LE – I think that is right. Alex Robson and I said as much in our Wall Street Journal Asia op-ed before the last election.
Rafe/Conrad – I don’t know who has advised Rudd on Hayek. I’m not convinced it was McKnight. In his Beyond Left and Right McKnight seems to have a better understanding on Hayek than Rudd does (or whoever wrote Rudd’s 2006 Hayek piece). It may have been Rudd himself. Recall at the time he wasn’t leader, so he wouldn’t have had very many staffers around to help him.
I agree with the point that Rudd doesn’t seem to be able to take good advise – that was the focus of a Weekend Australian hotpiece a few weeks ago.
A number of people seem to be getting worried about the economic direction. Michael Stutchbury, the new economics editor at the Australian, had a very strongly worded piece yesterday.
The fact that he speaks several languages doesn’t mean he has anything intelligent to say in any of them.
Sinc, I don’t have time to put Rudd and McKnight side by side to check which is the worst account of Hayek but on my reading of McKnight’s book he has done so badly that it is hard to imagine anyone doing much worse. It is remarkable that so few people can see the fraud and I am not aware of any Coalition politician who has voiced an opinion. Maybe they think it would be a waste of effort because nobody in the electorate would care.
On a tangent, related to misunderstanding and misrepresenting Hayek and classical liberalism, reading John Gray’s revised thoughts on liberalism, it seems he has had a brain explosion and lost the plot. What is the Oxford perception of his change of heart? I guess they mostly think he has seen the light and turned his back on the Dark Side:) There again, he has turned his back on Oxford as well!
How clever is Kevin Rudd? The proverbial drover’s dog should be able to win elections with about 90% of the working press and media actively supporting the ALP plus massive trade union funding. It is a miracle that Howard ever got up, thank Keating, the dullness of Beazley and the self-destruction of Latham. But getting back to Rudd, what sort of shape is Queensland in as a result of his efforts up there? How come he does so many dumb things? How come his closest advisors are 28 yos? Etc.
I think it’s all about politics and fuck all to do with economics. It’s a good illustration of how what is right in one field of practical philosophy is wrong in another.
Hayek might be obscure but via Friedman he actually wields quite a bit of concrete influence. Along with Keynes Friedman’s got to be the 20th century’s most influential economist.
The Hawkeating era alienated many of the traditional blue collar ALP supporters because their deployment of neoliberal policies caused them pain. Generally the arguments viz the necessity of that pain or the benefits reaped later on (after Keating got the boot) are not of much interest to the average punter.
Howard got the boot because of WorkChoices. Regardless WorkChoices’ benefits for the economy as a whole most people’s idea of the economy is their paycheque. WorkChoices slashed a few paycheques, goodbye Howard.
Kevvie knows this. It’s unclear to what extent however he knows the substantial criticisms of his various adventures. Does he understand why it’s a bad idea to give $35 million bucks to Toyota for a factory they were going to build anyway? Did he calculate that against the political gains he’d make?
Not sure. It’s apparent one way or the other that the ALP Left has more sway now then it ever has in my experience. More than anyone else on the Left (the Trots excepted – they seem to’ve failed to learn the lessons of the post-war era. Not just the Sov collapse but also the brain-drain and union induced clog in Britain).
In any event whether Kevvie understands Hayek or not is immaterial. It’s a political salvo designed to distinguish the ALP from its 80s neoliberal flirtations and demonize advocates of free markets.
The proverbial drover’s dog should be able to win elections with about 90% of the working press and media actively supporting the ALP plus massive trade union funding
I’m sorry Rafe but the idea that the overwhelming majority of those in the media are the robotic agitprop agents of the ALP is just hooey.
Kevvie played Howard very well last year. And Howard just ran out of puff. His best shot was: Please vote for me again, I like this job. Pathetic. Time to go.
I reckon most people wouldn’t know who Hayek was or have any idea of the substance of his arguments. They’d just have a vague idea that he was someone who was very pro-free-market, if anything.
I think Howard got voted out because people were ready for a change, and wanted a more “socially aware” government. I voted for this mob, but my fear now is that they are into appearances over substance, economically speaking – make it look like you’re doing something, and don’t worry if it has the effect you want or not.
I’m particularly worried that the ETS might send our economy off a cliff, all for ideological reasons rather than any practical difference that we can make.
To be fair, the previous mob were also guilty of economic reforms for the sake of window dressing too eg, first home buyer’s grant and baby bonus (as I said in a previous post, the net effect of all these rebates and bonuses is usually minimal because of resultant market distortion).
Legal Eagle, I think your observation re Howard’s demise is accurate. (as is Adrien’s)
An additional factor was his loss of credibility, trust, honesty etc amongst the general public. Simply look at the history :-
core/non core promises, the children overboard episode, the AWB affair, the flagrant exploitation of “fear”to drive an issue, failure to enforce even basic ministerial standards, the blatant use of staffers to defend ministerial actons or inactions.
I think many people saw dishonesty as an intrinsic component of Howard’s modus operandi!
Combined with a failure in the area of economic reform in – particularly in the last 2 terms – made the public very cynical.
Howard did run out of puff but Liberal supporters could rightfully ask where was some vitality from the then Treasurer!!
I think Howard got voted out because people were ready for a change, and wanted a more “socially aware” government. I voted for this mob, but my fear now is that they are into appearances over substance, economically speaking – make it look like you’re doing something, and don’t worry if it has the effect you want or not.
It might be nice if politicians who want to be socially aware to try and figure out a way of doing this that isn’t useless and/or destructive. Rudd’s economic policies seem straight out Britain c 1960. Obama appears to intend to do this considering his heterodox policy advisors. However he does have a big shopping list. That’s the trouble with politicians it’s easy to spend other people’s money.
I didn’t vote for Rudd. I live in a safe Labor seat. Never make it too easy for ‘em I say. I did want Howard out he’d become a real pain.
Voted for the Greens by way of the LDP. I’ve voted Green in the upper house for a while. Something about sending a message viz the environment to the major parties. The LDP thing was a message to the Greens.
I reckon one message got thru and one did not. But ta-ta the Greens, useless buggers.
Maybe a huge billboard outside Parliament House:
ATTENTION: THROWING PUBLIC MONEY AT PROBLEMS SOLVES THEM NOT!!.
Well sometimes it solves ‘em. Kinda.
Huh I live in a Blue Ribbon Liberal seat.
Why is it that I’ve always lived in safe seats (either safe Labor or safe Lib?) Surely I’d have gotten more bang for my buck by living in a marginal seat…must plan better next time.
Huh I live in a Blue Ribbon Liberal seat.
I used to live in Jeff Kennett’s neighbourhood. Every day he’d return in his limo (a few public artworks in the boot wink wink). I’d throw eggs at him. Not out of political objection however. I just hate white limos and his bloody haircut.
He always caught them in a net. Why pay for eggs – cheap Scottish bastard!
Oliver Hartwich has published a piece in the Oz responding to Rudd. It is very good.
Thanks for that Sinc. V. good indeed – looks like you got ‘bumped’ as they say in aviation!
Yes. At least I was bumped for a better piece on the same topic. I’ve previously lost a spot on stuff that isn’t (IMHO of course
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You beat me to it Sinc, BTW Hartwich is coming to work at the Centre for Independent Studies.