Monday, January 19, 2009

Samuelson on Hayek, A Comment on Comments

Paul A. Samuelson has published "A few personal reminiscences of Friedrich von Hayek" in Journal of Economic Behavior and Organization, January 2009, vol. 69, issue 1, pp. 1-4, which I happen to edit, with an accompanying paper pp. 5-16 by Andrew Farrant and Edward MacPhail, entitled "Hayek, Samuelson, and the logic of the mixed economy?" One can link to Samuelson's paper at http://economistsview.typepad.com where Mark Thoma has it as one of his links for 2009-01-18 (easier than listing the whole url). In the last two days there have also been full blown postings on The Austrian Economists, Marginal Revolution, and Brad DeLong, with lots of furious commentary on the first two about it. While Samuelson praises Hayek's economics of information, saying he was the real winner of the socialist calculation debate and deserved his Nobel, PAS also criticizes his macroeconomic theory in comparison with Keynes's, argues his Road to Serfdom was wrong in forecasting that allowing for various forms of state intervention would lead to the road to serfdom, and dismisses Hayek's own criticisms of him on this matter, with Farrant and MacPhail examining the letter exchanges between them on this issue, and largely agreeing with PAS. The paper also has a long footnote highlighted by both Tyler Cowen at MR and Brad DeLong in which he reprises Melvin Reder's discussion of anti-Semitism by Keynes, Schumpeter, and Hayek, concluding that Keynes was the worst on this and Hayek the best of these three.

The comments on AE and MR have been mostly perfervidly livid at PAS over this article, going on about many points. However, I wish to address one in particular that has been brought up a bunch, one that was already mashed over in a posting and comments on Marginal Revolution by Tyler Cowen on 11/20/08. Responding to a nasty quote by PAS in Spiegel that "libertarians are emotional cripples," he linked to p. 416 of Mark Skousen's The Making of Modern Economics, who quoted the 13th edition of Samuelson and Nordhaus Economics from 1989, p. 387: "The Soviet economy is proof that, contrary to what many skeptics had earlier believed [a reference to Mises and Hayek](bracketed remark by Skousen) a socialist command economy can function and even thrive." Cowen and others have jumped on this as proof that Samuelson is "incompetent" and a lot worse, even though he cited CIA data for his claims, and also of course these commentators claiming the superiority of Hayek and how dare Samuelson say all those bad things about him.

Well, some of the language in Samuelson's paper (which I edited), is a bit strong, but I agree with the substance of most of it. Furthermore, while Hayek argued that centrally planned socialism would be inefficient, an argument PAS agrees with, Hayek no more forecast the moment of the Soviet collapse than did PAS or the CIA or pretty much anybody other than a French sociologist named Revel in 1976. Also, the severe economic decline in the Soviet bloc largely came after the political collapse of the bloc. It is not at all clear such a collapse would have happened without the political collapse, if the Soviet leaders in 1989 had cracked down on the independence demonstraters in Lithuania, the people fleeing across the Hungarian border into Austria, and of course supported the Honecker regime in East Germany in preventing the Berlin Wall from falling. After all, the upshot of the Chinese crushing the demonstrations in Tienanman Square was continued economic growth with a gradual transition to its current peculiar mixed economy that has grown very rapidly. And for all the carrying on many make about the Soviet economy, while it may have been inaccurate to describe it in 1989 as "thriving," and it was falling behind the US in growth, technical innovation, and quality of goods, it was functioning, and the population was not starving or homeless or without clothing or education or medical care, although it was politically repressed. But it had provided the industrial expansion that allowed it to build a military capacity that defeated Hitler's military at Stalingrad and Kursk. In short, this dumping all over PAS for these statements is fairly ridiculous, whatever one thinks of Samuelson's ultimate or broader influence on economics as the godfather of its mainstream neoclassical form in the last half of the 20th century.

The comments at The Austrian Economists can be found at http://austrianeconomists.typepad.com/weblog/2009/01/samuelson-reminiscences-hayek-in-jebo.htm and the ones at Marginal Revolution are at http://www.marginalrevolution.com/marginalrevolution/2009/01/samuelson-on-hayek.html.

17 comments:

rdan said...

The links do not work.

reason said...

In both cases you are missing a www.

MC Shalom said...

They Bail Out, We Opt Out.

All of Our Economic Problems Find They Root in the Existence of Credit.

Out of the $5,000,000,000,000 bail out money for the banks, that is $1,000 for every inhabitant of this planet, what is it exactly that WE, The People, got?

If Your Bank Doesn't Pay Back Its Credits, Why Should You Pay Yours? Or Else ...

If the Banks Get 0% Loans, How Come You Don't?

At the Same Time, Everyday, Some of Us Are Losing Our Home or Even Our Jobs.

Credit is Mathematically Inept, Morally Unacceptable.

They Bail Out, We Opt Out

Opting Out Is Completely Anonymous.

The Credit Free, Free Market Economy

Is Both Dynamic on the Short Run & Stable on the Long Run, The Only Available Short Run Solution.

I Am, Hence, Leading an Exit Out of Credit:

Let me outline for you my proposed strategy:


Preserve Your Belongings.

The Property Title: Opt Out of Credit.

The Credit Free Money: The Dinar-Shekel AKA The DaSh, Symbol: - .

Asset Transfer: The Right Grant Operation.

A Specific Application of Employment Interest and Money.
[A Tract Intended For my Fellows Economists].


If Risk Free Interest Rates Are at 0.00% Doesn't That Mean That Credit is Worthless?

Since credit based currencies are managed by setting interest rates, on which all control has been lost, are they managed anymore?

We Need, Hence, Cancel All Interest Bearing Debt and Abolish Interest Bearing Credit.

In This Age of Turbulence The People Wants an Exit Out of Credit: An Adventure in a New World Economic Order.

The other option would be to wait till most of the productive assets of the economy get physically destroyed either by war or by rust.

It will be either awfully deadly or dramatically long.

A price none of us can afford to pay.

“The current crisis can be overcome only by developing a sense of common purpose. The alternative to a new international order is chaos.”

- Henry A. Kissinger


They Bail Out, Let's Opt Out!

If You Don't Opt Out Now, Then When?



Let me provide you with a link to my press release for my open letter to Chairman Ben S. Bernanke:

Chairman Ben S. Bernanke, Quantitative [Ooops! I Meant Credit] Easing Can't Work!


Yours Sincerely,

Shalom P. Hamou AKA 'MC Shalom'
Chief Economist - Master Conductor
1 7 7 6 - Annuit Cœptis
Tel: +972 54 441-7640
http://edsk.org/

Roger Koppl said...

Barkley,

You’re always pretty even handed with Hayek, but I think you should be even kinder to my hero.

I think it’s completely mistaken to suggest (whether as internal or external critique) that Hayek should have been able “forecast the moment of the Soviet collapse.” First, I don’t think it’s fair read of the calculation debate to say it predicted the collapse of the Soviet system. It predicted the Soviet economy would not bury the West. Latter day Austrians do often say “socialism is impossible,” but that’s loose talk. Mises and Hayek said “rational economic calculation” is impossible under socialism. You can have socialism; it’s not impossible. If you really try to do that, however, it won’t be as efficient as you imagine. Both “true” and Soviet-style socialist systems will do significantly worse than systems with mostly “free” markets. That has nothing to do with timing an inevitable collapse. Indeed, collapse was never a specific prediction of Hayek et alii. The Austrian line was always that the really red economies of East Europe and elsewhere has Western markets to feed them the price information that kept them from spinning out altogether. IMHO these points are all clear right from the start with Mises’ 1924 (?) book.

I also think The Road to Serfdom is better than you and Samuelson seem to allow. I suppose it’s fair to say that Hayek exaggerated the dangers of interventionism on at least some occasions. I see more ambiguity here than you seem to allow, but I appreciate how nuanced your “60 years” paper is on these very matters. But even on the dangers of the welfare state, I think Hayek had a legitimate core point. The distribution of income is an unintended consequence of human action. You cannot plan the distribution without either controlling everything or letting your plans be constantly upset. Either your policy will fail or you will land in hell. In practice the welfare states have not tried to plan the income distribution, at least to the degree that would put them on Hayek’s road. Hayek always said we can and should have income transfer programs to help out those who don’t emerge well from the “mixed game of skill and chance.” That is not full-on planning of income distribution, however.

Rdan: I think the link has "htttp" where it should have "http"?

Anonymous said...

Roger - what do you make of Viner's argument that Hayek's argument are often only applicable to straw men (eg - Hayek's idea of social justice)?

Roger Koppl said...

Anonymous,

Why are you posting anonymously? I confess, that practice always puts me on guard.

Anyway, I'm enough of a Hayekian to think he was about right on social justice. It's completely true that the term has an elastic meaning. It often means nothing more than, "good." But that fact only strengthens the case for criticizing the term IMHO. If we speak of "social justice" we seem to say someone did not get his due *and* it's because someone else did not *give* him his due. If Hayek was right about the distribution of income, that way of thinking harbors unseen dangers. From such a POV it's quite reasonable to examine the term and see if it really coheres with other uses of the word "justice." I don't really think that mode of arguing adds up to an attack on a straw man.

Anonymous said...

Why anon - do not have google ID (only way I could post)


sorry

Robert Vienneau said...

Roger,

I have not read the succession of prefaces to different editions of the "Road To Serfdom". I read Farrant and MacPhail as suggesting that Hayek was inconsistent in his prefaces on the question of whether mixed economies, like Sweden, were included in his attack. Do you think he was clear and consistent on this question?

Roger Koppl said...

Robert,

My impression is that he was not. I liked the Farrant & MacPhail paper and found it persuasive. At a minimum he sometimes seemed to say these exaggerated things about the welfare state. Maybe that's a false impression based on confusion over what counts as the "welfare state." Maybe not. I don't know. Honestly, I don't really care whether he made some dumb remarks here and there. As I said, however, even if we exaggerated on some points, he had core point on income distribution that is worth understanding.

Anonymous,

There is one other strategy that might work. You could sign your name like so:
Sincerely,
Roger Koppl

Bill R said...

"It is not at all clear such a collapse would have happened without the political collapse, if the Soviet leaders in 1989 had cracked down on the independence demonstraters in Lithuania, the people fleeing across the Hungarian border into Austria, and of course supported the Honecker regime in East Germany in preventing the Berlin Wall from falling"

Ahh the academic Marxist line... I doubt even Samuelson would support that position given his current (new found?) devotion to the "Limited Centrist State" and "dynamic moving center". As for the Soviet economy "A wide range of death tolls has been suggested, from as many as 60 million kulaks being killed suggested by Aleksandr Solzhenitsyn to as few as 700 thousand - by Soviet news sources - with a rough consensus forming around the figure of 20 million.[7] Social upheaval continued in the mid-1930s. Stalin's Great Purge of the party killed many "Old Bolsheviks" who had participated in the October Revolution with Lenin. Yet despite the turmoil of the mid- to late 1930s, the Soviet Union developed a powerful industrial economy in the years before World War II." Well hey if you gotta break a few eggs.... And by praising the Soviets for standing up to mighty fascists do you not also praise the Nazi political-economic model as well?

Roger Koppl said...

Bill R,

No one is saying murder is good. Barkley is pointing to evidence that the collapse of the Soviet system was not an inevitable, internal, economic collapse. That is relevant to his take on the Austrian calculation argument, which is that such a collapse had to come.

Barkley,

I'm not sure which way your facts cut. Tienanman Square was clearly a product of increased wealth for many ordinary persons in China. In that sense the protests and crackdown were signs of economic success. Can we say the same of the Soviet states? Wasn't the problem low wealth relative to the West, plus technological changes coming from the West such as video cameras? That the sort of thing you might have expected if you bought the Austrian calculation argument, no?

Bill R said...

I was addressing Rosser's apologia for the USSR. While I admittedly addressed the tangent I think it's important to note that the "efficiency" of the Soviet economy came at a cost of dead bodies and the ensuing culture of strict obedience. Even the South's plantations functioned while feeding, clothing, and ensuring the security of the next generation of slaves. This new culture of obedience and resignation may have indeed contributed to the growth but it's a cost that needs to be taken into account. As for the calculation debate and whether it does indeed require economic collapse...Unfortunately I guess it depends on your perception of economic collapse. North Korea is chugging along and I believe they have the "right to health care". Cuba has health care and unlike N. Korea doesn't suffer from famines. I admit it's difficult to find an objective measure especially given my personal bias in favor of liberty. Again I guess it's pretty difficult to draw a line between the means of the Soviet planners and the ends. "Great free health care! But it's unfortunate my family tree was wiped out" kind of defies a cost/benifit analysis in material terms.

Barkley Rosser said...

rdan and others,

Sorry about the bad links. I keep goofing these things up.

Roger and Robert,

Much of the problem indeed is the ambiguity of Hayek's position about Sweden and the other Nordic economies over time. He did not address them at all in RTS, with his only comments on a social democratic regime being that Weimar Germany led to Nazi Germany, although many would say that was due to the Great Depression being more severe in Germany than anywhere else, a factor left unmentioned by Hayek. I noted this problem in the paper Roger says nice things about ("The Road to Serfdom and the World Economy: 60 Years Later," European Journal of Political Economy, 2005, 21, 1012-1025). So, later on Hayek agreed that Sweden had not gone on a road to serfdom, but worried that it still might. He did not like active redistributions of income, but clearly Sweden had (and has) lots of both economic and poltiical freedom. Also, Hayek's views on social safety nets evolved over time, with his favoring of national health insurance in RTS changing later.

This ambiguity over Sweden is a split among current Austrians and even shows up in other blog reactions in the last few days to these two articles. Thus, Tom Smith at "The East Coast" (sorry, google it, not even going to try with the links), lambastes PAS for "his fawning admiration of Sweden." How terrible of him.

OTOH, we have "aje," presumably Anthony J. Evans, at "The Filter," who also excoriates PAS, but for not recognizing that Sweden is an "economically free country." Hah, that dog, Samuelson! Actually, in my paper I rather pushed this idea, which Tyler Cowen has occaionally leaned to, sort of, that the Nordics offer an interesting combination of very free markets, little regulation, clear and simple contract enforecement, strong recognition of property rights, and other Austrian virtues, with a strong social safety net (and good environmental regs also).

Bill R.,

Your ideological rant is misplaced. Yes, millions died under Stalin in the USSR, but after 1953, the death rate rose mostly due to rising alcoholism, with both continuing to rise after socialism collapsed in Russia. In what way did the famine deaths of trhe 1930s have anything to do with the economic collapse at the beginning of the 1990s? If it did, then how is that the more recent (and much greater) famine deaths in China in the 1950s, not to mention its much worse political repression, did not lead to an economic collapse in China more recently?

One can debate endlessly why China did better economically than the USSR, but the point is if it was possible to have a gradual transition in the Soviet bloc economically, if there had not been the political collapse. I think it might have, and we have seen far less economic decline in those successor states that changed little, such as Belarus and Uzbekistan, although some states that have changed are now doing much better, such as Poland.

Bill R said...

"In what way did the famine deaths of the 1930s have anything to do with the economic collapse at the beginning of the 1990s?"

I was addressing your argument in favor of Soviet military might versus the Nazis in the 1940's.

My general point is that the culture of obedience in an authoritarian system is directly tied to the state's authority and this in turn bears on the economy. If the slavemaster lessens the yolk in an "unskillful" manner like Gorbachev then the speed of transition maybe quicker and more chaotic. For example people will flee the former soviet bloc, demand more freedom within it etc. China, unlike the USSR's disobedient brigade vs Yeltsin, was willing to let the tanks roll. The slaves feared to demand more freedom.

In sum I guess I view it in the following manner: Collapse is imminent but over differing time frames depending on the leader's taste for violence. China liberalized in '79 but was (and is) still willing to put the thumbscrew to any agitators(pro or anti-liberalism). I think a relevant question is can China goes back to its old command system? Poland? Russia? Would that lead to a faster disintegration or are they possibly on a Road to Liberalization they can't turn back on without the requisite death camps?

"I think it might have, and we have seen far less economic decline in those successor states that changed little"

What is "Collapse" then? Does it have to be a dramatic disintegration of the economy? I don't think so...I think Cuba and N. Korea have "collapsed" and will continue to dysfunctional while a more liberalized world leaps ahead. The dramatic upheavals that occurred have left the bulk of Eastern Europe more liberalized and on the path to sustainable growth.

TO ALL: What bearing does following statement of Hayek's that I found have in the debate "Well, I would say that, as long-term institutions, I am totally against dictatorships. But a dictatorship may be a necessary system for a transitional period. At times it is necessary for a country to have, for a time, some form or other of dictatorial power. As you will understand, it is possible for a dictator to govern in a liberal way. And it is also possible for a democracy to govern with a total lack of liberalism. Personally I prefer a liberal dictator to democratic government lacking liberalism. My personal impression – and this is valid for South America - is that in Chile, for example, we will witness a transition from a dictatorial government to a liberal government. And during this transition it may be necessary to maintain certain dictatorial powers, not as something permanent, but as a temporary arrangement." http://www.fahayek.org/index.php?option=com_content&task=view&id=121

This makes his relationship between "Serfdom" and "Liberty" quite a bit more ambiguous (at best) in my opinion. Love or hate "ideologues" like Murray Rothbard but they are seldom as nuanced.

I guess this a difficult argument to have due to the ambiguity. I mean why didn't we consider the famines of the Soviet Union, China, N. Korea an economic collapse? The GDP numbers may have kept going up but I still find it difficult to argue that millions dying to lack of..food...an inexcusable flaw in an "economy" to me. Especially when the US is chided for things like lack of public (but not private) health care. I also think the inequality of dead people versus living ones bears mention...but I guess they no longer can count as part of a statistical average.

rosserjb@jmu.edu said...

Bill R.,

Glad to see that you would say the argument is indeed rather complicated and ambiguous, with some of Hayek's statements adding to all of that.

I would say that the famine in North Korea, which was long the most rigidly run of dictatorial command socialist states, was an economic collapse. It is gradually changing, but in bad shape. While stagnant, Cuba has not had a collapse.

The famines in both USSR and China were to a substantial degree a combination of mistakes and political vendettas. Ukrainian nationalists have charged that Stalin consciously aided the famine of the 1930s, given both its location primarily in restive Ukraine, and also his call for the "liquidation of the kulaks as a class" (which his followers often interpreted as simply meaning "liquidate them as people"). In China, Mao appears to have not fully realized what would happen, and later actually apologized (unlike Stalin), although he also had a drive to liquidate the well-off peasant class.

I note that after WW II, in the newly conquered Soviet satellites, partly looking at the Soviet disaster, they were much more careful about how they collectivized agriculture, and did so without either mass slaughter or famines (not that I am defending such collectivization, which I am not).

YouNotSneaky! said...

Well, at least for Poland, the absence of forced collectivization in agriculture was not really due to the fact that the Communist Party learned from Stalin's previous mistakes but rather due to the political situation at the time. In order to obtain a modicum of legitimacy both at home and in the eyes of the Western powers the Communists needed to co-opt and get the support of the Polish Agrarian Party (the most popular party at the time). And the Agrarians, even the faction that ended up joining up with the Communists, were adamantly opposed to forced nationalization, even as they supported various other kinds of land reforms. To placate them and in order to avoid a full scale civil war (as opposed to the partial scale civil war that actually occurred) plans for Ukrainian style de-kulakization were first postponed and eventually dropped (though there was constant *soft* (by totalitarian standards) pressure for peasants to "voluntarily" join collectives and nationalized farms (the so called PGRs - Polish versions of the Kolhozes and Sovkhozes)). But they were made and there were certainly many in the communist party which wanted to go through with them anyway.

Barkley Rosser said...

nys,

Without doubt the rate and actuality of ag collectivization in Eastern Europe went at different rates and took different forms, very much depending on internal political conditions. It is my understanding that Stalin decided not to press either ag collectivization or full suppression of the Catholic Church in Poland precisely becauze that former Minister of Nationalities was well aware of how deep the antipathy towards the Russians was in Poland, and so he decided it was not worth it.

The Soviets did not run it, but prior to 1950, Tito was probably more Stalinist in his policies than Stalin (after 1950 he went all market socialist-workers management). But, after an initial stab that ran into strong resistance, agriculture remained privatized in Yugoslavia as well. In some other countries, such as East Germany, it proceeded quite slowly, and, again, there was none of the rough stuff in those countries that went on in the USSR in the 1930s or in China under Mao.