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Hayek Predicts Venezuela

Kevin Williamson makes an interesting distinction between the welfare state and socialism.

from National Review, Camino de Servidumbre

There are two ways of thinking about economics: Many progressives (and many right-wing populists) believe that economics is less of a science and more of an ideology, that all of that talk about scarcity and supply and demand is mostly mumbo-jumbo deployed by people who are getting their way to ensure that they keep getting their way. The alternative view (the view of most economists) is that economics is an effort to describe something real, that while it is important to understand the difference between the map and the territory, all those economic models and demand curves add up to a description of an aspect of reality that is not subject to negotiation and is not a matter of mere opinion.

That was what concerned Hayek and his colleagues in what has become known as the Austrian school of economics, Ludwig von Mises prominent among them. They believed that the central-planning aspirations of the socialists were not simply inefficient or unworkable but impossible to execute, even in principle, owing to the way in which knowledge is dispersed in society. Drawing on more recent work in fields ranging from physics to computer science, modern complexity theorists have expanded enormously on those insights, arguing that markets, like evolution, are complex beyond comprehending even in principle, hence unpredictable and unmanageable. As he famously summarized it: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” From this Hayek, an old-fashioned liberal, concluded that while there might be room in a free and open society for a broad and generous welfare state, the project of providing benefits to poor and vulnerable people must be understood as distinct from the socialist project, which is to put economic production under political discipline. And this has been born out in our own experience: Sweden is simultaneously a free-trading, entrepreneurship-driven capitalist society and a society with a large and expensive (and recently reformed) welfare state. Sweden, sometimes held up as the model of good socialism, has in fact been following a policy of privatization and libertarian-ish reforms for 20 years, with an explicit commitment of moving away from an economy of government planning to an economy of market choice.

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Category: Economics

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