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The Left Has a Lot of Hot Ideas. Too Bad It Doesn’t Have Much Hayekian Humility.
It’s frustrating when the facts have yet to catch up to your insight. Prudence and patience can be maddening when you’ve devised a ready-to-go clever solution — even if that solution might be for a problem that really isn’t a problem. Even worse: When that clever solution and that possible problem neatly sync with the way you think the world works and your long-term policy goals.
For instance: Some progressives have been arguing the rise of the “gig economy” means it’s time for a rash of new business mandates — health insurance, vacation days, sick days, paid leave, pensions for all workers whatever their status — to provide economic security. But as The New York Times sums up a new Bureau of Labor Statistics report on nontraditional work: “The old-fashioned job remains king.” Turns out a smaller share of workers today are employed in “alternative work arrangements” than back in 2005. (I would like to see how things have shaped up over the past five years or so.)
The numbers were a shock to some. They “baffled economists and other observers, who had expected the BLS numbers to confirm gig-economy growth that was already widely trumpeted in independent studies and the media,” according to Quatz. (But not a shock to everyone.) Given this rethink, one might wonder whether some other hot ideas and theories are possibly underpowered, or at least deserving of a second look.
Is income inequality the great challenge of our time requiring ASAP action on taxing and redistribution? It’s sure worth noting that although inequality (measured by the Gini index) seems to have increased markedly from 1979 through 2007, it’s only up by 3% since then through 2014 based on market income and is actually lower if you add other income such as in-kind transfers from government safety net programs. (All of which my AEI colleague Michael Strain notes in a new Bloomberg column.)
Is the US economy suffering from investor-driven corporate short-termism that hurts long-run investment and growth? I found some of the early evidence compelling, as have some policy wonks, including those advising Hillary Clinton back in 2016. Then again, it’s a sort of cognitive dissonance to see investors, on one hand, pushing companies to go for the quick buck, and, on the other hand, giving fat valuations to profitless Silicon Valley unicorns. Or as economist Larry Summers puts it, “The long-term companies outperform the short-term companies. But this may be due to their vision and execution capacity, not their long-term focus.”
And this: I recently participated in a panel discussion about whether the US government should take antitrust action against America’s largest technology companies. I began my bit by saying I was approaching both the panel and the topic with great humility. The former because of the all-star caliber of my fellow panelists, all of whom thought Big Tech was a big problem. The latter because AmazonAppleFacebookGoogleMicrosoft were some of the crown jewels of the American economy, generating lots of great jobs and lots of innovation and keeping us at the tech frontier. Let’s be pretty sure they’re actually harming consumers, crimping competition, squashing startups, increasing inequality, depressing wages, undermining democracy, and hijacking our brains before breaking them up or sandbagging them with heavy regulation. Let’s think about potential trade-offs and possible unintended consequences before sharpening the carving knives.
At which point one of the esteemed panelists hand-waved away my caution as a mere talking point. But what I was actually doing was trying to give a mini-lecture on the value of humility in the Hayekian sense. As Friedrich Hayek wrote in “The Fatal Conceit,” “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” (Indeed, Hayek devoted his Nobel acceptance speech to the subject of humility.”) Or as a Winston Churchill supposedly responded when a political rival was praised as a modest man: “He has much to be modest about.”
We should be modest in our claims and conclusions, especially when it’s early days. Is the economy suffering permanent secular stagnation, or are we only now shaking off the aftermath of the Great Recession and on the cusp of an AI-driven productivity upswing? Likewise, robots might well take all our jobs one day, but right now it looks like unemployment is headed toward record lows with low-skilled workers benefiting most. So maybe hold off on the federal jobs guarantee or universal basic income and focus on reforming worker training, expanding earnings subsidies like the EITC, and removing barriers to work like occupational licensing. While there may be nothing more powerful than an idea whose time has come, there’s nothing more distracting than one whose time hasn’t. Being too early is a lot like being wrong.
Published in Economics
JimP,
I’m so glad to hear you quoting from the Fatal Conceit. Yes, Hayek’s other more glamorous works, The Road to Serfdom, The Constitution of Liberty, are wonderful powerful books. Yet, it is the little humble book that suggests we all should be more humble and to realize that knowing what you don’t know is often the path to greater wisdom.
There was an old saying amongst the high tech salespeople. “Being 1/2 step ahead of the competition is great. Being 1 and 1/2 steps ahead is very dangerous.”
There is wisdom in your words today.
Regards,
Jim
Oh don’t mind me. I’m just going to take a moment to question Contractors and Contractors. Also to laugh at the Microsoft Excel default colors. And what’s with that scale?
Gennady Andreev-Khomiakov, who served as Deputy Director of a factory in the Stalinist Soviet Union, wrote about the chaos into which the lumber industry (in which his father had worked before the Revolution) had been reduced by the Soviets:
The free and “unplanned” and therefore ostensibly chaotic character of lumber production before the revolution in reality possessed a definite order. As the season approached, hundreds of thousands of forest workers gathered in small artels of loggers, rafters, and floaters, hired themselves out to entrepreneurs through their foremen, and got all the work done. The Bolsheviks, concerned with “putting order” into life and organizing it according to their single scheme, destroyed that order and introduced their own–and arrived at complete chaos in lumbering.
Such in the immutable law. The forceful subordination of life’s variety into a single mold will be avenged by that variety’s becoming nothing but chaos and disorder.
Life in a Soviet Factory
Epistemological modesty. If one takes nothing else from Hayek.
This appears to me at least a very American feeling. The paranoia of large firms, especially banks.
I read the piece in the above link. Captured the lunacy of the soviet system brilliantly. Reminds me of a quip from O’Rourke’s economics ‘treatise,’ Eat the Rich, (the first purposely funny book on economics ever)
If a shoe factory was told to produce 1,000 shoes, it produced 1,000 baby shoes, because these were the cheapest and easiest to make. If it was told to produce 1,000 men’s shoes, it made them all one size. If it was told to produce 1,000 shoes in a variety for men, women, and children, it produced 998 baby shoes, one pump, and one wing tip. If it was told to produce 3,000 pounds of shoes, it produced one enormous pair of concrete sneakers.
See also my post Stupidity–Communist-Style and Capitalist-Style
Bathtubs, sneakers…
But the fertilizer situation was horrendous in that tremendous damage was done to ensure a good report could be delivered to the higher-ups. This approach was repeated time after time throughout the years on a scale never seen within a capitalist society. I think the proposed comparison, while interesting, fails to put a capitalist society in the same pigeon hole as a socialist one. At some point, a capitalist company will see thru the numbers and take immediate action. For many years, my associate and I structured and carried out strategies and negotiations to equitably adjust the contracts for troubled programs for major aerospace and electronics corporations. Recoveries for clients ranged from $10M to $200+ M for which the two of us were directly responsible. Those figures do not include re-priced follow-on work which in just one case involved multi-year, multi-hundred-million dollar contracts. (Because a recovery in the absence of future business with a happy customer is not worth attempting.) The point here is that over a few years of contract performance, those monies were written off – until a wise person at the corporate level called us in. Note: We kept the lawyers, notably not closers, out of the loop so that in one case, our client received the first of several checks for a $76.9M settlement with the USAF in a shade less than 21 months – from start (day 1) to finish.
This may be a bit off subject, but the point is that in many, many instances in a capitalist system, truth will out and corrections made.
It may be called humility but Hayek is really describing the fundamentals of life, all life, and lots of non life, and he destroys Progressive thought at its roots and I’d add macro economics root and branch.
It may not…some don’t. But then it will ultimately disappear. Which is a major advantage of capitalism over socialism or Communism: failure can and does happen at a level lower than the entire society.
Still, there is an awful lot of productivity lost as a result of misdirecting incentive systems being put in place and not properly adjusted.
And if they disappear, it’s probably a good thing. No company can survive by being, well, dumb.
Yes, productivity is lost, but the good ones correct the problems. Note – in our case, it was the gov’t that caused the problems by making changes to the contract baseline, i.e., out-of-scope changes that they demanded be done and then did not reimburse or short-changed the company. This happens so many times – and gov’t contractors seem to put up with it thinking they’re making their customer happy (and the prospect of future contracts). Most often this works to the disadvantage of the contractor over the long haul.