Why can't leading conservative magazine understand freedom?

Found this  mysterious transmission on a robot named R2D2 Twitter from  joshuafoust: "National Review Online endorses authoritarian capitalism. Help us, Obi Wan @bill_easterly, you're our only hope!" I won't let you down, Leia&Luke AKA @joshuafoust...  The bizarre article in question is titled China Teaches the U.S. Lessons about Economic Freedom. The argument seems roughly to be that China's rapid growth is explained by its positive change in economic freedom after 1978. Throw in a few qualifiers, and I would agree. Then things get bizarre: the article notes that after 2003, there was negative change in Chinese economic freedom, but says it had no effect on China's growth. Next it argues there was a negative change in freedom under Obama, which WILL have a devastating effect on the US growth rate, which for unexplained reasons responds differently than China's. The punchline:

Where economic freedom expands, growth follows. Where economic freedom is stifled, economies stagnate. Sadly, China’s former leaders understood this better than do its current leaders, or America’s.

--or better than the author, one might add. And should we maybe give 1 or 2 Brownie points to America's leaders for not shooting and imprisoning peaceful dissidents? And maybe America's leaders understand better than the leading conservative magazine the indispensable link between political and economic freedom understood by Milton Friedman and F.A. Hayek (perhaps this is why the latter wrote an essay "why I am not a conservative?").

Sorry, leading conservative magazine, as long as you are dishonest or incoherent about the f-word, you're not making any converts in these parts.

The answer is 42! Why Development is not about solutions, it’s about problem-solving systems

UPDATE, Wednesday, July 14: I'm glad we had a good reflective discussion in the blogosphere on these ideas, not the usual polemics. Thanks to all of the bloggers I've noticed who have now commented on this post: Aid Thoughts, Nancy Birdsall at Center for Global Development, Innovations for Poverty Action, Metamorphoses, PSD Blog at the World Bank, and Dennis Whittle at Global Giving (please let me know if I left anyone out). UPDATE, Sunday July 11: new round of the Hayek wars as they relate to this post (see end of this post below)

UPDATE, Friday evening: Russ Roberts comments on this post at Cafe Hayek.

Yesterday we ran a blog post that fits into a now classic genre in development commentary. This genre, after some discussion, always ends with a conclusion like: “Solution X (a transparency law, microcredit, malaria bed nets, conditional cash transfers, web-based clever thing, eliminating business red tape, etc.) is moderately helpful, but a long way from a panacea.” Of course, nobody really claims explicitly “X will be a panacea!” But each new X is systematically oversold, expectations are raised way too high, and the expectations are always later disappointed.

Here's why direct solutions to problems cannot foster development. Each direct solution depends on lots of other complementary factors, so the solutions can seldom be generalized across different settings; Solutions must fit each local context. Solutions that generate the highest payoff in each setting should be a higher priority than the lowest payoff solutions. Since there is little or no feedback on how well each solution is working in each local situation, there is little possibility for any such adjustments.

Development happens thanks to problem-solving systems. To vastly oversimplify for illustrative purposes, the market is a decentralized (private) problem solving system with rich feedback and accountability. Democracy, civil liberties, free speech, protection of rights of dissidents and activists is a decentralized (public) problem solving system with (imperfect) feedback and accountability. Individual liberty in general fosters systems that allow many different individuals to use their particular local knowledge and expertise to attempt many different independent trials at solutions. When you have a large number of independent trials, the probability of solutions goes way up.

Good systems make the private returns to decentralized problem-solvers close to the social returns. Again oversimplifying to drive home the big point, the market does this with private goods (even allowing for well-known exceptions of market failures), and a free political system is the best way known to do this for public goods (reward political actors in line with the social return to their actions).

The problem-solving systems could very well use some of the same solutions that were discussed above (a transparency law, microcredit, malaria bed nets, conditional cash transfers, web-based clever thing, eliminating business red tape). This leads to much confusion, as people then try to directly imitate particular solutions in the absence of a problem-solving system, which as stated above, leads to disappointing results.

A famous joke is that the Answer to the Ultimate Question of Life, the Universe, and Everything is 42.{{1}} Indeed, 42 could come out of a problem-solving system to solve a particular problem (the guests at my party have brought seven six-packs, will I have enough beer?), but is rather unlikely to generalize to other problems.

The problem-solving system is adapting solutions to local circumstances. And even more importantly, a problem-solving system coordinates the efforts of many different problem-solvers with nobody in charge (for example, in the market, prices serve as signals to coordinate the actions of many different suppliers to solve the problems of demanders).

Direct solutions to problems (say, using aid programs) still may be worthwhile as benefiting a lot of people. But a long list of many such solutions is not development; development is the gradual emergence of a problem-solving system.

UPDATE, Sunday July 11: new round of the Hayek wars as they relate to this post:

Friedrich Hayek is obviously the main source of inspiration for the ideas in this post.  But hasn't Hayek now been totally discredited by his association with Glenn Beck? A nice article in the NYT Book Review by Jennifer Schuessler discusses the Beck-Hayek phenomenon.

Beck was invoking Hayek to make the "slippery slope" argument that an extensive systemof social services leads inexorably to something like Fascism or Communism.  Hayek's association with this argument looks a lot more dubious once you realize that he was IN FAVOR OF an extensive system of social services. As Schuessler notes:

“The preservation of competition,” {Hayek} wrote, is not “incompatible with an extensive system of social services — so long as the organization of these services is not designed in such a way as to make competition ineffective over wide fields.”

Schuessler also notes Hayek's 1960 essay “Why I Am Not a Conservative”

I had the same argument with (guess who?) Jeff Sachs back in 2006 when he attempted to smear Hayek in a similar way.

Mr. Sachs disses the great Hayek by repeating the old canard that Hayek thought any attempt at taxpayer-funded social insurance would put us all on the "Road to Serfdom." This is an especially strange charge, since Hayek (while certainly opposed to the social engineering that proponents of a full-blown welfare state usually have in mind) himself calls for some form of taxpayer-funded social insurance against severe physical deprivation on pages 133-134 of "The Road to Serfdom." Mr. Sachs, who is currently best known for his star- driven campaign to end world poverty, has apparently spent more time studying the economic thinking of Salma Hayek than that of Friedrich.

Hayek's Road to Serfdom is a superb statement of how a spontaneous order was responsible for Western prosperity, following rules based on individual liberty, and Western prosperity was NOT the result of social planners trying to directly solve social problems. That's how it inspired the post above.

OK let's now go watch the spontaneous order of the World Cup final.

[[1]]Douglas Adams, Hitchhiker’s Guide to the Galaxy[[1]]

The Counter-Revolution of Development Economics: Hayek vs. Duflo

This post is by Adam Martin, a post-doctoral fellow at DRI. F.A. Hayek, well known as a critic of central planning, also criticized what he called “scientism,” a blind commitment to the methods of the physical sciences beyond their realm of applicability. In The Counter-Revolution of Science, Hayek opposed to “scientism” the genuine spirit of scientific inquiry.

Esther Duflo’s emphasis on small-scale experimentation has affinity with Hayek’s critique of grand schemes of central planning. As Duflo said in an interview with Philanthropy Action: “I think another untested and potentially wrong idea is that you have to do everything at the same time or else. This is a pretty convenient untested belief because if you live in that world, it is almost impossible to evaluate what you do.”

But Hayek’s concerns about “scientism” might yet apply to Duflo. She continues in the same interview:

Whereas if you say, I am going to press on this button and see whether it provides this result, you might find there are many things that do work surprisingly well with surprising consistency. So it is not that the world is so incredibly complex that every place needs a unique combination of five factors just to produce anything. I don’t know that we would have been able to say the same thing five years ago, but now we are starting to be in the position to say that a number of things, if well designed, just work pretty well in a lot of contexts.

Hayek, in contrast, argues that sheer, context-independent experimentation is not a viable path to development:

An experiment can tell us only whether any innovation does or does not fit into a given framework. But to hope that we can build a coherent order by random experimentation with particular solutions of individual problems and without following guiding principles is an illusion. Experience tells us much about the effectiveness of different social and economic systems as a whole. But an order of the complexity of modern society can be designed neither as a whole, nor by shaping each part separately without regard to the rest, but only by consistently adhering to certain principles throughout a process of evolution. (Law, Legislation, and Liberty Vol. I, p. 60)

Experimentation, for Hayek as well as Duflo, is the chief instrument of social change. Making experimentation work for development requires institutional feedback mechanisms which can fit together newly-discovered ways of doing things in mutually reinforcing ways. What Hayek defends as "liberal" principles are the ways of coordinating individual experiments in a way that enhances human welfare. Ad hoc, "pragmatic" approaches might solve some local problem, but without coordination with other projects the progress will not be reinforcing and self-sustaining.

Promoting progress is like playing leap-frog in the dark. Big leaps into the unknown can easily end in disaster. Experiments are small leaps. Only when we combine those small leaps together according to some rules do we leap-frog in a definite direction and reinforce each other's progress, rather than ambling about and running into each other. Without systematic feedback mechanisms that are effective at coordinating different projects, randomized trials are like those small leaps. They might be able to solve particular problems--especially in mitigating the ill effects of poverty--but they would not lead to the self-reinforcing process of wealth generation necessary to eliminate poverty.

Defending my homeboy Hayek from Freakonomics

Justin Wolfers has an amusing Freakonomics piece describing how anti-government conservatives are trying to use state intervention to get the anti-statist Friedrich Hayek taught in high school economics classes. Wolfers is completely right that this episode exposes the hypocrisy of these intellectual censors. (My favorite Mark Twain quote: “In the first place God made idiots. This was for practice. Then he made School Boards.”)

But after that Wolfers goes astray, piling on Hayek as just intellectually unworthy in general. Wolfers uses shaky exercises like number of citations in electronic academic journal archives. He says Larry Summers has as many citations as Hayek, so why not teach Larry Summers to high-schoolers? (not such a bad idea, actually).

Young Wolfers may not know the history of censorship of Hayek in the other direction. When I was in graduate school in The Middle Ages, Hayek was seen as so Far Right that you would be considered a nut to read him.

Since then, many more economists have realized that was extremely unfair to Hayek, including guess who, Larry Summers:

What's the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the [un]hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists. That's the Hayek legacy.{{1}}

Hayek, who once wrote an essay called “Why I am not a conservative” was prescient in appreciating something that is much more trendy today, the idea of “spontaneous order” (Silicon Valley geeks write about a book a week on some aspect of the Internet being a spontaneous order.) My favorite Hayek quote gives a lot of insight into why development has been so hard to engineer from the top down:

It is because every individual knows so little and… because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.

This reliance on individual spontaneity and creativity (and here we could include political entrepreneurs who achieve new and better ways to deliver public goods) is threatening to two very specific political factions:

• the Right
• the Left

Hayek knew that the Right was hypocritical about individual rights as much as the Left. The latter dictates what you can’t do in the market, the former wants to dictate almost everything else.

Although Wolfers doesn’t do this, many readers of his blog will fall for that classic trick, the Reverse Ideological Rejection: because ideologues like Hayek, therefore I should (ideologically) reject Hayek. This is in the same class as “Hitler liked Wagner’s Ring, therefore I should hate Wagner’s Ring.”

It’s sad that Hayek has been the victim of so many violations of the intellectual freedom for which he was one of the most eloquent and courageous spokesmen ever.

[[1]]quoted in The Commanding Heights: The Battle Between Government and the Marketplace that Is Remaking the Modern World, by Daniel Yergin and Joseph Stanislaw. New York: Simon & Schuster. 1998, pp. 150–151. (Thank you Wikipedia!)[[1]]

UPDATE:  my hometown newspaper The Village Voice has a blog post on how the Texas school board caused the "right-wing blogosphere" to light up. (HT to HayekCenter.org) It includes the Hayek controversy:

{The blog response} bodes well for conservative attempts to keep libertarians on board: Apparently all you have to do is give props to their favorite economists, and they'll go along with anything you want.

I am deservedly too obscure to be quoted in this story, but I guess the Voice hasn't heard about the whole "Hayek: I am not a conservative" thing. Also I'm not sure anyone at the Voice has never met a real libertarian, a group that is NOT disposed to "going along with anything you want."

UPDATE 2: Jacob T. Levy's blog takes on Wolfers on measuring Hayek's citation count versus other economists.  To make a long story short, there was a problem counting Hayek's because of the many variations on his first name(s), and once you correct for this he is in the same league as Milton Friedman and beyond Larry Summers.