Fat-Free Econ 28: Poverty, Planning and Populism

* This is my article in TV5's news portal last Saturday,
http://www.interaksyon.com/business/46631/fat-free-economics-poverty-planning-and-populism
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The fight against poverty is the most financially enriching endeavor for government officials, their consultants as well as the foreign aid community.

Trillions of dollars of taxpayers’ money every year are being siphoned off from the income and savings of the more productive sectors of societies in different countries, and diverted to the coffers of governments and multilateral institutions, before the monies are channeled to hundreds of different agencies and bureaucracies, for distribution to the poor.

The most elaborate and the grandest central plan to fight poverty worldwide is the Millennium Development Goals blueprint by the United Nations, supported and implemented by governments, foreign aid bodies like the World Bank and Asian Development Bank, and many NGOs.

By forcibly socializing and collectivizing resources and plans into the hands of those poverty fighters, individual freedom and responsibility has, directly or indirectly, been disregarded or even disrespected.

On November 3-4, I will join a small group of free-market advocates from around the world who will gather at the Harbour Plaza Resort City in Hong Kong for a round table discussion on populism and the religion of “All Powerful Government.” The forum is organized by the Lion Rock Institute, Hong Kong’s first and only free-market think tank.

The discussion would take off from The Road to Serfdom, a bedrock defense of free-market thinking by the Austrian economist and political philosopher Friedrich Hayek.

Hayek is a strong advocate of individual freedom and responsibility and the rule of law. An individual has the freedom to be industrious and responsible, and the freedom to be lazy and irresponsible. It is mainly individual choice that can set the future and destiny of a person and that of his/her household and immediate community. In his book, Hayek wrote:

“Individualism, in contrast to socialism and all other forms of totalitarianism, is based on the respect of Christianity for the individual man and the belief that it is desirable that men should be free to develop their own individual gifts and bents…

“Perhaps the greatest result of this unchaining of individual energies was the marvelous growth of science. Only since industrial freedom opened the path to the free use of new knowledge, only since everything could be tried – if somebody could be found to back it at his own risk – has science made the great strides which in the last 150 years have changed the face of the world. The result of this growth surpassed all expectations. Wherever the barriers to the free exercise of human ingenuity were removed, man became rapidly able to satisfy ever-widening ranges of desire.

“The effect of this success was to create among men a new sense of power over their own fate, the belief in the unbounded possibilities of improving their own lot…”

This is something that the various poverty fighters generally do not consider. They did not ask how much of the poverty that they are trying to fight and solve was due to personal reasons, in contrast to poverty caused by nature, by manmade calamity and by government failure. What the poverty fighters do is to have a grand and elaborate plan backed up by centralized resources to be implemented from the top down. Hayek further wrote:

“’Planning’ owes its popularity largely to the fact that everybody desires, of course, that we should handle our common problems with as much foresight as possible. The question is whether we should create conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully; or whether we should direct and organize all economic activities according to a ‘blueprint’, that is, ‘consciously direct the resources of society to conform to the planners’ particular views of who should have what’.

“Liberalism regards competition as superior not only because in most circumstances it is the most efficient method known but because it is the only method which does not require the coercive or arbitrary intervention of authority. It dispenses with the need for ‘conscious social control’ and gives individuals a chance to decide whether the prospects of a particular occupation are sufficient to compensate for the disadvantages connected with it.”

The LRI event will be followed by a bigger forum, the Economic Freedom Network Asia Conference, to be held in Crowne Plaza Hong Kong Kowloon East Hotel on November 5-7.

With the theme, “How Welfare Populism Destroys Prosperity,” the forum will have several hundred international participants and will be sponsored mainly by the Friedrich Naumann Foundation for Liberty. 

Political populism - pandering to the lobby of the noisy sectors and to the deep desire of many politicians to win votes through welfarist programs - has created huge havoc in the fiscal condition of many governments. It has also caused more uncertainty in the global macroeconomic environment and has corrupted the attitudes and work ethic of many individuals.

Many people now begin to think that for whatever social or economic issues, more government is the solution. And that is how many societies and governments have elaborately planned and created various “poverty-fighting” programs - from education and books to healthcare and medicines, housing and relocation, MRT subsidy and fuel discounts, tractors and credit, multiple business regulations and taxes on the well-to-do, cash transfers, and very soon, condoms and pills.

It may not be a far out possibility that governments may soon introduce iPad and Samsung Galaxy tablets. After all, many governments and politicians are specialists in the “spend-tax-borrow” philosophy.
By shelving more individual freedom and responsibility, by having more central planning and political populism, governments are contributing to poverty.


See also:
Fat-Free Econ 24: Government Fat and Public Expectations, September 21, 2012
Fat Free Econ 25: Property Rights and the Cybercrime Prevention Law, October 01, 2012
Fat-Free Econ 26: US Public Debt and the November Elections, October 10, 2012
Fat-Free Econ 27: Sin Tax and Nannyism, October 22, 2012

Hayek 12: Friedrich Hayek's 20th Death Anniversary, March 26, 2012
(has links to Hayek 1 to 11, discussion on some chapters of Hayek's book, "The Constitution of Liberty")
Hayek in Asia 2: Shanghai Austrian Economics Summit 2012, April 15, 2012
Hayek 13: Friedrich Hayek's 113th Birthday, May 09, 2012

Hayek 12: Friedrich Hayek's 20th Death Anniversary

After a long hiatus, I am resuming my discussion series on Friedrich Hayek. I used to have a separate blog called "Hayek Reader" to focus on the writings and discussions about him, but I could not sustain it, so I reposted those papers and moved them in this blog, and closed that blog.

Here are those papers, posted here last May 19, 2009:

Hayek 1: Liberty and liberties
Hayek 2: Freedom, spontaneity and accidents
Hayek 3: Inequality and progress
Hayek 4: Freedom and responsibility
Hayek 5: Merit vs. value
Hayek 6: Dangers of majority rule
Hayek 7: Rule of law means no exception
Hayek 8: Safeguards of individual liberty
Hayek 9: Hayek and Easterly
Hayek 10: Hayek and Keynes
Hayek 11: Rule of law and rule of the lawless

Three days ago was Hayek's 20th death anniversary. I am reposting here a paper from the Austrian Economics Conference, about a brief biography of Hayek. I know that he has written several dozen books plus several hundred scholarly articles, but I have read only two of them, The Road to Serfdom and The Constitution of Liberty. Most of the papers I wrote above were taken from several chapters of the latter.

I remain a fan of the man, definitely one of the brightest minds of the last century.
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FRIEDRICH A. von HAYEK (1899 -1992)
A Short Appreciation 20 Years after his Death
by
Kurt R. Leube*

“Before we explain why people commit mistakes, we must first explain why they should ever be right." F.A. von Hayek

I

It is 2012, and lest we forget one of the most seminal minds of our times, we should recall the important work of Friedrich A. von Hayek who died 20 years ago, on March 23, 1992.

F.A.von Hayek grew up in a typical Austrian family that could lay claim to an academic tradition of well over three generations. At the age of 18, to avoid his failing at several schools in Vienna he voluntarily joined the Austro-Hungarian Army and served as an artillery officer until the end of WW I. Immediately after his return from the Italian front, Hayek enrolled in the University of Vienna and, only three years later obtained his law degree (Dr. jur.). While Hayek studied for his second doctoral degree in Political Science (Dr. rer. pol.) which he earned in 1923, he began to work under Ludwig von Mises’ directorship in the “Abrechnungsamt”, a Vienna based office for the settlement of pre-war debts. As the most eminent scholar of the third generation of the Austrian School of Economics, Mises (1881-1973), soon became Hayek’s mentor and in 1927 they succeeded in founding the “Austrian Institute for Business Cycle Research” which soon gained high academic reputation under Hayek’s and later Oskar Morgenstern’s leadership.

II

The culturally vibrating climate of interwar Vienna provided the stimulating background for many scholarly circles and schools, such as the “Vienna Circle of Philosophy”, the “Vienna School of Psychoanalysis”, or the “Mises Private Seminar”. This famous “Seminar” which between 1921-1934 von Mises conducted off campus in his Chamber of Commerce office was the nucleus of the fourth generation of the Austrian School, the most important representative of which was Hayek. It is remarkable that far more than half of its participants later became world-famous in their respective academic fields. Yet, with the Nazi terror on the rise and almost no prospects of ever gaining access to an adequate academic position, all but a very few of these uniquely talented scholars left Austria for good. Schumpeter and Hayek were the first, many others were soon to follow. This “brain drain” lead to devastating consequences in the intellectual life in Austria and Germany which still can be felt.

Hayek’s first book Monetary Theory and the Trade Cycle (1929) at once set a standard in modern business cycle theory and is still valid. One of the most striking characteristics of the “Austrian” business cycle theory is Hayek’s insight that any shortage of capital immediately causes a crises. While classical economic theory never elucidated what causes such a shortage, Hayek made it clear that any overinvestment leads to “scarcity of capital”, unavoidably compelling a decline in investment and hence leading to the loss of a part of the real capital, produced because of the excessive investment rate.

Impressed by Hayek’s new business cycle theory, Lord Robbins invited him to lecture at the London School of Economics in the winter of 1931. The lectures where so successful that he was offered the position of “Tooke Professor of Economic Science” almost immediately thereafter and he accepted almost without hesitation. At this time, when J.M. Keynes’ new theories began to dominate academic and political life it was unavoidable for Hayek not to be immediately drawn into a fundamental debate with Keynes. Due to their inflationary character Hayek opposed these theories vigorously and thus became the leading intellectual force against Keynes and his followers. However, in view of a recession with huge unemployment rates it became politically obvious that Hayek’s approach of “waiting out the crisis“ was doomed to be overshadowed by the theoretically seriously flawed yet politically attractive “Keynesian Revolution” with easy “solutions” and massive government interventions. It is a regrettable but undeniable fact that economics much more than any other academic discipline is liable to the periodical reintroduction of popular fades and irrepressible superstitions.

While being deeply involved in these heated debates, Hayek at the same time opened yet another intellectual front and published the three famous essays which forever shattered the foundations of socialism. These essays were later collected in his Individualism and Economic Order (1948). The painful collapse of socialism as a viable political system in 1989 is the belated empirical proof of Mises’ as well as Hayek’s insights. Hayek’s interest in technical economics culminated in his The Pure Theory of Capital (1942) which must be rated as one of the most penetrating books ever published in this complex field.