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Archive for the ‘Central planning’ Category

From a macroeconomic perspective, President Obama’s so-called stimulus was a flop. The federal government borrowed and redistributed almost $1 trillion, yet the economy stagnated.

From a microeconomic perspective, the faux stimulus may have been an even bigger failure. One of the worst features was the laughable and scandal-ridden green energy program, which featured corrupt boondoggles such as Solyndra.

Well, if you liked Solyndra, you’ll love the “Green New Deal,” a proposal to dramatically expand Washington’s power over the private economy.  As I explained in an article for the American Conservative, the plan introduced by Congresswoman Alexandria Ocasio-Cortez (AOC) is cronyism on steroids.

Looking at Representative Alexandria Ocasio-Cortez’s Green New Deal, one is reminded of Voltaire’s comment that the Holy Roman Empire was neither holy, nor Roman, nor an empire. But that might be slightly unfair. There is some Green in the GND, though the ideas aren’t New, and it’s definitely not a Deal. At least not for taxpayers. …budget gurus have examined the GND wish list and they calculate that the 10-year cost could reach $90 trillion. That’s trillion, not billion—a staggering amount of money. For all intents and purposes, Ocasio-Cortez wants to expand the burden of federal spending from 21 percent of economic output to about 50 percent of economic output. …The economic implications of these policies are horrifying. The GND would mean Greek-style fiscal policy in the United States, with concomitant economic stagnation.

But it’s not just bad fiscal policy.

The scheme would give politicians and bureaucrats immense powers to micro-manage the productive sector of the economy.

It’s equally important to consider how the GND would dramatically expand Washington’s power over the economy—above and beyond new taxes and higher spending. …the government would be obliged to end any and all reliance on fossil fuels and shift the nation to 100 percent renewable energy. …the government would be obliged to provide universal and unrestricted access to health care for everyone. …the government would be obliged to provide everybody with a job that includes generous benefits, including paid vacations and a comfortable retirement. …the government would be obliged to create a nationwide system that was so quick and so effective that commercial air travel could be ended. …the government would be obliged to gut and rebuild every single structure in the country so that they all met a zero-net-carbon goal.

What would this mean?

A feeding frenzy of well-connected special interests at the expense of ordinary taxpayers, which would be very unseemly.

That’s the direct cost.

But from an economic perspective, what matters is that labor and capital increasingly would be allocated by political forces (i.e., cronyism) rather than market forces (i.e., the preferences of consumers).

For all intents and purposes, the GND is a form of central planning. Not full Soviet style steering of the economy, but nonetheless a step in that direction.

And this indirect costs imposed by this approach wouldn’t be trivial.

Every single one of these costly ideas will serve as a magnet for consultants, contractors, administrators, and others who will want to profit by “helping” to implement the various pieces of the GND. For those who remember the corruption and cronyism of the Obama administration’s green energy program (part of the failed stimulus), Ocasio-Cortez wants to do the same thing. But far more extensive. …what happens if the “invisible hand” of consumer-driven competition is replaced (or substantially weakened) because politicians adopt something like the Green New Deal? …market forces will get squeezed as politicians directly allocate resources in the economy. …cronyism and regulation undermine the free market just as taxes and spending undermine the free market. The mechanism—direct versus indirect—isn’t the same, but in both cases the preferences of consumers no longer drive the economy.

The bottom line is that the GND is a corporatist scheme using the environment as a pretext.

If you don’t believe me, just look at what AOC’s top aide said about the proposal.

The chief of staff for Rep. Alexandria Ocasio-Cortez stated that her signature Green New Deal was not really about saving the planet after all. In a report by the Washington Post, Saikat Chakrabarti revealed that “it wasn’t originally a climate thing at all … we really think of it as a how-do-you-change-the-entire-economy thing.” …The Green New Deal itself was fraught with complications in its February roll-out, which included confusing language and contradictions in the “Frequently Asked Question” section. …The Green New Deal, which some estimated could cost upwards of $93 trillion to enact, also promised “economic prosperity for all.”

Refreshingly honest on the part of Mr. Chakrabarti, but also a stark warning to the rest of us.

By the way, the excerpt mentions the “confusing language” in the original GND documents. I would call is terrifying language. This section is particularly crazy.

David Harsanyi highlighted 10 of the most bizarre provisions in a column for the Federalist.

It is not hyperbole to contend that GND is likely the most ridiculous and un-American plan that’s ever been presented by an elected official to voters. …the plan’s authors assure us that this “massive transformation of our society” needs some “clear goals and a timeline.” The timeline is ten years. Here are some of the goals: …Ban affordable energy. …Eliminate nuclear energy. …Eliminate 99 percent of cars. …Gut and rebuild every building in America. …Eliminate air travel. …A government-guaranteed job. ….Free education for life. …A salubrious diet. …A house. …Free money. …Bonus insanity: Ban meat.

And remember, all these provisions are enforced by politicians and bureaucrats repressing market forces and replacing them with political pull.

Alex Brill of the American Enterprise Institute summarizes why this is a bad idea.

…funding allocations will undoubtedly be determined by political forces rather than market forces. …final allocation will depend on the relative clout of the lawmakers and will inefficiently differ from the allocations that consumers and producers would demand. In short, the Green New Deal would be a deficit financed expansion of federal bureaucratic power to dictate investment decisions in one of the most dynamic sectors of the economy. …further centralizing energy market decisions puts at risk the free market economy that our nation has relied on for economic growth for more than two centuries.

Exactly right, which is why the GND would translate to fewer jobs and lower living standards.

Here are two real-world examples from the Wall Street Journal showing why green cronyism is a bad idea.

The first is from the United States.

…consider the public housing projects near Rep. Alexandria Ocasio-Cortez’s New York office. The New York City Housing Authority (Nycha)…is switching to LED lighting, which lasts longer than incandescent bulbs and consumes less energy. Sounds smart, until you see how many union workers it takes to screw in a light bulb. One recent project focused on 23 housing developments, and changing the light bulbs and fixtures there cost $33.2 million. Supplies account for a fraction of that cost. Under Nycha’s Project Labor Agreement, electricians make $81 in base pay and $54 in fringe per hour, and overtime is usually time and a half. Add administrative and contracting expenses. All in, Nycha paid an average of $1,973 per apartment to install LEDs. …In the private economy, $1,973 could go a long way toward improving a dilapidated apartment. Only in the world of green government spending is replacing light bulbs for two grand a unit a cost-saving measure.

Don’t forget, by the way, that light bulbs also are more expensive once government is part of the equation.

The second is from Australia.

The Green New Deal…calls among other things for “upgrading all existing buildings in the United States…” We’ve tried it in Australia—on a much smaller scale—and it didn’t go well. On Feb. 3, 2009, Labor Prime Minister Kevin Rudd and his treasurer, Wayne Swan, announced the Energy Efficient Homes Package. “To support jobs and set Australia up for a low carbon future the Rudd Government will install free ceiling insulation in around 2.7 million Australian homes…” There were only 250 registered insulation businesses in Australia when the package was announced. That number quickly blew out to 7,000 because the government was handing out free money to installers. …They received their rebates directly from the government rather than from homeowners, who therefore had little incentive to check if the work had been done well or even at all. …Almost every insulation job went right up to the $1,600 cap, regardless of size or ceiling area. …Nearly 100 houses caught fire. …In February 2010, a year after the Energy Efficient Homes Package was announced, it was abandoned.

I also recommend this column about what happened in Germany.

Let’s close with a bit of humor.

Our first example is a modification of the famous map of the Korean Peninsula showing the difference between capitalism and communism.

In this case, however, we show a “successful” low-carbon economy.

By the way, some people don’t get the joke. Jeffrey Sachs actually ranks hellholes such as Cuba ahead of the United States in part because impoverished people don’t consume much energy.

And some environmentalists put together a grotesquely misnamed “Happy Planet Index” that also ranked the grim disaster of Venezuela ahead of America.

To conclude, here’s a cartoon strip that nicely summarizes how the GND is fueled.

In other words, the middle class will pay a lot more if AOC’s scheme is ever adopted.

P.S. Donald Trump is also at least somewhat guilty of wanting to replace market forces with government intervention.

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Donald Trump is an incoherent mix of good policies and bad policies.

Some of his potential 2020 opponents, by contrast, are coherent but crazy.

And economic craziness exists in other nations as well.

In a column for the New York Times, Jochen Bittner writes about how a rising star of Germany’s Social Democrat Party wants the type of socialism that made the former East Germany an economic failure.

Socialism, the idea that workers’ needs are best met by the collectivization of the means of production… A system in which factories, banks and even housing were nationalized required a planned economy, as a substitute for capitalist competition. Central planning, however, proved unable to meet people’s individual demands… Eventually, the entire system collapsed; as it did everywhere else, socialism in Germany failed. Which is why it is strange, in 2019, to see socialism coming back into German mainstream politics.

But this real-world evidence doesn’t matter for some Germans.

Kevin Kühnert, the leader of the Social Democrats’ youth organization and one of his party’s most promising young talents, has made it his calling card. Forget the wannabe socialism of American Democrats like Bernie Sanders or Alexandria Ocasio-Cortez. The 29-year-old Mr. Kühnert is aiming for the real thing. Socialism, he says, means democratic control over the economy. He wants to replace capitalism… German neo-socialism is profoundly different from capitalism. …Mr. Kühnert took specific aim at the American dream as a model for individual achievement. …“Without collectivization of one form or another it is unthinkable to overcome capitalism,” he told us.

In other words, he wants real socialism (i.e., government ownership). And that presumably means he also supports central planning and price controls.

What makes Kühnert’s view so absurd is that he obviously knows nothing about his nation’s history.

Just in case he reads this, let’s look at the evidence.

Jaap Sleifer’s book, Planning Ahead and Falling Behind, points out that the eastern part of Germany was actually richer than the western part prior to World War II.

The entire country’s economy was then destroyed by the war.

What happened afterwards, though, shows the difference between socialism and free enterprise.

Before…the Third Reich the East German economy had…per capita national income…103 percent of West Germany, compared to a mere 31 percent in 1991. …Here is the case of an economy that was relatively wealthy, but lost out in a relatively short time… Based on the official statistics on national product the East German growth rates were very impressive. However, …the actual performance was not that impressive at all.

Sleifer has two tables that are worth sharing.

First, nobody should be surprised to discover that communist authorities released garbage numbers that ostensibly showed faster growth.

What’s really depressing is that there were more than a few gullible Americans – including some economists – who blindly believe this nonsensical data.

Second, I like this table because it confirms that Nazism and communism are very similar from an economic perspective.

Though I guess we should give Germans credit for doing a decent job on product quality under both strains of socialism.

For those who want to read further about East German economic performance, you can find other scholarly articles here, here, and here.

I want to call special attention, though, to a column by an economist from India. Written back in 1960, even before there was a Berlin Wall, he compared the two halves of the city.

Here’s the situation in the capitalist part.

The contrast between the two Berlins cannot miss the attention of a school child. West Berlin, though an island within East Germany, is an integral part of West German economy and shares the latter’s prosperity. Destruction through bombing was impartial to the two parts of the city. Rebuilding is virtually complete in West Berlin. …The main thoroughfares of West Berlin are near jammed with prosperous looking automobile traffic, the German make of cars, big and small, being much in evidence. …The departmental stores in West Berlin are cramming with wearing apparel, other personal effects and a multiplicity of household equipment, temptingly displayed.

Here’s what he saw in the communist part.

…In East Berlin a good part of the destruction still remains; twisted iron, broken walls and heaped up rubble are common enough sights. The new structures, especially the pre-fabricated workers’ tenements, look drab. …automobiles, generally old and small cars, are in much smaller numbers than in West Berlin. …shops in East Berlin exhibit cheap articles in indifferent wrappers or containers and the prices for comparable items, despite the poor quality, are noticeably higher than in West Berlin. …Visiting East Berlin gives the impression of visiting a prison camp.

The lessons, he explained, should be quite obvious.

…the contrast of the two Berlins…the main explanation lies in the divergent political systems. The people being the same, there is no difference in talent, technological skill and aspirations of the residents of the two parts of the city. In West Berlin efforts are spontaneous and self-directed by free men, under the urge to go ahead. In East Berlin effort is centrally directed by Communist planners… The contrast in prosperity is convincing proof of the superiority of the forces of freedom over centralised planning.

Back in 2011, I shared a video highlighting the role of Ludwig Erhard in freeing the West German economy. Given today’s topic here’s an encore presentation.

Samuel Gregg, writing for FEE, elaborates about the market-driven causes of the post-war German economic miracle.

It wasn’t just Ludwig Erhard.

Seventy years ago this month, a small group of economists and legal scholars helped bring about what’s now widely known as the Wirtschaftswunder, the “German economic miracle.” Even among many Germans, names like Walter Eucken, Wilhelm Röpke, and Franz Böhm are unfamiliar today. But it’s largely thanks to their relentless advocacy of market liberalization in 1948 that what was then West Germany escaped an economic abyss… It was a rare instance of free-market intellectuals’ playing a decisive role in liberating an economy from decades of interventionist and collectivist policies.

As was mentioned in the video, the American occupiers were not on the right side.

Indeed, they exacerbated West Germany’s economic problems.

…reform was going to be easy: in 1945, few Germans were amenable to the free market. The Social Democratic Party emerged from the catacombs wanting more top-down economic planning, not less. …Further complicating matters was the fact that the military authorities in the Western-occupied zones in Germany, with many Keynesians in their contingent, admired the economic policies of Clement Atlee’s Labour government in Britain. Indeed, between 1945 and 1947, the Allied administrators left largely in place the partly collectivized, state-oriented economy put in place by the defeated Nazis. This included price-controls, widespread rationing… The result was widespread food shortages and soaring malnutrition levels.

But at least there was a happy ending.

Erhard’s June 1948 reforms…abolition of price-controls and the replacement of the Nazi-era Reichsmark with much smaller quantities of a new currency: the Deutsche Mark. These measures effectively killed off…inflation… Within six months, industrial production had increased by an incredible 50 percent. Real incomes started growing.

And Germany never looked back. Even today, it’s a reasonably market-oriented nation.

I’ll close with my modest contribution to the debate. Based on data from the OECD, here’s a look at comparative economic output in East Germany and West Germany.

You’ll notice that I added some dotted lines to illustrate that both nations presumably started at the same very low level after WWII ended.

I’ll also assert that the blue line probably exaggerates East German economic output. If you doubt that claim, check out this 1990 story from the New York Times.

The bottom line is that the economic conditions in West Germany and East Germany diverged dramatically because one had good policy (West Germany routinely scored in the top 10 for economic liberty between 1950 and 1975) and one suffered from socialism.

These numbers should be very compelling since traditional economic theory holds that incomes in countries should converge. In the real world, however, that only happens if governments don’t create too many obstacles to prosperity.

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Every Thanksgiving, I share the story of how the Pilgrims nearly starved to death because of their experiment with collectivized agriculture.

Once the settlers shifted to a system based on private ownership, however, their problems disappeared.

The obvious moral of the story is that incentives matter. Socialist systems encourage slackers (see this cartoon strip) and market systems encourage productivity.

A column by X in the Wall Street Journal tells a similar story about China.

It’s actually the story of an important anniversary.

The People’s Republic of China turns 70 in October and will celebrate with flag-waving and fireworks. …2019 also marks the anniversary of the result of a smaller, quieter but just as defiant protest—one that will receive little attention in or out of China, even though it launched the economic reforms that kick-started the country’s rise.

Here’s the background.

After taking power in 1949, China’s Communist Party had effectively abolished private land ownership, grouping farms into “people’s communes” subservient to the state. By 1978 villages were crippled by quotas that seized most of what they grew for redistribution. …there was no food. Xiaogang’s farmers dug up roots, boiled poplar leaves with salt, and ground roasted tree bark into flour. Families left their thatched-roof homes and took to the road to beg.

By the way, the Chinese system of collective farms was an example of hardcore socialism – i.e., government ownership and control.

So it’s hardly a surprise that it produced awful results. Including mass starvation.

But desperate times were the motivation for desperate measures.

…a farmer named Yan Hongchang summoned the heads of the village’s desperate families to a clandestine meeting. On paper torn from a child’s school workbook, the farmers wrote a 79-word pledge to divide the commune’s land into family plots, submit the required quota of corn to the state, and keep the rest for themselves.

And what happened?

Incentives and property rights worked. Spectacularly.

…farmers…reported a grain yield of 66 metric tons. This single harvest equaled the village’s total output between 1955 and 1970—but for once the figure was not exaggerated. In fact, villagers underreported their actual yield by a third, fearing officials would not believe their record haul.

And the really good news is that the successful experiment in Xiaogang led to market-based reform for the entire nation.

The grass-roots experiment did spread. In Beijing, three years after Mao Zedong’s death, Deng Xiaoping urged the Chinese to ignore political dogma and instead “seek truth from facts.” Now came news that dissenting farmers were actually growing food. This year marks the 40th anniversary of Deng’s decision to scrap collective farming. In its place came one of the country’s most popular reforms, the Household Contract Responsibility System, or chengbao, which allows families to farm their own allocation of land and sell most of the harvest at unregulated prices.

Indeed, China now celebrates Xiaogang’s rebellious shift to markets.

Xiaogang village is a “red tourism” attraction, albeit the only one whose “patriotic education base” (museum) celebrates local defiance of government policy. Its exhibition hall displays a copy of the farmers’ pledge—the original was lost years ago—and floor-to-ceiling photographs of its signatories. The men are lauded as heroes, and Xiaogang celebrated with a slogan: “The origin of our nation’s economic rise!”

Maybe future historians will look upon the events in Xiaogang the same way some people look at 1356 in Europe?

In any event, what began forty years ago already has yielded great results for the people of China. Grinding poverty has virtually disappeared.

To be sure, China still needs a lot of reform. It’s only ranked #107 according the latest edition of Economic Freedom of the World.

But if some good reform yielded some good results, just imagine how much prosperity China could enjoy with a lot of good reform?

P.S. Just as the village of X helped to rescue China from hardcore socialism, there’s a grocery store in Texas that played a role in rescuing Russia’s economy.

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I was in Bratislava earlier today as part of the Free Market Road Show, where I spoke about how European nations are in trouble because of excessive spending and aging populations.

But I’m not going to write about my presentation because Peter Gonda of the Konservatívny Inštitút M.R. Stefánika shared some data on the post-World War II economic performance of Czechoslovakia that is far more interesting.

As you can see from his chart (the English title would be “The Economic Reality of Socialism”), Czechoslovakia, West Germany, Austria, and Finland all had very similar levels of income in 1948. But over the next 40 years, the socialist Czechoslovakian economy (CZ) fell further and further behind the market-oriented economies of those other countries.

Indeed, after just four decades, the market-oriented nations averaged twice as much per-capita economic output at the beleaguered Czechoslovakian economy.

By the way, things have improved since the collapse of communism.

Czechoslovakia in the early 1990s peacefully split into two nations, the Czech Republic and Slovakia. And both of them have since adopted a decent amount of pro-market reforms and have begun to converge with Western Europe.

So our story has a semi-happy ending (though I wrote last year that I’m worried about Slovakia backsliding a bit).

P.S. If you want other compelling examples that show – over multiple decades – the superior performance of market-oriented nations, click here and here.

P.P.S. Under Soviet rule, Czechoslovakia was genuine socialism (i.e., government ownershipcentral planningprice controls), which obviously is more damaging than what many people think of today as socialism (i.e., punitive taxes and a big welfare state).

P.P.P.S. Ludwig Erhard deserves much credit for West Germany’s post-war recovery.

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During my early years in public policy, back in the late 1980s, I repeatedly crossed swords with people who argued that Washington should have more power over the economy so that the United States could compete with Japan, which supposedly was an economic juggernaut because of “industrial policy” directed by wise and far-sighted bureaucrats at the Ministry of International Trade and Industry.

Given Japan’s subsequent multi-decade slump, it certainly seems like I was right to warn against giving American politicians the power to pick winners and losers.

But not everybody learned from that experience. In the words of Yogi Berra, “It’s deja vu all over again,” only this time we’re supposed to be terrified because the Chinese government wants to subsidize and promote certain industries as part of “Made in China 2025”.

At the risk of understatement, I’m not scared.

Yes, China has enjoyed some impressive growth since it partially liberalized its economy in the late 1900s, but it will remain far behind the United States unless – as I recently explained on CNBC – there is a new wave of free-market reforms.

Needless to say, a government initiative to favor certain industries is hardly a step in that direction.

Some Chinese policy makers even realize that it’s counterproductive to give that kind of power to politicians and bureaucrats.

Here are some excerpts from a report in the South China Morning Post.

“Made in China 2025” has been a waste of taxpayers’ money, China’s former finance minister Lou Jiwei has said…“[Made in China] 2025 has been a lot of talking but very little was done,” Lou, chairman of the National Council for Social Security Fund, said on Wednesday… “those industries are not predictable and the government should not have thought it had the ability to predict what is not foreseeable.” …“The negative effect of [the plan] is to have wasted taxpayers’ money.” He suggested the market should have played a greater role in developing the industries that MIC2025 was designed to push. “The [resources] should have been allocated by the market; the government should give the market a decisive role,” Lou said. “Why has the government pushed so hard on this strategy? [Hi-tech industry prospects] can all change in a few years, it is too unforeseeable.”

Sounds like Mr. Lou learned from Obama’s Solyndra fiasco that cronyism doesn’t work.

But some of his colleagues still need to be educated.

Made in China 2025 (MIC2025) strategy, Beijing’s blueprint for tech supremacy. …Since the plan’s launch in 2015, the government has poured money into MIC2025 to try to turn a number of domestic industries – including artificial intelligence, pharmaceuticals and electric vehicles – into global leaders by 2025. …Lou said: “It [the strategy] should not have been done that way anyway. I was against it from the start, I did not agree very much with it.

I hope senior government officials change their minds about this harmful exercise in central planning.

Not because I’m afraid it will work, but rather because I like China and I want the country to prosper. The partial reforms from last century produced great results for China, including huge reductions in poverty.

Additional reforms could lead to mass prosperity. But that won’t happen if the Chinese government tries to control the allocation of resources.

Let’s close with a big-picture look at central planning and industrial policy, starting with the common-sense observation that there are degrees of intervention.

Here’s my back-of-the-envelope perspective. We have examples of nations, such as the Soviet Union, where the government had near-total control over the allocation of labor and capital. And I suppose Hong Kong would be the closest example of a laissez-faire jurisdiction. And then there’s everything in between.

I’ve already shared two great videos on government planning versus the market. I strongly recommend this Prager University video, narrated by Professor Burton Folsom, on the failure of government-dictated investment. And also this video narrated by Professor Russ Roberts, which shows how a decentralized market efficiently provides a bounty to consumers.

Here’s a third, which celebrates the work of the late Don Lavoie, one of my professors when I studied at George Mason University.

By the way, there is a terrible flaw in the video. The photo that appears at 1:38 shows select faculty and students in 1987. Why is that a flaw? For the simple reason that I was part of the photo but got cropped out in the video.

P.S. Some people worry that China’s industrial policy will have a negative spillover effect on the United States because American companies will lose market share to the subsidized Chinese companies. That’s a legitimate concern and American officials should use the World Trade Organization to counter mercantilist policies.

P.P.S. To my dismay, some people don’t want China to become a rich nation. I assume those people are hoping China follows the advice of the OECD and IMF.

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In 2016, I toured the Tuol Sleng Genocide Museum in Cambodia, which memorializes the victims of communist butchery in that nation.

Earlier today, I was lucky enough to get a tour through the House of Terror, a museum in Budapest that commemorates the horrors that Hungary endured during both Nazi occupation and Soviet occupation

Some of the exhibits are uplifting, such as the photo from the 1956 uprising that shows a toppled statue of Stalin.

Other parts are downright depressing.

Or, in the case of these torture instruments, certain exhibits are utterly horrifying (you can use your imagination to figure out what the communists did with the glass tubes).

If you go to Hungary, the House of Terror should be on your list of things to do.

I was particularly gratified to learn that it’s the most-visited museum in Budapest. Not simply because it’s filled with interesting material, but because it helps people understand that all forms of statism are wrong.

The House of Terror has exhibits on the brutality of Nazi rule and the brutality of Marxist rule.

Which is a good excuse for me to share excerpts from a couple of columns on the common thread between fascism and socialism.

In a column last November for the Foundation for Economic Education, Brittany Hunter shared some of Friedrich Hayek’s analysis of the philosophical link between national socialism and international socialism.

F.A. Hayek’s The Road to Serfdom, …in chapter twelve, …Hayek highlights the very important connection between the socialist and Nazi intellectuals by profiling a handful of prominent German Marxist supporters… Hayek points out that contrary to what many think, Nazism did not simply appear out of thin air and infect the minds of docile German people. There were academic roots that, while grown in the soil of socialist thought, grew into a philosophy that praised German superiority, ultimate war, and the degradation of the individual. …Beginning his list of influential thinkers prior to WWII, Hayek begins with the dedicated Marxist who later embraced nationalism and dictatorship, Werner Sombart (1863-1941). …He seethed with criticism for the English people, who, in his mind, had lost their warlike instincts. …His other main criticism of English culture was the emphasis placed on the individual. For Sombart, individual happiness was hampering societies from being truly great. …Professor Johann Plenge (1874-1963) was another leading intellectual authority on Marxist thought during this time. He also saw war with England as a necessary struggle between two opposite principles: emphasis on the individual and organization and socialism. …Interestingly enough, many…socialist philosophers eventually abandoned Marxism in favor of National Socialism… while Prussian militarism was seen to be the enemy of socialism, Spengler helped bridge that gap. Both schools of thought require an abandonment of the individual identity. …This hatred and fear of the individual is the worldview espoused by these thinkers and it continues on with those who claim to be socialists today. Unless the concept of individualism is completely eradicated, the glorified state cannot come into existence.

Earlier this year, Byron Chiado echoed this analysis of Hayek’s Road to Serfdom in another FEE column, pointing out that all forms of socialism reject classical liberalism.

The bulk of the book makes the argument that central planning and interventionism inevitably lead to authoritarianism… Towards the end of the book, he deals with the undeniable authoritarians of his time and casts the national-socialist movement as one built on disgust with liberalism. …Sombart, like many Germans in the early 20th century, was compelled by a case for war between the British and Germany on the grounds that the British…pursuit of individual happiness, which he saw as a disease contracted from a society built on commercialism. Laissez-faire was an unnatural anarchic order giving rise to parasites and dishonest merchants… another Marxist, Sociologist Johann Plenge…moved into the shamelessly totalitarian realm that attracted so many Marxist leaders… Hayek gives…a warning to England; that the “conservative socialism” en vogue at the time was a German export, which for reasons he details throughout the book, will inevitably become totalitarian. …This was not a sensationalist attempt to prove his point. Hayek was rather calmly pointing out an example of the type of government one could expect in a society that has discarded liberalism for planning.

Amen. Big government is coercive government, regardless of what label is applied.

Which is why libertarianism (what Hayek would have called liberalism, meaning classical liberalism) is the proper philosophy of government. Assuming, of course, one values individual rights and civil society.

P.S. I also visited the Solidarity Museum in Poland a few years ago. Maybe I could put together a guide-book on the horrors of totalitarianism.

 

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I’ve always viewed Ayn Rand’s most famous novel, Atlas Shrugged, as a warning about the dangers of over-regulation, over-taxation, and excessive redistribution.

I won’t spoil the plot for those who haven’t yet read the book, but it’s basically a storyWelfare State Wagon Cartoons about what happens to a society when the people pulling the wagon decide that’s no longer how they want to spend their lives.

And as these highly productive people begin to opt out, politicians come up with ever-crazier ideas of keeping the economy going.

The most absurd example, something that could only happen in a dystopian work of fiction rather than real life, was “Directive 10-289,” an edict from the government to prevent continued contraction by requiring everybody in the economy to do exactly the same thing next year that they did this year. This meant no changing jobs. No starting new companies. No closing down existing companies. No changes in pay. Or employment. No changes in anything. Freeze the economy at current levels.

In other words, take Nixon-style wage and price controls and apply them to every bit of economic activity.

Unfortunately, some politicians think Atlas Shrugged is a direction manual rather than a warning. In Montreal, they’ve come up with a crazy idea to apply a version of Directive 10-289 to the restaurant industry. I’m not joking. In a column for Reason, Baylen Linnekin explains this surreal new policy.

…lawmakers in Montreal have moved to crack down on new restaurants, in an odious attempt to protect existing ones. “Montreal has one of the highest restaurant per-capita ratios in North America and the amount of places to eat is worrying local politicians,” reads a Canadian Press piece from earlier this week. …Data shows Montreal trails only New York City in terms of restaurants per capita in North America. As in New York City, that competition is great for Montreal’s consumers. But it puts pressure on incumbent restaurateurs. So lawmakers have decided to side with the latter.

The new law isn’t quite as bad as Directive 10-289, but it’s guided by the same attitude: Everything that exists now should be preserved and what’s new is bad.

…a ban on new restaurants from opening within 25 meters of an existing one along the city’s Rue Notre Dame… Notably, the action comes as “a number of commercial and retail properties remain empty” in this same part of Montreal. The law “risk[s] turning the city’s restaurant scene into a heavily bureaucratized nightmare like the province’s construction industry,” says the head of Quebec’s restaurant association

So who could possibly support such an initiative?

Unsurprisingly, the greatest enemies of genuine capitalism aren’t just politicians, but also incumbent firms that don’t want competition.

…some protectionist restaurateurs support the measure. “In Montreal you can apply for a restaurant permit and get it immediately—that’s a problem for me” says David McMillan, a supporter of the restrictions, whose high-end restaurant, Joe Beef, is an intended beneficiary of the ban. He’s not alone. “I don’t believe in the free market anymore,” says restaurateur Carlos Ferreira. “We have to protect the good restaurants.”

Gee, I thought consumers were the ones who were supposed to determine which restaurants are good. But Mr. Ferreira wants politicians and bureaucrats to now have the power.

Though we shouldn’t mock the Canadians too much. After all, Barack Obama imposed a version of Directive 10-289 in the United States.

Heck, he must be a big fan of Atlas Shrugged because he also mimicked another part of the book.

Of course, there are some cities, and even entire nations, that apparently want to replicate everything in Ayn Rand’s classic novel.

And the results in these real-world experiments are similar to what happens in the book. Except the book actually has a happy ending, whereas there’s little reason to be optimistic for a rebirth of freedom in places such as Greece and Venezuela.

P.S. John Stossel and Charles Murray have interesting things to say about Atlas Shrugged.

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