Saturday, 30 April 2011

Russ Roberts on Hayek

Russ Roberts, of Cafe Hayek fame, is interviewed here on what Hayeks' view of the budget deficit in the U.S. would have been.

The first question Roberts was asked is "What did Hayek believe about the role of government?" His answer:
In his 1974 Nobel Prize lecture, he said (and I'm paraphrasing),"I prefer imperfect knowledge that is true, to perfect knowledge that is false." Having perfect knowledge is impossible. As he got older, Hayek became increasingly skeptical of formal models to measure the impact of any of a particular project or program on the economy. So he was very skeptical of macroeconomic predictions.

Hayek was not an anarchist- he didn't believe there should be zero government. But he was also not a conservative. He was a classical liberal- he believed in personal freedom and responsibility. This idea that we'd need to increase the budget by $1 billion to "stimulate the economy", he would view with extreme skepticism. So he was very skeptical of macroeconomic predictions. He believed in the importance of bottom-up, emergent actions of individuals: planning for the future should be done by individuals, not by someone at the top.

He didn't believe that anyone can steer the economy. Hayek would also be skeptical of the idea that we'd need to keep spending to prop our economy up and to keep our economy going. He'd want to let entrepreneurs and individuals make decisions based on the knowledge available to them, rather than a top-down approach [by the government] that tries to micro-manage at a macro level.

He was skeptical of the idea that the Federal Reserve, through manipulating interest rates, could create prosperity or improve the economy. Hayek would argue in fact the Fed is a major reason we're in the mess we're in.

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