Food for Thought #3: The Traffic Circle to Serfdom

Previously on Food for Thought, I took Atlas Shrugged out of its original context and put it in 21st century terms. Specifically, I described the book’s world in terms of modern pop culture by way of our greatest television dramas. Then I examined how the plot of Atlas isn’t just a powerful libertarian vision for conservatives; it’s a progressive tragedy for liberals too. This week I’m adding to the mix the economic debate over The Great Recession. It’s the reason I read this book in the first place in 2008, and it’s the reason our political battle lines in 2012 look so eerily like the Randverse.

Badass Motherfuckers (courtesy of

The story of today’s economic debate doesn’t really start with mortgage-backed securities. It starts a hundred years ago with two economists whose views now symbolize the American left and right: J.M. Keynes (D-England) and F.A. Hayek (R-Austria). Most of this post will be sourced from this excellent book on them, but if you’re already familiar with these guys skip ahead to Hayek Anxiety

John Maynard Keynes was an economics prodigy during World War I who wrote a book calling bullshit on the Treaty of Versailles. He predicted that the brutal debts forced onto Germany would lead to socioeconomic collapse, radical politics, and some kind of nightmarish second World War. Aside from being 100% right, the book was a smash, making Keynes an intellectual celebrity for the rest of his life.

Meanwhile, Friedrich Hayek was a young scholar who saw Keynes’ predictions coming true first-hand and was in awe of his intellect. When the two met as adults, they had great respect for each other, even as their philosophies grew more and more opposed.

What was the root of that opposition? The Great Depression.

Keynes saw millions unemployed and all the shuttered factories and shops and thought it was ridiculous that these problems couldn’t simply solve each other. He figured if the government ran a deficit to fund projects like fixing and building roads, it would put idle people to work, which would give them money to spend, which would give businesses customers, which would allow businesses to start hiring again, which would get more people back to work earning more money to spend on more businesses. Unemployment drops, growth returns, the economic engine runs smoothly again — even better in fact, because it’s now running on shiny new roads that expand and integrate markets. And with things going strong, the government can pay back the deficit it incurred during the slump by using the bigger tax revenues created by the boom. Voila!

This is the reasoning behind the economic stimulus. Each step seems logical and the end result seems like a natural consequence of the steps. But try to pitch it in a sentence. Everybody’s short on cash? We can spend our way out of it! It sounds like a magic trick.

Too much like one, according to Hayek. Hayek was schooled in classical economics to consider things from the ground up. Keynes’ top-down view of the economy as one big machine seemed totally alien. In the classical view, prices mark a point of natural equilibrium that emerges from the chaos of every individual decision in the economy. Any attempt to manipulate the economy from the top down only disturbs that equilibrium. No matter how long you push it off, the day will come when everything (like, say, housing prices) inevitably crashes back to its natural state. In this view, the only appropriate response to a crash is to let the market shake itself free of the bad influence or you just set up the next crash.

Every time Keynes wrote a piece arguing for his crazy new ideas, Hayek was the guy who would write a response saying “Well I just did a ton of math about this and I have no idea what you’re talking about.” Keynes eventually got tired of that and spent a decade writing a book known as The General Theory in which he single-handedly invented the entire field of macroeconomics (which is now half of all economics) just to prove he was right. Needless to say Hayek didn’t get around to responding to that one directly. And besides, the American government under FDR was field-testing Keynes’ ideas in reality and liking the results. Case closed?

For the next forty years, Keynes’ model dominated policy in the Western world. But Hayek never gave up on his warnings. During the Keynes-predicted World War II, Hayek wrote a book called The Road to Serfdom that made a prediction of its own. “Hey, I’ve seen a government promise to save a radically depressed economy from the top-down before,” Hayek said. “It’s called Nazi Germany. Wake up people!”

Except the real point was that you don’t have to be evil Nazis to turn totalitarian (just as you don’t need corrupt congressmen to produce a corrupt congress). Once you start manipulating the economy at all, even for good reasons, you disturb the natural equilibrium, which causes new problems, which encourages you to meddle even more, causing more ripple effects, leading to more government intervention and on and on until one day you’ve saved the economy so many times you’ve turned into Soviet Russia by accident. The Road to Serfdom, it turns out, is paved with good intentions.

Unless you’re Ayn Rand, of course, who basically adopted Hayek’s thesis as the plot of Atlas Shrugged, but refused to grant good intentions to anyone except her protagonists, who hate good intentions and consider anyone who speaks in the language of good intentions to be an incomprehensible moral pervert. This is the part of Rand’s writing that is truly, utterly bizarre and let’s face it, morally perverse. Even libertarian bloggers acknowledge that there is literally no way to be more cynical than Rand is here. Already, long before we’ve reached the heavy, technical parts of her philosophy, we can tell something isn’t right, and here’s why:

In Food for Thought #1, I quoted Scott Tobias’ line that Atlas‘ ideas are hindered by its aesthetics. But it’s more accurate to say that Ayn Rand’s aesthetics hinder many of the ideas in Atlas (such as Hayek’s), and it is Rand’s ideas that hinder the aesthetics themselves. In About the Book I noted that Rand’s definition of art is ‘a selective re-creation of reality according to the artist’s metaphysical value judgments.’ She also says that the artist doesn’t have to make those judgments consciously; the art will still reflect them. So basically the qualities of one’s art are a natural outgrowth of one’s inner philosophy. And the qualities of Rand’s art are ugly. Ipso facto, her philosophy is ugly.

But does that mean it’s untrue? Or is it just pretty to think so?

Let’s refer back to the real world. In the 70s the economy sank into something called stagflation that didn’t fit Keynes’ model, and so conservative economists came back to power under the leadership of Margaret Thatcher and Ronald Reagan, who had both read Hayek’s Road to Serfdom political philosophy. After forty years of Keynes’ fans running the show, Hayek’s got their forty-year turn, and they too oversaw economic growth.

It wasn’t until 80 years after the Great Depression that had sparked the debate in the first place that the global economy suffered another epic collapse. And we should know, because we were there. Now conservatives claim the Keynesians set off a ticking time bomb between the 30s and the 60s. Liberals claim the Hayekians ruined a good thing through willful negligence from the 80s to the 00s. How can we know who’s right?

We’ll tackle that question head-on tomorrow when I take the Rand/Hayek worldview and apply it to the 2012 election, in the first post of a new series called “Applied Randology.” Bookmark the Club now and join in.

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