Wednesday, 21 March 2012

Why is Hayek not the best selling author of Greece?


I must personally admit that this economic crisis and the near universal incompetence shown by governments globally in dealing with the repercussion has shaken my ideological belief (since we are whether we admit it or not, part of a particular idealogical genre)as an economist who sees a limited role for government in providing stability.

Governments have up to know willingly or unwillingly been dealing with the repercussion of this crisis wrongly. Some banks (both in the US and in Europe) have been given the ultimate insurance of knowing that they will receive all the profit when times are good, but be insured from looses when times are bad through nationalizations-in-all-but-name and massive injections of cheap loans, either from the Federal Reserve or the European Central Bank. Trillions of dollars and Euros were given to banks that made wrong choices at little to no interest, in the vain hope that the banks will then re-invest them in funding US states or European countries in trouble. It a no brainier for any bank: borrow from the ECB at 1% and re-lend to Italy at 6% and use the large revenue to fix my past errors of judgement? SURE!

I still believe that governments can sometimes provide better answers that the market; I just lost faith that governments will ever reach the correct decisions. Hence I strongly believe that smaller governments is part of the answer to the our problems.

What I feel is not something new: it is felt by many citizens of southern Europe, and Greeks in particular. The average Greek citizens desires the state to provide him with all sort of benefits, but seems to distrust the state in being fair in his provision or competent of the delivery of the benefit.

And yet the ultimate expression of the ills of allowing government to make choices, Hayek and the "Road to Serfdom", is missing from the debate in Greece:almost no one in Greece (with the exception of the excellent blogger and good friend lolgreece ) is proposing actions that would be in the vain of those proposed by one of the greatest economists of the 20th century, Friedrich von Hayek.

Hayek was deeply suspicious of governments and his economic work was mostly focusing in how governments, and central banks in particular, can create and amplify business cycles through their expansion of credit. This idea, with such great explanatory power over the situation we know experience, has not filtered so well in Southern Europe. It seems that the distrust of government so evident in the thinking of many Southern Europeans, has not been given the natural idealogical mechanism of expression: the demand of a smaller government, that does much less.

In class discussion I find that Hayek's "Road to serfdom" is very appealing to students. Hayek's dystopia is described and updated to current understanding, and not in the classic 1943 framework of a dictatorship (for the original but simplified framework see this). I try to explain it in something like these terms:

1) The government mobilizes people to sacrifice something for the common good (for example welfare benefits)
2) The government, through the electioneering and propaganda of politicians keep promising more welfare benefits to the people, that necessitate more and more to be sacrificed by the individual.
3) Pretty soon the government becomes so big that it dominates the life of the individual, and relations with the government at hand dictate welfare more than the individual skill of a person.
4) Intense political rivalries occur in how to move failed government welfare provision forward. Confidence in planners fails and people are clamouring for something to be done.
5) A strong man is appointed to "get things done", and he goes ahead in planning our life --> The unsustainable welfare provision collapses and it is rolled back, taking with it the welfare provision invested by the individual through contributions to the state.

Students find this ideas powerful. Yet as soon as it is explained to students that this is liberalism and that the answer is smaller government there is revulsion. Although most can agree that the government is the problem, they seem to believe that it can be corrected to provide for their needs, if only more competent people are in power.

I can not answer what is the cause of that optimism, since empirical evidence of years of elections seem to always bring more misery in terms of governmental mismanagement. Hence my title - Why the heck is not Hayek and liberalism more popular in Greece? I do not know the answer, but it does mean that a valid and useful aproach is totally exluded from a voice in traditional media and in the puplic area, to the great shame of all.



---------------------------------------------------------------------------------------------------Licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. . You are free to copy content but you must link back to this blog and attribute the work to me (Alexandros Apostolides).. You cannot use my work for commercial purposes and you must share it under the same terms I do.

No comments: