Thursday, November 10, 2011

The CatFish Disses Hayek

Reuter's columnist Felix Salmom, aka the CatFish, has decided that compared to John Maynard Keynes, Frederich Hayek is "more slippery and much less helpful when it comes to determining what government should actually do [about the economy]."

How does he reach this conclusion? By discussing a Keynes-Hayek debate that recently took place in NYC. He writes:
For one thing, the Keynesians had the advantage of history. Keynes is a giant of 20th-century economic thought, who was intimately involved in policy decisions at the highest level and whose works are revered to this day. Hayek, by contrast, has always been a more marginal figure, whose works are borderline unreadable even in the original German...
I'm guessing he has not read Keynes for him to charge that a weakness of Hayek's is that compared to Keynes, Hayek is "borderline unreadable". Keynes' General Theory is beyond borderline unreadable. Indeed, Keynes in GT didn't even consistently use key words in the same sense. Henry Hazlitt wrote about GT:
We shall find, in fact, that Keynes's definitions of "saving" and "investment" which make them necessarily equal (and indeed "merely different aspects of the same thing," p74) have created great embarrassments for the Keynesians and confusions and contradictions in the master. The embarrassments for the Keynesians come not only from the fact that Keynes has previously so defined "saving" and "investment" as to make them usually unequal (or occasionally equal by a sort of happy accident), but from the fact that the General Theory definitions create many difficulties in subsequent Keynesian doctrines. In fact, Keynes abandons these definitions, without notice to the reader, in the latter part of the General Theory, and returns to his older concepts.
Hayek was a careful writer. You would never find such sloppy use of words, using then in two different senses, from Hayek.  That said, Hayek was writing for an academic audience where careful writing and exactness of an argument was important. An academic will work through carefully reasoned work with many clauses. The fact that the CatFish finds his writings borderline unreadable may say more about the CatFish then is does about Hayek. Hayek did, afterall, receive the Nobel Prize in economics, which suggests that a few must have made it through Hayek's work.

The CatFish then goes on to tell us that Edmund Phelps, arguing for Hayek, said he’d like to see a National Innovation Bank. Since, I have seen nowhere Hayek calling for a National Innovation Bank. It's clear what is going on here is that the so-called defenders of Hayek hold positions far from the positions Hayek held.

Hayek wasn't as consistent as Ludwig von Mises and Murray Rothbard, but to go as far as calling for a National Innovation Bank while attempting to defend Hayek is absurd.

The CatFish then goes on to tell us that:
The problem with the Hayekian position is that it’s relentlessly negative: spending doesn’t work, stimulus doesn’t work, all we can do is suffer a nasty bout of deflation and trust in the invisible hand to eventually get us back to work again.
This is how MSM likes to frame Austrian Business Cycle Theory. It's negative, nasty and about pain. I have discussed this before. It is a slippery move:
This "pain theory" that is identified with Austrians and embraced by some is distorting.

One would not, for example, say that a heart surgeon attempting to save a man's life by heart surgery is in favor of pain as the way to save the man, even though pain is most assuredly a byproduct of a major heart operation.

There would never be a critique of a heart surgeon, "Oh, he causes pain." We all know such an operation is performed only to prevent further pain, and possibly death, down the road. In the same way, an Austrian economist who calls for a laissez faire attitude during the down phase of the business cycle is doing so only because he knows that the down the road alternative is worse. A resumption of money printing may prop up the earlier central bank manipulated capital structure, short-term, but it will only mean a greater liquidation down the road or hyper-inflation.

Thus, an Austrian calling for liquidation of malinvestments is more like a surgeon calling for a malignant tumor to be cut out. In either case, do you really want the alternative, for them to grow?

Austrian economists aren't into pain anymore than heart surgeons and cancer surgeons. Austrian economists look at the business cycle and are really saying, "Look you better stop this now because it will only get worse." That's not a pain theory. It's a theory to limit pain.
The CatFish then memorializes the stops and stutters of the Hayek defenders and their sometimes Keynesian positions:
For the Hayekians, the Manhattan Institute’s Diana Furchtgott-Roth was particularly revealing: she would take a question about rescuing the financial system and duck it by talking about how rescuing the auto industry was a bad idea. Or she would ridicule high-speed rail by saying that no one wants to take the train from New York to L.A.—a route that precisely no one is proposing. In other words, the Hayekians were more comfortable with straw men than with messy reality.

Furchtgott-Roth did stammeringly admit that she thinks AIG should have been allowed to go bust, which is exactly the kind of thing that gives Hayekians a bad name...

And when economist Lawrence White was asked if the U.K. government was following a Hayekian course and whether he thought it would work, he simply ducked the question outright, saying he had no idea...

Phelps, by far the most reality-based of the Hayekians, was happy to adopt Keynesianism in a crisis. He approved of most of the fiscal and monetary policy adopted by Presidents Bush and Obama in the face of the financial crisis, saying that they “served to remedy a deficiency of liquidity.” He just feels that such mechanisms have outlived their usefulness at this point—that they can help for a year or so after a crisis, and should then be abandoned. That’s an interesting and defensible point, but it seems to me a point for Keynes rather than for Hayek.
In other words, these current day Keynes-Hayek debates are a joke.

The CatFish titled his column, "How Keynes beat Hayek." Hayek wasn't beat, he wasn't a failure in this debate, he wasn't present. The failure was the setting up of the debate in the first place, which included an economist "defending" Hayek who is in favor "of most of the fiscal and monetary policy adopted by Presidents Bush and Obama in the face of the financial crisis."

That is totally absurd position relative to Hayek.

There are very few people who have the mental ability similar to Hayek, Rothbard or Mises. To put up others to defend such thinking results in a meaningless event, if the defenders don't come close to being able to understand, much less defend Hayek's position.


  1. Salmon starts with fallacious rhetoric.

    In the first paragraph this posts quotes, he uses an appeal to authority and tradition (or status quo bias).

    When the ideas are the poor reasoning, fallacies must be employed.

  2. I wouldn't brag about winning a Nobel prize. After all, Krugman won one for economics as well, and Obama won one for peace. Not necessary a group I would like to be associated with.

  3. 1. This past February, the American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow*) named its top 20 articles of the last 100 years. Included therein was:

    Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.

    The essence of the Austrian theory is the essential nature of economic calculation through free market prices. That explains how the capital and price structure get out of whack and why the discovery of real prices is the solution to the problem. Mr. Salmon (like all non and anti-Austrians) appears completely unfamiliar with these basic concepts. We’ve won, even if our opponents do not know it yet.

    2. FYI for future reference. “Libertarian” Megan McArdle explains how FDR saved America and ended the Great Depression:

    The solution to the problem turned out to be throwing money at it: going off the gold standard, devaluing, and guaranteeing everyone's bank accounts. Oh, yes, there was moral hazard. There still is. What there aren't, is bank runs that wipe out peoples' life savings overnight, or an unemployment rate of 25%.

  4. Phelps-Keynes argued with Salmon-Keynes and declared a victory for Keynes-Keynes.

    Hayek is recovering from a Mickey Finn.

  5. Reuters? Does anyone really pay attention to Reuters anymore? Isn't that where untalented journo-wanna-be's go to die?

    Catfish are bottom feeders. How appropriate. Yet another demonstration of the truth of the proverb: There is at least one idiot in every crowd. Reuters has theirs... The joke isn't the debates, it's the argument (or lack thereof) employed by the catfish. Vacuous.

  6. "To put up others to defend such thinking results in a meaningless event, if the defenders don't come close to being able to understand, much less defend Hayek's position."

    Agreed, but don't accept the CatFish account of the debate. I like to think that I come close to understanding Hayek's cycle theory, and as cleanup batter on Team Hayek I did my best to defend it. You can read my prepared remarks here to see what Salmon left out of his account:
    You might also want to Google around to read other accounts.

  7. It is enough that Felix Salmon's flaming, statist bias is obvious to any honest, discerning observer who spends more than a few minutes reading his "material." But alas, he also writes for the state-worshiping Columbia Journalism Review (CJR), which never met a federal spending project it couldn't promote via its peculiar form of "journalism peer-review." It's no surprise, then, to see a dishonestly slanted account of Hayek v Keynes coming from that human fraud-factory known as Felix Salmon.

  8. Robert, you may have seen this, but here's a link for the Bob Murphy v Karl Smith debate. Sounds much better than the debate you're describing:

  9. So it was really statists vs beltway libertarians. For some people, this will be the modern day equivalent of the statist 'victory' on the socialist price calculation question.

  10. This was a rigged pseudo-debate, pure and simple, where the "debaters" were all Keynesians, though half of them were pretending to be Hayekians. Naturally the central banking criminals behind this congratulated themselves on fooling the public yet again.

  11. @Ryan.Thanks for the link- Bob Murphy vs Karl Smith.
    Mr.Smith, proudly introducing himself as neo-keynesian,bernankian central planner is falling of his chair right from the start.He is arguing on proven failed premises.Waste of time to dissect it, to say the least.
    The devastating effects of central planning in the former soviet block system,the FED booms and busts here and elsewhere around the world is well documented and evident.The centralized control over money supply is totalitarianism masked under the guise of different timely supplied slogans.Who ever controls the issue of currency,calls the shots.
    What is shocking that tons of daily indoctrinated robot-ant-worker-agents like Mr.Smith are elevated to professorship posts at universities.
    Now days kids are having no other alternative in life are getting indebted to be induced, mentally subjugated, and consequently enslaved forever into a tyrannical matrix.