Wednesday, November 19, 2008

Paul Samuelson blasts libertarians

Paul Samuelson argues that there is no alternative to market system but this is not the same thing as unregulated capitalism. Based on his “rationality and experience” he prefers taking a dynamic moving center position, i.e. ideologically, he thinks Limited Centrist State should be the model for the economy. This piece is going to make the libertarians, who he says are emotional cripples and bad advice givers, very unhappy. He blasts Hayek’s “serfdom” concept, which Hayek uses to argue that increasing role of state will lead to serfdom. The book he is referring to is The Road to Serfdom (pretty good book to read).

Based on my observations of economic history, both short run and long run, I believe that there is no satisfactory alternative to market systems as a way of organizing both economically poor and economically rich populations.

However, using markets is not the same thing as unregulated capitalism so beloved by libertarians. Such systems cannot regulate themselves, either micro-economically or macro-economically. Wherever tried they systematically breed intolerable inequalities. And instead of such inequality being the necessary price to encourage dynamic progress via technological and managerial innovations, it instead breeds dysfunctional shortfalls in what economists call "total factor productivity."

…Libertarians are not just bad emotional cripples. They are also bad advice givers. I refer of course to the views of both Milton Friedman and Friedrich Hayek. The “serfdom” they warn against is not that of Genghis Khan or Lenin-Stalin-Mao or Hitler-Mussolini. Rather, they warn against the centrist states of the modern world. Think only of Switzerland, Britain, the US, the Scandinavian countries, and the Pacific Rim. Why do citizenries there report high indexes of “happiness” and enjoy broad freedoms of speech and belief?

…Yes, public policy should regulate (rationally regulate) corporate life and should work to stabilize the macro economy. Yes, future fiscal systems can in a limited degree reduce the more glaring evils of inequality. However, a centrist system can do measurable harm if it acts too strongly to reduce inequality. My goal is the Limited Centrist State.

I am not a centrist because I can’t make up my mind about the Right and the Left. It is because each of those has proved itself to be so non-optimal that rationality and experience move me toward the dynamic moving center.

Five Nobel prize winning economists write about the global economy here. More about Samuelson here and here. Thanks to Professor Farrant for the pointer.

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