My econ professors Andrew Farrant and Edward McPhail, Dickinson College, argue that Jeff Sachs was right in interpreting Hayek's view on welfare state and the road to serfdom!(Btw, here is Easterly explaining the Hayekian insight on economic development) Read the full paper (can't find an online version) for more discussion on how people have failed to interpret what Hayek really meant when he discussed welfare state. They also claim that Glenn Beck and Rush Limbaugh have misread Hayek.
"A relatively recent example of the debate over whether Hayek’s arguments are intended to apply exclusively to full-blown command planning or to command planning and the welfare state alike is provided by the 2006 exchange between Jeffrey Sachs and William Easterly over the merits or otherwise of Hayek’s thesis and the relevance of Hayek’s arguments to debates over contemporary policy. Sachs contended that Hayek intended his argument to have ready applicability to the postwar welfare state. Sachs argued moreover that Hayek’s argument largely missed its mark, and the postwar performance of the Nordic social democracies—together with their clear failure to mutate into totalitarian polities—provided especially telling evidence against Hayek’s thesis.
In his rejoinder to Sachs, William Easterly (seemingly fully in agreement with Bruce Caldwell’s oft-repeated claim that Hayek’s thesis has no bearing on contemporary policy debates over the welfare state per se) suggests that Hayek’s thesis was intended to only have applicability to a system of wholesale state planning.4 In reply, Sachs rightly pointed to Hayek’s 1976 utterance that he deemed The Road to Serfdom to have much applicability to command planning and the redistributive Nordic-style welfare state alike.
Sachs notes that Hayek suggested “that high taxation would be a ‘road to serfdom,’ a threat to freedom itself” (Sachs 2006, 42). Similarly, Sachs maintains that “Hayek was wrong. In strong and vibrant democracies, a generous social welfare state is not a road to serfdom” (ibid.; emphasis added).
Unsurprisingly, Sachs’s reading of Hayek attracted much online commentary. For example, one leading authority on Hayek’s work insisted that Sachs had seriously misread “Hayek’s Road to Serfdom thesis” (Boettke 2006).
Our aim here, however, is not to evaluate whether Sachs and Easterly are correct per se in their claims and counterclaims about the growth performance (whether sterling or otherwise) of the Nordic social democracies. Instead, we argue that Sachs’s “welfare state” reading of Hayek’s thesis is accurate. Indeed, the Sachs-Easterly exchange is merely the latest spark on this particular issue to rise from the rather heated intellectual fire that Hayek’s book immediately lit upon its initial appearance in 1944 (see, e.g., Hansen  1947). Moreover, there is much clear evidence that Hayek himself had always intended his argument to apply with equal stringency against command planning and the welfare state alike (see, e.g., Hayek 1948,  1994, 1960, and  1994). Indeed, as we shall show, Hayek—during the 1940s and after—frequently argued that the logic supposedly set into play by any policy of persisting with the mixed economy, Keynesian demand management policy, and welfare state practices would lead to full-blown central planning. Importantly, Hayek frequently claimed that the “middle of the road” policies—pretty much the welfare state and demand management (Toye 2004)—adopted by the 1945–51 Labour Government in
aptly illustrated the veracity of his thesis in The Road to Serfdom." Britain
This is what I commented last time when professors Farrant and McPhail published an interesting paper on Samuelson, Hayek and the inevitability thesis:
"Consider this by Hayek (Foreword to the 1956 American paperback edition of The Road to Serfdom, pp44 in the definitive edition of The Road to Serfdom):
The hodgepodge of ill-assembled and often inconsistent ideals which under the name of the Welfare State has largely replaced socialism as the goal of the reformers needs very careful sorting out of its results are not to be very similar to those of full-fledged socialism. This is not to say that some of its aims are not both practicable and laudable. But there are many ways in which we can work toward the same goal, and in the present state of opinion there is some danger that our impatience for quick results may lead us to choose instruments which, though perhaps more efficient for achieving the particular ends, are not compatible with the preservation of a free society. The increasing tendency to rely on administrative coercion and discrimination where a modification of the general rules of law might, perhaps more slowly, achieve the same object, and to resort to direct state controls or to the creation of monopolistic institutions where judicious use of financial inducements might evoke spontaneous efforts, is still a powerful legacy of the socialist period which is likely to influence policy for a long time to come.
Apparently, Hayek overstretched his warnings and considered that economic planning and reforms would lead to (ultimately result in) a totalitarian state. For the sake of justifying freedom, he blinded himself to the possibility of having a managed mixed-economy. See the success of the Nordic countries. Also, it is hard to believe that the US (and other Western countries) would end up being totalitarian states, especially after the financial crisis (with all those bail-out interventions and activist government policies)."