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Friday, July 15, 2011

The Road to Serfdom is Paved with Big Oil and Wall Street

The Road to Serfdom was written by the Austrian-born economist and philosopher Friedrich von Hayek in the 1940s. In this book and back then, Hayek warned that inevitably, tyranny would arise from government control of economic decision-making through central planning. Hayek argued stringently that subverting individual decision-making through central planning undermines fundamental personal freedoms, leading invariably to tyranny and serfdom. Hayek argued that central economic planning was antithetical to democracy.

It is clear that Hayek’s writing was not without a socio-political context. Communism was deemed as a supreme front of evil. So Hayek’s ideas are not entirely universal or timeless, and they must not be.

But Hayek and his ideas remain especially influential amongst economists today. The Keynesian wagon ran out steam in the 1970s and Hayek surged. John Maynard Keynes, writing during the depression, argued that actions by central bank and fiscal policy actions by the government were more effective than markets in stabilizing output.

Hayek and markets have become imperishably associated with liberty.

I am honestly appalled that we have produced generations of economists who have little or for the most part, very little understanding of the history of the development of their field.

But the surge and pre-eminence of Hayek was driven less by science, but rather by politics and ideology of the Reagan and Thatcher governments in the US and the UK. In 1976, Ronald Reagan spoke his famous line, “return to the people the freedoms and also reduced government regulation.

The squabbling in the US today about how to lower public debt or weather to raise the debt ceiling or reduce unemployment or tax cuts or cutting entitlement programs has at its core, the Hayek-Keynes conundrum.

But I think the ideas of Hayek, Keynes or even the invisible hand of Adam Smith do not offer sufficient intellectual and philosophical sophistication to even begin to grapple with the current financial crisis.

It is pathetic to say the least. This is why I have added my voice to the millions of voices of other global public intellectuals and thought leaders to urge for “New Economic Thinking”. There has to be a smarter way to do economics.

When Adam Smith could not wrap his head around the idea of markets as self-organized complex adaptive systems he resorted to the use of a simplifying metaphor, “the invisible hand”. According to Keynes, we could spend our way out of an economic downturn. And public spending got the US out of the Great Depression and triggered unprecedented economic growth. So this stuff really works!

The persistent global financial uncertainty demonstrates that financial markets are complex systems, which are far from equilibrium and are dynamically unstable and vulnerable to fundamental shifts and emergence complex interaction of system components.

I now turn back to ideological, political and intellectual paralysis surrounding the US fiscal policy and unemployment. I think big interest in finance and oil, through the lobbyist and politicians in Washington have wrought tyranny upon the American people. Big Oil and Wall Street control the US economy. Personal freedoms are curtailed, leading invariably to tyranny and serfdom.

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