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September 16, 2007

Naomi Klein and Hayek

Well, at least I think it was Hayek who said something like this (maybe Uncle Milt):

“The ideologues believe that a totally free market is a prerequisite for democracy, but also that it is more important than democracy and that given the choice between the two, therefore, the free market is preferable.”

Economic freedom or having to do what everyone else votes on? I'm for the former as Naomi Klein obviously is not.

September 16, 2007 in Economics | Permalink


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Ahem. For an instructive and entertaining Google sponsored lecture, watch this video with Prof Barry Schwartz of Swarthmore College on: The Paradox of Choice - or Why more is less:

Beware, the video clip lasts just over an hour but it's worth it. I have to admit, it makes a powerful case: if we look at the data of what consumers actually do when confronted by having more choice from a wider selection then we often opt out and refuse to make any selection or buy less.

Posted by: Bob B | Sep 16, 2007 11:22:37 AM

I think both democracy and the free market are different sides of the same coin.

Without democracy the legitimacy of the law is questioned, without the enforcement of a contract, then no free market because property rights cannot be guaranteed, and the state is the only legitimate holder of force.

Without the free market poiticos are not exposed to the reality of their choices, and the electorate to their own.

the trick is to get the balance right

Posted by: Sean of Sheffield | Sep 16, 2007 12:50:13 PM

Democracy (which has many forms, many indeed - only a minority of men were allowed to vote in most elections until recently) comes in useful to change the government - the alternative being a revolution, which is usually very destructive.

So, no democracy is a bit of a gamble. But I think I agree that a free economy comes first in the development of modernity, so it is probably more fundamental.

Posted by: Bruce G Charlton | Sep 16, 2007 4:50:12 PM

IMO it's always worth consulting research into growth empirics - such as Robert Barro: Determinants of Economic Growth (MIT Press, 1997) and other sources - on these claims about economic and political freedoms because it's not stark staringly obvious whether more and better economic development is the cause or the consequence of more democracy. In any event, the relationship may not be linear.

Industrialisation was pioneered in Britain [1] but that process started decades before the (modest) franchise reforms in the Great Reform Act of 1832 and even more decades before subsequent extensions of the franchise in 1867 and 1884 or the introduction of secret ballots in 1872. There wasn't full adult suffrage in Britain until 1928.

Besides: "Some thirty-five thousand people were condemned to death in England and Wales between 1770 and 1830, and seven thousand were ultimately executed, the majority convicted of crimes such as burglary, horse theft, or forgery. Mostly poor trades people, these terrified men and women would suffer excruciating death before large and excited crowds." [2]

The worry in 19th century Britain, as well as in emerging market countries nowadays, is whether too much democracy, too soon, could lead to too much rich-to-poor distribution of income so that the entrepreneurial classes have too daunting a challenge raising the finance for business investment. James Watt needed the like of Matthew Boulton to finance the making of steam engines.

[1] Gregory Clark: Farewell to Alms (Princeton UP, 2007)
[2] VAC Gatrell: The Hanging Tree - Execution and the English People 1770-1868 (Oxford UP, 1996)

Posted by: Bob B | Sep 16, 2007 5:23:21 PM

NK is a stupid bitch and that's for sure.

Posted by: Mark Wadsworth | Sep 16, 2007 7:20:16 PM

It isn't so much that a market based economy is a prerequisite for freedom, it is that every other system so far tried leads to tyranny.

To go all cod-sartre, is choosing not to choose itself an exercise of choice?

Posted by: chris | Sep 16, 2007 8:40:03 PM

Cod-Sartre and logic of choice games are great fun but Prof Schwartz in his Google lecture on: The Paradox of Choice, is citing a whole lot of surveys showing what actually happens when we are confronted by the need to make choices when there is more to choose from:

Mainstream economics is predicated on the premise that decisions in households and firms are rational and economists apply that premise because we can't agree on what better alternative could be put in its place.

Prof Schwartz, a psychologist, comes along and reminds us that people, in fact, do not act rationally. That insight is not new - social psychologists have been regularly making that same point at least since the Hawthorne Experiment in the 1920s:

If economists are unsure where to go from here that is certainly not true of government spin-meisters in the liberal-democracies who have learned recently how to better exploit public amnesia and manipulate human gullibility. Of course, the Bolsheviks and Nazis were there long before. As Adolf put it in Mein Kampf: "the broad mass of a nation will more easily fall victim to a big lie than to a small one."

How about this: "And the document discloses that [Saddam Hussein's] military planning allows for some of the WMD to be ready within 45 minutes of an order to use them"?

Posted by: Bob B | Sep 16, 2007 11:05:15 PM