J. Bradford DeLong's Blog, page 1164

Over at Equitable Growth: Yet Another Note on Mont Pelerin: Thinking Some More About Bob Solow's View...

Over at Equitable Growth So, as I said, just as I finish writing up my virtual office-hour thoughts on a framework for organizing one's thoughts on Friedrich A. von Hayek and twentieth century political economy, along comes the esteemed Lars P. Syll with a link to an excellent piece I had never read on the same thing by Equitable Growth's Fearless Leader Bob Solow.

It has been my experience that disagrees with Bob Solow at one's peril: not only has he already thought about and found reasons to object to your objection, but if you go further and find a reason to object his objection of your objection, he has already thought of a very good objection to that as well.

Nevertheless... READ MOAR

Solow sees a good, technocratic, information-theory focused economist Hayek, and a bad political pamphleteer Hayek. Solow sees the real Hayek as being the Good Hayek, whom he sees as more "moderate" than Milton Friedman--as committed in some sense that Milton Friedman is not to some level of professional technocratic economics guiding a social-insurance state that provides basic incomes, implements Pigovian taxes, enforces standards and quality, and aggressively breaks-up monopolies. It is, Solow thinks, the Bad Hayek who is the problem. And the Bad Hayek is not the real Hayek, for the real Hayek had "not meant to provide a manifesto for the far right..."

I, by contrast, see not two but three Hayeks: the good Hayek, a bad macroeconomic business-cycle Hayek, and a profoundly problematic political-economy Hayek.

The Good Hayek was, I think, very very good--much better than Solow allows. Papers in mechanism design and information theory written forty and fifty years later are footnotes (often unacknowledged footnotes) to the Good Hayek.

The Bad Hayek was, I think, very very bad. To claim that the market economy exhibited large business-cycle fluctuations only because of policy errors produced by the existence of central banks (and, sometimes, because the potential availability of a lender of last resort allowed private bankers to engage in fractional-reserve banking) was just batty: contrary to all sound theory and all empirical evidence. Only an astonishing imperviousness to both thinking deeply and looking at the world could allow clinging to such a dead-ender position. Yet Hayek did. And his epigones do.

The Political Economy Hayek is, as I said, highly problematic. First of all, there is the dodging and weaving. Here is Hayek writing to Paul Samuelson:

I am afraid and glancing through the eleventh edition of your Economics I seem to have discovered the source of the false allegation about my book The Road to Serfdom which I constantly encounter, most resent, and can only regard as a malicious distortion.... You assert that I contend that 'each step away from the market system towards the social reform of the welfare state is inevitably a journey that must end in the totalitarian state' and that 'government modification of market laissez-faire must lead inevitably to political serfdom'.... How anyone who can just read my book in good faith can say this when ever since the first edition I say right at the beginning... 'Nor am I arguing that these developments are inevitable. If they were, there would be no point in writing this. They can be prevented if people realize in time where their efforts may lead...'

And here is Hayek writing a new forward for The Road to Serfdom in the mid-1950s:

Six years of socialist [i.e., Labour Party] government in England have not produced anything resembling a totalitarian state. But those who argue that this has disproved the thesis of The Road to Serfdom have really missed... that the most important change which extensive government control produces is a psychological change... necessarily a slow affair... not over a few years but perhaps over one or two generations.... The change undergone by the character of the British people... can hardly be mistaken... Is it too pessimistic to fear that a generation grown up under these conditions is unlikely to throw off the fetters to which it has grown used? Or does this description not rather fully bear out De Tocqueville’s prediction of the 'new kind of servitude'?... I have never accused the socialist parties of deliberately aiming at a totalitarian regime.... What the British experience convinces me... is that the unforeseen but inevitable consequences of socialist planning create a state of affairs in which, if the policy is to be pursued, totalitarian forces will get the upper hand... (I)

But we also have:

The assurance of a certain minimum income for everyone, or a sort of floor below which nobody need fall even when he is unable to provide for himself, appears not only to be wholly legitimate protection against a risk common to all, but a necessary part of the Great Society in which the individual no longer has specific claims on the members of the particular small group into which he was born... (II)

Yet, in 1956:

The most serious development is the growth of a measure of arbitrary administrative coercion and the progressive destruction of the cherished foundation of British liberty, the Rule of Law.... [E]conomic planning under the Labour government [has] carried it to a point which makes it doubtful whether it can be said that the Rule of Law still prevails in Britain... (III)

And, as Paul Samuelson wrote:

The Hayek I met on various occasions--at the LSE, at the University of Chicago, in Stockholm (1945), at Lake Constance-Lindau Nobel summer conferences--definitely bemoaned progressive income taxation, state-provided medical care and retirement pensions, fiat currencies remote from gold and subject to discretionary policy decisions by central bank and treasury agents.... This [is] what constitutes his predicted serfdoms... (IV)

To say the least, there is a difficulty in figuring out what the Political Economy Hayek believed. Solow takes the real Hayek to be (II) and regards (I), (III), and (IV) as line wobbles from the Bad Hayek that he, Solow, will overlook. But the Bad Hayek is not just "in the text": the Bad Hayek seems to me to be well-nigh omnipresent--except when Hayek is playing the injured party in front of a social-democratic audience. "Of course I don't want people to starve and die in the gutter!"

I think you are more likely to find the Real Hayek in the "shut up and be glad you were born" passage in The Mirage of Social Justice:

While in a market order it may be a misfortune to have been born and bred in a village where... the only chance of making a living is fishing... it does not make sense to describe this as unjust. Who is supposed to have been unjust?--especially... if these local opportunities had not existed, the people in question would probably never have been born at all... [for lack of] the opportunities which enabled their ancestors to produce and rear children... (V)

And that in fact those who do not shut up and be grateful are guilty of moral fault, as in The Political Order of a Free People:

By the slogan... 'it is not your fault'... the demagoguery of unlimited democracy, assisted by a scientistic psychology, has come to the support of those who claim a share in the wealth of our society without submitting to the discipline to which it is due. It is not by conceding 'a right to equal concern and respect’ to those who break the code that civilization is maintained... (VI)

And then there is the fascinating (and apparently missing) letter from Hayek to Thatcher, apparently urging that Thatcher go all Pinochet-medieval on Neil Kinnock and Arthur Scargill, that elicited this reply:

The progression from Allende's Socialism to the free enterprise capitalist economy of the 1980s is a striking example of economic reform from which we can learn many lessons. However, I am sure you will agree that, in Britain with our democratic institutions and the need for a high degree of consent, some of the measures adopted in Chile are quite unacceptable. Our reform must be in line with our traditions and our Constitution. At times the process may seem painfully slow. But I am certain we shall achieve our reforms in our own way and in our own time. Then they will endure. (VII)

Why, then, do I call the Political Economy Hayek just "problematic" and not "evil"? Because I think there are some passages of great value in The Constitution of Liberty and in the three-volume Law, Legislation, and Liberty. But it is, I think, important not to pretend that the Bad Hayek elements were some kind of anomaly...

While Solow is much easier on Hayek than I would be, he is much harder on Milton Friedman.

For Solow, it is Milton Friedman who is the real Mephistopheles here. It is Friedman who over and over again would frame the issues as freedom vs. socialism, when actually the issue is "which of the defects of a 'free', unregulated economy should be repaired by regulation, subsidization, or taxation? Which... tolerated... because the best available fix would have even more costly side-effects?" It was Friedman whose "rhetoric... irrelevant or, worse, misleading, or, even worse, intentionally misleading... made... [the] policy discussion more difficult to have... [and] did the market economy a disservice."

I disagree: I see Friedman and Hayek as being equally willing to call social democracy "socialism", and equally likely to see it as corrosive of individual freedom.

But I see Friedman as being much more moderate than Hayek along a number of dimensions. First, Friedman is a true social and personal libertarian. Second, Friedman seems to me to have a more sophisticated view of social insurance. And Friedman has a belief in both democracy and educationplus a willingness to (sometimes) mark his beliefs to market--and these, I think, Hayek definitely lacked.

When stabilizing the growth of the money supply did not produce the smooth aggregate demand path that Friedman had expected, he changed his mind--and became a big advocate of quantitative easing. And Friedman's view was explicitly that giving economic advice to Pinochet was analogous to giving economic advice to Honecker: trying to make an unpleasant regime less unpleasant for the people it ruled. Hayek, by contrast, had rather more affection for Pinochet than Plato did for Dionysius of Syracuse...

The key paragraphs from Solow:

Robert Solow (2012): Hayek, Friedman, and the Illusions of Conservative Economics: "A Review of Angus Burgin...

...The Great Persuasion: Reinventing Free Markets since the Depression.... There was a Good Hayek and a Bad Hayek. The Good Hayek was a serious scholar who was particularly interested in the role of knowledge... [but] also knew that unrestricted laissez-faire is unworkable... monopoly power... better-informed actors can exploit the relatively ignorant... distribution of income... grossly unequal and... unfair... unemployment and underutilized capacity... environmental damage... the Good Hayek’s attempts to formulate and to propagate a modified version of laissez-faire that would work better....

The Bad Hayek.... The Road to Serfdom was a popular success but was not a good book.... Hayek’s implicit prediction is a failure.... The source of their alarm was not the danger from Soviet communism or Nazi Germany, but rather the... New Deal here and the Labor Party there... ameliorat[ing] and... revers[ing] the ravages of falling incomes and rising unemployment.... Lionel Robbins... Friedrich von Hayek... Frank Knight... Jacob Viner... Henry Simons.... What seems off-key (at least now, at least to me) is that they all felt themselves to be in a struggle between free markets and collectivism (or socialism) with no possible intermediate stopping point....

This apocalyptic tone survived into the period dominated by Milton Friedman... the language of the Tea Party Hayekians.... In 2004, Friedman told The Wall Street Journal that, although the battle of ideas had been won, 'currently, opinion is free market while practice is heavily socialist'. The point to keep in mind is that 'socialist practice' includes the Food and Drug Administration (FDA), the certification of doctors, and the public schools.... Of course for those of us trying to live on this planet, the issue is... between an extreme version of free markets and effective regulation of the shadow banking system, or between an extreme version of free markets and the level and progressivity of the personal income tax....

THE GOOD HAYEK... had not meant to provide a manifesto for the far right.... There is no reason to doubt Hayek’s sincerity in this (although the Bad Hayek occasionally made other appearances)... [that] Knight and moderates such as Viner thought that he had overreached suggests that the Bad Hayek really was there in the text....

In the spring of 1947, with a grant from the Volker Fund of Kansas City, who were the Koch Brothers of their time, Hayek was able to bring together... thirty-nine colleagues... the Mont Pèlerin Society... [which] Burgin... endows... with more significance than it ever really had.... They... could not agree on... the permissible, indeed the desirable, deviations from laissez-faire?... Good answers are available, and many of them involve government intervention.... The inability to agree about this sort of thing, or even to face up to it, seems to have dogged the MPS.... Maybe the main function of the MPS was to maintain the morale of the free-market fellowship....

Leadership... passed... to Milton Friedman... different in style and, to some extent, even in ideology.... As his ideas and his career evolved... he moved in a different, almost opposite, direction, toward a cruder government-can-do-no-right position, certainly not given to ethical worries or even to economic-theoretical fine points.... Under Milton Friedman’s influence, the free-market ideology shifted toward unmitigated laissez-faire. Whereas earlier advocates had worried about the stringent conditions that were needed for unregulated markets to work their magic, Friedman was the master of clever (sometimes too clever) arguments to the effect that those conditions were not really needed, or that they were actually met in real-world markets despite what looked a lot like evidence to the contrary. He was a natural-born debater: single-minded, earnestly persuasive, ingenious, and relentless....

Friedman’s... most important work... consumer expenditure... important and useful... anticipated in much less satisfactory form by James Duesenberry, and Franco Modigliani developed a similar and in some ways more satisfactory theory.... But monetarism... has not proved to be tenable analytically or empirically. His Monetary History of the United States, 1867–1960 (written with the late Anna Schwartz), while highly interesting, is not a towering intellectual achievement.

Burgin... attaches a lot of importance to the respectability conferred on the political right by the ideas of Hayek, Friedman, and the others.... I would not disagree, but... Thatcher profited from an ill-judged miners’ strike and, as Lyndon Johnson famously remarked, the passage of the Civil Rights Act lost the Solid South for the Democratic Party for at least a generation.

For a serious modern reader, the rhetoric is irrelevant or, worse, misleading, or, even worse, intentionally misleading.... The real issues are pragmatic. Which of the defects of a 'free', unregulated economy should be repaired by regulation, subsidization, or taxation? Which of them may have to be tolerated... because the best available fix would have even more costly side-effects? To the extent that the MPS circle made that kind of policy discussion more difficult to have, it did the market economy a disservice.

2542 words

Noted for Your Morning Procrastination for August 12, 2014

Over at Equitable Growth--The Equitablog

Very Large Quasi-Robotic Trucks: Monday Focus for August 11, 2014 | Washington Center for Equitable Growth
Evening Must-Read: Jared Bernstein: Fed Vice-Chair Stan Fischer on Whether Stronger Actual Growth Can Boost Potential Growth | Washington Center for Equitable Growth
Evening Must-Read: Sahil Kapur: GOP States Give Up $423 Billion By Rejecting Medicaid Expansion | Washington Center for Equitable Growth
Afternoon Must-Read: Simon Wren-Lewis: On Macroeconomic Forecasting | Washington Center for Equitable Growth
Afternoon Must-Read: Scott Lemieux: Halbig Trooferism | Washington Center for Equitable Growth

Plus:

Things to Read on the Morning of August 12, 2014 | Washington Center for Equitable Growth

Must- and Shall-Reads:

Scott Lemieux: Halbig Trooferism: 'Nice catch by Abbe Gluck: 'It is no secret that the people bringing the challenge to the Obamacare subsidies in the Halbig and King... are some of the same people who brought the 2012 constitutional challenge.... What’s less known, however, is that in the 2012 constitutional case, these same challengers filed briefs describing Obamacare to the court in precisely the way they now say the statute cannot possibly be read....' It must be remembered here that the... challenge to the ACA... [must] show that there is no other reasonable interpretation of the statute.... The argument that the statute could not possibly have meant what everyone on both sides of the political spectrum thought it meant in 2010 is so preposterous it’s profoundly embarrassing that even two federal judges bought it. This litigation, admittedly, does seem to be based on a principle... that it’s not a lie if you [claim to] believe it."

Simon Wren-Lewis: On Macroeconomic Forecasting: "Macroeconomic forecasts produced with macroeconomic models tend to be little better than intelligent guesswork. That is not an opinion--it is a fact.... The sad news is that this situation has not changed since I was involved in forecasting around 30 years ago. During the years before the Great Recession (the Great Moderation) forecasts might have appeared to get better, but that was because most economies became less volatile. As is well known, the Great Recession was completely missed.... Does that mean that macroeconomics is not making any progress?... [This] raises an obvious question: why do people still use often elaborate models to forecast?... Why use the combination of a macroeconomic model and judgement to do so, rather than intelligent guesswork?..."

Sahil Kapur: GOP States Give Up $423 Billion By Rejecting Medicaid Expansion "The 24 states which refused to expand Medicaid under Obamacare are poised to give up $423.6 billion in federal funds over a decade and keep 6.7 million residents uninsured, according to a new study by the Urban Institute and Robert Wood Johnson Foundation.... Since September 2013 the number of uninsured fell by 38 percent in expansion states and just 9 percent in non-expansion states, the study found.... The study pointed to other economic costs for non-expansion states, notably the higher cost of uncompensated care for hospitals, who are legally required to provide emergency care for patients whether or not they're insured...

Jared Bernstein: Fed Vice-Chair Stan Fischer on Whether Stronger Actual Growth Can Boost Potential Growth: "Stan poses the right question... this part of his answer is particularly important[:]... 'There are good reasons to believe that some of the surprising weakness in labor force participation reflects still poor cyclical conditions.... It may also be possible to reverse or prevent declines from becoming permanent through expansive macroeconomic policies.'... The implication for current policy is clear: we need to run a high-pressure economy for a while not just to close existing output gaps but to increase potential growth by pulling more people and capital investment back into the economy..."

bspencer: The Lego Movie: "This movie surprised me by being as cute and clever as it was. The cast was great, the voice work was great, Morgan Freeman took a break from playing dignified serious characters by playing a dignified funny character, and the whole thing was consistently funny. When you get to the live action part, you get a really fun and surprisingly poignant twist. Plus there’s a unicorn-cat. Really, what more do you want?"

Claude B. Erb: Betting on 'Dumb Volatility' with 'Smart Beta' "It is possible that some investors make the 'dumb mistake' of 'buying high and selling low'. This may create 'dumb volatility' which might allow some smart beta strategies to exploit the 'behavior gap' by 'buying low and selling high'. 'Live data' suggests 1) the value-added from exploiting dumb volatility has been about 2-4% per year, 2) dumb volatility strategy risk-adjusted-returns have been similar, 3) there could be a 'dumb volatility return frontier' offering more 'return from dumb volatility' in exchange for more 'dumb volatility' and 4) some dumb volatility strategies have achieved Warren Buffett-like 'value-added'. A six factor model shows no evidence that traditional factors, such as 'size' and 'value', drove the dumb volatility return. Going forward, the ability of a strategy to absorb capital will be an important economic moat."

Melvin Backman: Kansas runs afoul of the SEC over pensions: "The Securities and Exchange Commission... says the state's public employees' retirement system committed securities fraud by not telling investors how underfunded the pensions of its 155,000 workers were.... 'We are pleased that the SEC did not seek any financial penalties or make any claims of intentional misconduct'... said Jim Clark, Kansas' Secretary of Administration, in a statement.... The SEC said Kansas raised $273 million in bonds in 2009 and 2010 but failed to disclose to investors how badly the pension situation was. That meant that the bonds' buyers didn't know which obligations would be competing for state money that would be used to pay them back. Kansas' finances have come under scrutiny of late. Last week. Standard & Poor's downgraded Kansas' credit rating last week because its tax cuts were more expensive than legislators initially let on."

Jared Bernstein: Antidotes to Samuelson’s Free-Floating Anxiety re Slack and Inflation "Just a quick note re the [Robert] Samuelson piece this AM suggesting that maybe the Fed should raise rates sooner than later. Or maybe not. Actually, all he seems to be saying here is: 'maybe they should start fighting inflation now, or maybe they shouldn’t; we can’t really tell how much slack there is; but it would be terrible if inflation spirals out of control; but there’s still at least some slack; so we should just be nervous.' Actually, that’s not as incoherent as it sounds.... Our nervousness can be reduced by thinking through two basic sets of points. First, the diminished relationship between slack and inflationary pressures... and two, the mechanics by which wage growth feeds into price growth.... This point re the changing empirics of slack and inflation is widely known and Samuelson should incorporate it.... Second... Samuelson... need[s] to understand and appreciate at least three mechanisms by which wage gains would not be inflationary, as Baker and I explain here.... The current state of key [economic] variables... given productivity growth, there’s room for a point-and-a-half faster wage growth without undue pressures on unit labor costs... [and] there has been a large shift... from wages to profits.... Wage growth paid for by a shift back toward to a more normal split...is non-inflationary.... And this argument isn’t just academic: millions of jobs and paychecks depend on it."

And:

Ayako Saiki and Jon Frost: How Does Unconventional Monetary Policy Affect Inequality? Evidence from Japan
Stanley Fischer: The Great Recession: Moving Ahead
Chad Jones: The Macroeconomics of Piketty
Pascal Michaillat and Emmanuel Saez: Unemployment, and product and labour-market tightness

And Over Here:

Liveblogging World War II: August 12, 1944: Sant'Anna di Stazzema Massacre (Brad DeLong's Grasping Reality...)
The World Sucks Today: Live from La Farine CXXXVII: August 12, 2014 (Brad DeLong's Grasping Reality...)
Over at Equitable Growth: Very Large Quasi-Robotic Trucks: Monday Focus for August 11, 2014 (Brad DeLong's Grasping Reality...)
Liveblogging World War II: August 11, 1944: Report on the Majdanek death camp is “Unbelievable” (Brad DeLong's Grasping Reality...)
Sliming Rick Perlstein: Live from La Farine CXXXVI: August 11, 2014 (Brad DeLong's Grasping Reality...)
Brad Delong Smackdown Watch: Adverse Selection in the Health Exchanges (Brad DeLong's Grasping Reality...)
Liveblogging World War II: August 10, 1944: On Montjoie at Mortain... (Brad DeLong's Grasping Reality...)
Weekend Reading: Robert Solow: Hayek, Friedman, and the Illusions of Conservative Economics (Brad DeLong's Grasping Reality...)

Should Be Aware of:

Zaid al-Ali: Iraq’s Rot Starts at the Top "We have learned since 2003... that merely ensuring that there are ministers from each of Iraq’s main communities — Shiites, Sunnis, Kurds and minorities like the Chaldeans and Turkmen — will not ensure that they will represent those communities’ interests, let alone the national interest.... Prime Minister Nuri Kamal al-Maliki has deservedly been the focus of criticism, given his authoritarian exercise of his constitutional powers, his paranoia and his blindness to real dangers. But the rest of Iraq’s elite has not done any better.... Our political class behaves as if there is no crisis, because for them, there is none: If it comes to it, they can pack their bags and leave with their families.... Iraq’s problems are... as always, political.... The most America can do now — alongside its actions to provide humanitarian relief and keep ISIS at bay — is to support the political process with fair advice. Iraq’s existence as a nation hangs in the balance."

D.R. Tucker: Speak Softly, and Carry a Big Stick: "The [National Review's] brief... nowhere makes the case that it is scientifically 'fraudulent', instead claiming the word was used in a way meant not to imply actual fraud.... NR’s legal team is trying to avoid trial, so all who were hoping to read Lowry’s promised discovery dirt can forget it. Clearly, Lowry is no longer confident that his magazine can beat Mann..."

Jonathan Weiler: "Virtually every comment on Hamas in American media includes the assertion that the group’s Charter rejects Israel’s right to exist, it’s worth noting the following from the Likud Platform of 1999: a. “The Jordan river will be the permanent eastern border of the State of Israel.” b. “Jerusalem is the eternal, united capital of the State of Israel and only of Israel. The government will flatly reject Palestinian proposals to divide Jerusalem”. c. “The Government of Israel flatly rejects the establishment of a Palestinian Arab state west of the Jordan river.” d. “The Jewish communities in Judea, Samaria and Gaza are the realization of Zionist values. Settlement of the land is a clear expression of the unassailable right of the Jewish people to the Land of Israel.... The Likud Party has never in its statements of principles, accepted a Palestinian State. Its electoral partner, Yisrael Beitenu, has likewise categorically rejected the possibility of an independent Palestinian State, insisting that the idea is nothing more than a ploy to facilitate the destruction of Israel. The Hamas charter, of course, does more... a vile document that echoes some of the worst anti-Semitic tropes of the modern era. But on the central question of one side denying the other’s legitimacy... symmetry.... Too much political discussion in the United States about Israel/Palestine proceeds from the premise that Palestinians have no other interest than to destroy Israel and drive the Jews into the sea. Therefore, it is said, well-intentioned Israel has no viable negotiating partner for peace.... In fact. Likud leaders have said unequivocally that no two-state deal is possible..."

Liveblogging World War II: August 12, 1944: Sant'Anna di Stazzema Massacre

Wikipedia: Sant'Anna di Stazzema Massacre:

On the morning of 12 August 1944, German troops of the 2nd Battalion of SS Panzergrenadier Regiment 35 of 16th SS Panzergrenadier Division Reichsführer-SS, commanded by SS-Hauptsturmführer Anton Galler, entered the mountain village of Sant'Anna di Stazzema. The soldiers immediately proceeded to round up villagers and refugees, locking up hundreds of them in several barns and stables before beginning systematically executing them. The killings were done mostly by shooting groups of people with machine guns or by herding them into basements and other enclosed spaces and tossing in hand grenades.

At the 16th-century local church, the priest Fiore Menguzzo (awarded the medal valor civile posthumously in 1999) was shot at point-blank range, and machine guns were then turned on some 100 people gathered there. In all, the victims included at least 107 children (the youngest of whom, Anna Pardini, was only 20 days old), as well as eight pregnant women (one of whom, Evelina Berretti, had her stomach cut with a bayonet and her baby pulled out and killed separately). After the people were killed through the village, their corpses were set on fire (at the church, the soldiers used its pews for a bonfire to dispose of the bodies). The livestock were also exterminated and the whole village was burnt down. All this took three hours. The soldiers then sat down outside the burning Sant'Anna and ate lunch.

After the war, the church was rebuilt. The Charnel House Monument and the Historical Museum of Resistance were both built nearby. Stations of the Cross illustrate scenes from the massacre along the trail from the church to the main memorial site—the National Park of Peace, founded in 2000. The massacre inspired the novel Miracle at St. Anna by James McBride, and Spike Lee's film of the same title that was based on it.

Apart from the divisional commander Max Simon, no one was prosecuted for this massacre until July 2004, when a trial against ten former Waffen-SS officers and NCOs living in Germany was held before a military court in La Spezia, Italy. On 22 June 2005, the court found the accused guilty of participation in the killings and sentenced them in absentia to life imprisonment: Werner Bruss (b. 1920, former SS-Unterscharführer), Alfred Concina (b. 1919, former SS-Unterscharführer), Ludwig Goering (b. 1923, former SS-Rottenführer who confessed to killing twenty women), Karl Gropler (b. 1923, former SS-Unterscharführer), Georg Rauch (b. 1921, former SS-Untersturmführer), Horst Richter (b. 1921, former SS-Unterscharführer), Alfred Schoneberg (b. 1921, former SS-Unterscharführer), Heinrich Schendel (b. 1922, former SS-Unterscharführer), Gerhard Sommer, (b. 1921, former SS-Untersturmführer), and Ludwig Heinrich Sonntag (b. 1924, former SS-Unterscharführer). However, extradition requests from Italy were rejected by Germany.

In 2012, German prosecutors shelved their investigation of 17 unnamed former SS soldiers (eight of whom were still alive) who were part of the unit involved in the massacre because of a lack of evidence. The statement said: "Belonging to a Waffen-SS unit that was deployed to Sant'Anna di Stazzema cannot replace the need to prove individual guilt. Rather, for every defendant it must be proven that he took part in the massacre, and in which form." The mayor of the village, Michele Silicani (a survivor who was 10 when the raid occurred), called the verdict "a scandal" and said he would urge Italy's justice minister to lobby Germany to reopen the case. German Deputy Foreign Minister Michael Georg Link commented that "while respecting the independence of the German justice system," it was not possible "to ignore that such a decision causes deep dismay and renewed suffering to Italians, not just survivors and relatives of the victims."

The World Sucks Today: Live from La Farine CXXXVII: August 12, 2014

Alan Moore: Watchmen

Walter Kovacs/Rorschach: I heard joke once:

Man goes to doctor. Says he's depressed, life is harsh and cruel. Says he feels all alone in threatening world.

Doctor says, "Treatment is simple. The great clown Pagliacci is in town. Go see him. That should pick you up."

Man bursts into tears. "But doctor," he says, "I am Pagliacci."

Good joke.

Everybody laugh.

Roll on snare drum.

Curtains.

Over at Equitable Growth: Very Large Quasi-Robotic Trucks: Monday Focus for August 11, 2014

Over at Equitable Growth: Science fiction writer Charlie Stross sends us to:

Haul Train: "The first significant change in rigid haul truck design for 60 years...

READ MOAR

...ETF Mining Haul Trains are the answer to the demand for even larger payloads than current Ultra-Class Trucks offer. The innovative design results in the lowest cost per ton in the industry.... Unique to ETF, each truck irrespective of capacity can operate together with others of the same capacity as a ‘Haul Train’ two; three, four or more individual trucks can easily be linked together using a steel arm carrying an enclosed armoured data cable within its structure. Information data from the first operator controlled truck is transmitted via the link arm to the following trucks guiding and controlling all important operating functions like engine power, steering direction and brakes, just as if each unit had separate operators following each other.

The real operational advantage soon becomes very obvious, for every train there is just one operator, so as unit numbers increase payload capacity go ‘up’ while operator costs come ‘down’. Each haul train features ‘side dumping’ capability, each truck can dump individually or together at the same time at the dump area and crusher. If for any reason the mine plan should change requiring fewer units in the train each truck unit can be de-coupled, allowing each truck to operate independently. This unique configuration provides a mine wishing to increase operating capacity simply by increasing the number of trucks in the train. ETF Mining Haul Trains can be used on the same roads where current Large Haul Trucks are operating with existing haul road profiles and bend radius. Side-tippers are standard...

The remarkable thing about this advertisement is the stress on how the "enclosed armoured data cable" allows the mind to economize on * truck drivers*. Figuring out a way to--sometimes--remove four out of five truck drivers from the necessary resources to make the mine operate is a huge selling point. But, then, if you are paying $50,000/year for a skilled mine-truck driver, that is $500,000 over the ten-year life of a truck that costs $1,000,000 (or more). The cost of getting the human brain is not the bulk of the cost of running the truck, but it is a significant proportion, and economizing on it by replacing drivers and slaving the follower trucks to the leader is a powerful potential source of economy.

I do not know whether the lesson to draw is that human brains still add immense value--look at how much of the cost of even the most capital-intensive mining operations is skilled human labor--or that a great many things that humans do today that are well-paid are ripe for disruption as soon as our technologists can figure out how to use silicon to mimic the skills of we shoebox-sized 50-watt supercomputers well enough...

Liveblogging World War II: August 11, 1944: Report on the Majdanek death camp is “Unbelievable”

World War II Today: 11 August 1944: Report on the Majdanek death camp is “Unbelievable”

By August 1944 the Allies had mounting evidence of the Nazi plans to murder all the Jews in Europe. They had detailed accounts that the Polish Resistance had smuggled out to Switzerland and the world. The most recent reports from escapees from Auschwitz had arrived only recently. The Nazi treatment of Jews had been condemned at the highest levels. Yet the enormity of Nazi crimes made these reports “incredible”.

Now the advancing Red Army uncovered the physical evidence of the extermination camps. The camp at Majdanek, [also spelled Maidanek] in eastern Poland had been overrun on 23 July. Soviet reports on the scale of the killing there, and at nearby Treblinka, were already being published when respected British journalist Alexander Werth arrived at the camp in August.

The evidence was widespread, from the piles of human ashes the SS had used to fertilise their cabbages, from the mountains of shoes left behind by tens of thousands of men, women and children, and from the eyewitness accounts of the citizens of Lublin. But the enormity of the crime made it impossible to comprehend that industrial scale killing had actually taken place here.

“Unbelievable” it was: when I sent the BBC a detailed report on Maidanek in August 1944, they refused to use it; they thought it was a Russian propaganda stunt, and it was not till the discovery in the west of Buchenwald, Dachau and Belsen that they were convinced that Maidanek and Auschwitz were also genuine…

As a consequence Werth’s report on his visit to Maidanek was not published at the time and dis not appear until after the war:

My first reaction to Maidanek was a feeling of surprise. I had imagined something horrible and sinister beyond words. It was nothing like that. It looked singularly harmless from outside. “Is that it? ” was my first reaction when we stopped at what looked like a large workers’ settlement. Behind us was the many towered skyline of Lublin.

There was much dust on the road, and the grass was a dull, greenish-grey colour. The camp was separated from the road by a couple of barbed-wire fences, but these did not look particularly sinister, and might have been put up outside any military or semi-military establishment. The place was large; like a whole town of barracks painted a pleasant soft green.

There were many people around – soldiers and civilians. A Polish sentry opened the barbed-wire gate to let our cars enter the central avenue, with large green barracks on either side. And then we stopped outside a large barrack marked Bad und Desinfektion II. “This,” somebody said, “is where large numbers of those arriving at the camp were brought in.”

The inside of this barrack was made of concrete, and water taps came out of the wall, and around the room there were benches where the clothes were put down and afterwards collected. So this was the place into which they were driven. Or perhaps they were politely invited to “Step this way, please?” Did any of them suspect, while washing themselves after a long journey, what would happen a few minutes later? Anyway, after the washing was over, they were asked to go into the next room; at this point even the most unsuspecting must have begun to wonder.

For the “next room” was a series of large square concrete structures, each about one-quarter of the size of the bath-house, and, unlike it, had no windows. The naked people (men one time, women another time, children the next) were driven or forced from the bath-house into these dark concrete boxes-about five yards square—and then, with 200 or 250 people packed into each box—and it was completely dark there, except for a small skylight in the ceiling and the spyhole in the door—the process of gassing began.

First some hot air was pumped in from the ceiling and then the pretty pale-blue crystals of Cyclon were showered down on the people, and in the hot wet air they rapidly evaporated. In anything from two to ten minutes everybody was dead… There were six concrete boxes – gas-chambers – side by side. “Nearly two thousand people could be disposed of here simultaneously,” one of the guides said.

But what thoughts passed through these people’s minds during those first few minutes while the crystals were falling; could anyone still believe that this humiliating process of being packed into a box and standing there naked, rubbing backs with other naked people, had anything to do with disinfection?

At first it was all very hard to take in, without an efiort of the imagination. There were a number of very dull-looking concrete structures which, if their doors had been wider, might anywhere else have been mistaken for a row of nice little garages. But the doors- the doors! They were heavy steel doors, and each had a heavy steel bolt.

And in the middle of the door was a spyhole, a circle, three inches in diameter composed of about a hundred small holes. Could the people in their death agony see the SS-man’s eye as he watched them? Anyway, the SS-man had nothing to fear: his eye was well- protected by the steel netting over the spyhole. And, like the proud maker of reliable safes, the maker of the door had put his name round the spyhole: “Auert, Berlin”.

Then a touch of blue on the floor caught my eye. It was very faint, but still legible. In blue chalk someone had scribbled the word “vergast” and had drawn crudely above it a skull and crossbones. I had never seen this word before, but it obviously meant “gassed” – and not merely “gassed” but, with that eloquent little prefix ver, “gassed out”. That’s this job finished, and now for the next lot. The blue chalk came into motion when there was nothing but a heap of naked corpses inside. But what cries, what curses, what prayers perhaps, had been uttered inside that gas chamber only a few minutes before?

Yet the concrete walls were thick, and Herr Auert had done a wonderful job, so probably no one could hear anything from outside. And even if they did, the people in the camp knew what it was all about.

It was here, outside Bad und Desinfektion II, in the side-lane leading into the central avenue, that the corpses were loaded into lorries, covered with tarpaulins, and carted to the crematorium at the other end of the camp, about half-a-mile away. Between the two there were dozens of barracks, painted the same soft green. Some had notice-boards outside, others had not.

Thus, there was an Effekten Kammer and a Frauen-Bekleidungskammer; here the victims’ luggage and the women’s clothes were sorted out, before they were sent to the central Lublin warehouse, and then on to Germany.

See Alexander Werth: Russia at War: 1941-1945

Sliming Rick Perlstein: Live from La Farine CXXXVI: August 11, 2014

Paul Krugman: Sliming Rick Perlstein: "OK, this is grotesque...

Rick Perlstein has a new book... and he’s facing completely spurious charges of plagiarism.... The people making the charges--almost all of whom have, surprise, movement conservative connections--aren’t pointing to any actual passages that, you know, were lifted.... Instead, they’re claiming that Perlstein paraphrased what other people said.... Can I say, I’m familiar with this process? There was a time when various of the usual suspects went around claiming that I was doing illegitimate things with jobs data; what I was doing was in fact perfectly normal--but that didn’t stop Daniel Okrent, the outgoing public editor, from firing a parting shot (with no chance for me to reply) accusing me of fiddling with the numbers. I also heard internally that there were claims of plagiarism directed at me, too, but evidently they couldn’t cook up enough stuff to even pretend to make that stick. The thing to understand is that fake accusations of professional malpractice are a familiar tactic for these people. And this tactic should be punctured by the press, not given momentum with 'opinions differ on shape of the planet' reporting."

Offenders who owe Rick Perlstein a full and immediate retraction and apology include:

Craig Shirley
Fred Barnes
Roger Stone
Matt Lewis
Richard Johnson
Alexandra Alter
Louis Proyect
Quinn Hilyer
Bob Unruh
Jeffrey Lord
Sarah Weinman

Brad Delong Smackdown Watch: Adverse Selection in the Health Exchanges

And after a long drought Richard Mayhew of Balloon Juice comes through with a high-quality DeLong Smackdown! Yay!!

Richard Mayhew: Brad Delong Smackdown Watch "Brad Delong has an impressive set of thoughts...

...on PPACA implementation and a path of the future. I think he is getting one thing significantly wrong.... Recently, I wrote about AIDS medications and Gresham’s law applying to health insurance. I think this is the first salvo of the “brainpower health insurance companies devoted to gaming the system” as it is the most obvious target to create policies that are amazingly ugly to people with chronic, expensive conditions. One of the major challenges for Obamacare is transitioning the health insurance industry from being extremely competent at finding ways to not covering sick people towards finding ways to keep people from getting too sick. The biggest stick in this transition is the massive sea change in underwriting from exclusionary, statistical and experience underwriting to an inclusionary community rating system of underwriting. This change, as we have discussed ad nauseum, allows all people, including those with expensive pre-exisiitng conditions to get insurance. It is why the Exchange risk pools are sicker, on average, than the risk pools of the pre-Exchange underwritten individual insurance markets as those markets kept the sick people who could actually need services out of the market.

Insurers are required to accept and cover HIV patients. They don’t want to. So they are trying to avoid them by being fuggly.... Relatively inexpensive AIDS medication... would get put on the most expensive formulary where pre-authorizations, high co-insurance and high co-pays apply until the member reaches the out of pocket maximum. This anti-social but rationally-based business model should make the plan very unnattractive to individuals with HIV. They will logically look at the market and look for a plan that does not completely f--- them over. The same logic applies to diabetics, cancer survivors, transplant recipients and other high cost individuals. And here is where problems emerge. Once one plan in a market decides to make themselves as unattractive as possible, every other plan has to either follow suit in making themselves unattractive or be willing to take on massive health costs as they become the preferred plan for HIV positive individuals.

We’re seeing this with AIDS/HIV patients for two reasons. The first is that this is a population with known high costs that insurers really want to avoid. Secondly, there is a significant network of very effective advocates who are able to identify this as a business strategy of some insurers and scream about it. I would be shocked if other very high cost but very small population diseases are not being “top-tiered/specialty tier for generics” as a risk avoidance strategies, but I have not heard about them.

The policy solution is simple, engage in a regulatory arms race to force insurance companies to compete on providing health coverage and health improvmeent instead of cherry picking good risk and off-loading bad risk to competitors and/or government programs. This will work in most Blue states and some Red states...

Liveblogging World War II: August 10, 1944: On Montjoie at Mortain...

Lt. Ralph A. Kerley, Co. “E” Commander on Hill 314 (Montjoie) at Mortain:

Although the air drop had been scheduled for 10 August, the men on the Hill had little hope for success. The morning had been spent in comparative quiet. At approximately 1530 hours, a group of our fighter planes appeared and they dive bombed and strafed several enemy areas, starting fires and explosions. After they had accomplished their mission, they circled and came in low over the battalion positions.

The men on the Hill jumped for their fox holes, fearing that the fighters had mistaken our positions for that of the enemy. Their fears were false however. At 1600 hours, the fighters returned, escorting a flight of C-47’s. Possibly the most beautiful sight the men had ever seen, was the multicolored parachutes lazily floating down.

Approximately one half of the drop landed far into the enemy lines, but at least, the battalion had some food, ammunition and a limited amount of medical supplies. One of the most important items contained in the drop was radio batteries. A report was made to regiment of the drop and an attempt to schedule another drop was made, especially for medical supplies.

In the meantime, the S-3 of the 230th Field Artillery Battalion had an idea to relieve the situation. Ten rounds of M-84 (base ejection HC smoke)) ammunition were opened, and the smoke canisters and base ejection charge removed. The rounds were then filled with medical supplies, bandages, dressings, sulfanilamide and morphine syrettes.

The steel disc in the nose was replaced to prevent the fuze, when detonated, from ruining the contents. Four other shells were treated likewise, and were filled with sand to approximately the same weight. These rounds were to be used for adjustment.

The S-3 them made his intentions known to the men on the Hill and gave instructions for opening the projectiles. The adjustment was completed at approximately 2130 hours, and the medical rounds were then fired. None of these rounds were recovered due to ricochets and darkness.

Even though the medical supplies were badly needed, the presence of food and ammunition served to raise morale to a new high.

11 August: Enemy Withdrawal: As soon as the mist lifted on 11 August, the artillery again attempted to fire in medical supplies. Six rounds were fired and all were recovered. This operation was only partially successful, however, the concussion being too great for the containers of the morphine and plasma.

Enemy traffic towards the east was increasing, with very little traffic towards our lines.

Evidently the enemy was starting a withdrawal. With communications reestablished with regiment and the artillery, the battalion was able to inflict untold damage on the withdrawing columns. Several air strikes were requested, and were carried out at what seemed to be all at the same time.

The Air Corps pounded the enemy columns unmercifully, and the burning enemy columns could be seen for miles in all directions. This slaughter continued all day.

During the night, the major enemy foot elements started their withdrawal. Our artillery plastered every available route of withdrawal and was very effective, as was evidenced by the screams and hysterical cries of the enemy. There was no doubt now that relief was certain, and the battalion rested and listened to the constant singing of the outgoing artillery.

Weekend Reading: Robert Solow: Hayek, Friedman, and the Illusions of Conservative Economics

Just as I finish writing up my office-hour thoughts on a framework for organizing one's thoughts on Friedrich A. von Hayek and twentieth century political economy, along comes the esteemed Lars P. Syll with a link to an excellent piece I had never read on the same thing by Equitable Growth's Fearless Leader:

Robert Solow (2012): Hayek, Friedman, and the Illusions of Conservative Economics "The Great Persuasion: Reinventing Free Markets since the Depression
By Angus Burgin
(Harvard University Press, 303 pp., $29.95) JUST AS I WAS wondering how to start this review...

...along came the Sunday New York Times Magazine with a short article by Adam Davidson with the title “Made in Austria: Will Friedrich von Hayek be the Tea Party’s Karl Marx?” One Tea Party activist reported that his group’s goal is to fill Congress with Hayekians. This project is unlikely to go smoothly if the price of admission includes an extensive reading of Hayek’s writings. As Davidson remarks, some of Hayek’s ideas would not go down well at all with the American far right: among them is a willingness to entertain a national health care program, and even a state-provided basic income for the poor.

The source of confusion here is that there was a Good Hayek and a Bad Hayek. The Good Hayek was a serious scholar who was particularly interested in the role of knowledge in the economy (and in the rest of society). Since knowledge—about technological possibilities, about citizens’ preferences, about the interconnections of these, about still more—is inevitably and thoroughly decentralized, the centralization of decisions is bound to generate errors and then fail to correct them. The consequences for society can be calamitous, as the history of central planning confirms. That is where markets come in. All economists know that a system of competitive markets is a remarkably efficient way to aggregate all that knowledge while preserving decentralization.

But the Good Hayek also knew that unrestricted laissez-faire is unworkable. It has serious defects: successful actors reach for monopoly power, and some of them succeed in grasping it; better-informed actors can exploit the relatively ignorant, creating an inefficiency in the process; the resulting distribution of income may be grossly unequal and widely perceived as intolerably unfair; industrial market economies have been vulnerable to excessively long episodes of unemployment and underutilized capacity, not accidentally but intrinsically; environmental damage is encouraged as a way of reducing private costs—the list is long. Half of Angus Burgin’s book is about the Good Hayek’s attempts to formulate and to propagate a modified version of laissez-faire that would work better and meet his standards for a liberal society. (Hayek and his friends were never able to settle on a name for this kind of society: “liberal” in the European tradition was associated with bad old Manchester liberalism, and neither “neo-liberal” nor “libertarian” seemed to be satisfactory.)

The Bad Hayek emerged when he aimed to convert a wider public. Then, as often happens, he tended to overreach, and to suggest more than he had legitimately argued. The Road to Serfdom was a popular success but was not a good book. Leaving aside the irrelevant extremes, or even including them, it would be perverse to read the history, as of 1944 or as of now, as suggesting that the standard regulatory interventions in the economy have any inherent tendency to snowball into “serfdom.” The correlations often run the other way. Sixty-five years later, Hayek’s implicit prediction is a failure, rather like Marx’s forecast of the coming “immiserization of the working class.”

BURGIN BEGINS his history with a sketch of two groups of economists who wanted to defend and disseminate “free-market” ideology even in the depths of the depression of the 1930s. The source of their alarm was not the danger from Soviet communism or Nazi Germany, but rather the rash of interventionist economic policies everywhere, the New Deal here and the Labor Party there, designed to ameliorate and to reverse the ravages of falling incomes and rising unemployment. One group, at the London School of Economics (LSE), centered on Lionel Robbins (later director of the LSE and a continuing presence in British economic and cultural policy) and Friedrich von Hayek (a recent immigrant from Austria with connections to Europe and the “Austrian School”).

The second group, at the University of Chicago, had three leading figures, no two alike. Frank Knight, a skeptical, curmudgeonly philosopher-economist with a very important piece of straight economics to his credit, a book called Risk, Uncertainty and Profit, had a profound influence on colleagues and graduate students. Jacob Viner was very different—an urbane, cultivated scholar-teacher, he was clearly in the Chicago tradition (though later transplanted to Princeton), but nevertheless worked cheerfully as an adviser to the Treasury in the Roosevelt administration. Henry Simons was the most literal-minded of the group, sometimes scary even to his colleagues. If laissez-faire could succeed only under narrow conditions, he proposed to re-create those conditions: ruthlessly suppress monopoly and even bigness, institute a seriously progressive tax system to reduce inequality and poverty, and so on. Like their colleagues in London, with whom they were in occasional contact, the Chicago economists wanted both to propagate ideas and to change the world. (It is worth mentioning that both Knight and Viner were later privately critical of The Road to Serfdom.)

What seems off-key (at least now, at least to me) is that they all felt themselves to be in a struggle between free markets and collectivism (or socialism) with no possible intermediate stopping point. That is the meaning of “the road to serfdom.” Even earlier, in 1934, Knight had written that it would be only a “decade or two at the most before we see the end of anything like freedom of inquiry in the United States and all the rest of the liberal European world where it has not already been sunk.” Wilhelm Röpke, a German sociologist-economist of little account, but a friend and ally of Hayek’s, thought that it was time to “recognise that the case of Liberalism and Capitalism is lost strategically even where it is still undefeated tactically.” Simons wrote in 1938 “that the main direction of New Deal policies is toward authoritarian collectivism.”

This apocalyptic tone survived into the period dominated by Milton Friedman, who is the subject of the second half of Burgin’s book. It is the language of the Tea Party Hayekians. In 1976, Friedman told an audience at the University of Pittsburgh that he welcomed the inefficiency of government: “If the government were spending the forty percent of our income that it now spends efficiently, we would long since have lost our freedom.” In 2004, Friedman told The Wall Street Journal that, although the battle of ideas had been won, “currently, opinion is free market while practice is heavily socialist.” The point to keep in mind is that “socialist practice” includes the Food and Drug Administration (FDA), the certification of doctors, and the public schools.

The atmosphere in which Burgin’s narrative takes place is permeated with this kind of rhetoric. But of course for those of us trying to live on this planet, the issue is not between free markets and socialism/collectivism; it is between an extreme version of free markets and effective regulation of the shadow banking system, or between an extreme version of free markets and the level and progressivity of the personal income tax. The metaphor of the slippery slope is largely an invention to scare off pragmatic exploration of the policy landscape.

THE GOOD HAYEK was not happy with the reception of The Road to Serfdom. He had not meant to provide a manifesto for the far right. Careless readers ignored his rejection of unqualified laissez-faire, and the fact that he reserved a useful, limited economic role for government. He had not actually claimed that the descent into serfdom was inevitable. There is no reason to doubt Hayek’s sincerity in this (although the Bad Hayek occasionally made other appearances). Perhaps he would be appalled at the thought of a Congress full of Tea Party Hayekians. But it was his book, after all. The fact that natural allies such as Knight and moderates such as Viner thought that he had overreached suggests that the Bad Hayek really was there in the text.

But this is to get a little ahead of Burgin’s story. Even before and during the war, Hayek, Robbins, Röpke, a few like-minded Europeans, and, in a lesser way, the Chicagoans were looking for an organizational or institutional framework that would help them to develop, refine, and circulate a new, modified, and improved version of nineteenth-century (neo)liberalism. There was an interesting intermediate episode. In 1937, Walter Lippmann published An Inquiry into the Principles of the Good Society, a book that embraced a free-market ideology very close to that of the academic circles, who welcomed it with enthusiasm. Röpke wrote that the book gave “masterful expression to ideas which are in the minds ... of thinking Liberals, and you have added new and weighty ideas.” Simons called it “a magnificent contribution to the liberal cause.”

The academics thought that they had found the popular voice they desperately needed, one heard regularly by ten million Americans. The Europeans organized a colloquium to be held in Paris in August 1938 to celebrate the publication of the French translation of Lippmann’s book. The meeting apparently spent itself on minor differences of opinion among the faithful, and ended rather inconclusively. Whether on account of this experience or out of natural moderation, Lippmann soon distanced himself from this incipient movement. He and his ideas went elsewhere.

But the group continued its efforts to organize something, anything. Money was hard to come by, and the main participants were not of one mind about whether the old liberalism needed to be fundamentally reformed or had never been properly tried. An attempt by Röpke to establish a journal of neoliberal ideas went nowhere. Finally, in the spring of 1947, with a grant from the Volker Fund of Kansas City, who were the Koch Brothers of their time, Hayek was able to bring together a collection of thirty-nine colleagues for ten days in Vevey, Switzerland, to begin the work of transforming nineteenth-century liberalism and converting it into a force in the world. This was the birth of the Mont Pèlerin Society (MPS), around whose later history Burgin organizes the rest of his narrative. It is a useful device; but I fear that it tends to endow the MPS with more significance than it ever really had, whether within the economics profession or in the world at large.

I wish Burgin had included a full list of the original attendees at Vevey. He mentions that the “room was filled with journalists, businessmen, and academics from across the Atlantic world.” So this was not intended as a merely academic discussion, though Hayek and Robbins were pretty clearly the guiding spirits. By now it was possible to identify the Soviet Union and communism as the main source of menace, which was natural enough, given the times and the all-or-nothing predisposition of the group; but the temptation to frame the intellectual issue as Free Markets v. Communism more or less guarantees that all the important practical questions about economic policy and social policy will disappear from view.

According to Burgin, the first attempt by the conferees “produced a list of foundational convictions that assailed the socialist menace, lauded the virtues of the competitive market, and drew connections between economic freedoms and the ‘intellectual freedoms’ that totalitarians sought to erode.” A nod to Hayek’s own moral concerns asserted the necessity of “a widely accepted moral code” governing collective as well as private action. There is not much guidance here for a member of the Interstate Commerce Commission who has to worry about the regulation of imperfectly competitive railroad and trucking industries. Even so, there was grumbling and disagreement about that moral code, about the proper degree of emphasis on private property, about whether such language had an adequately positive and progressive tone. It must have been all too easy to fall back on the defense of capitalism against the encroachments of socialism, on which everyone could agree, to no great purpose.

WHAT THEY APPARENTLY could not agree on was an answer to the basic question facing any new version of classical liberalism: what are the permissible, indeed the desirable, deviations from laissez-faire? A large part of modern mainstream economics, unmentioned in this book, is about precisely that question. Good answers are available, and many of them involve government intervention. Maurice Allais, the most important French economist of the time, refused to sign the meeting’s statement of aims because “its ‘dogmatic stance’ on private property left it ‘much closer to the laissez-fairism of the nineteenth century than to a genuine revival of liberalism.’”

The inability to agree about this sort of thing, or even to face up to it, seems to have dogged the MPS throughout its early years. This may be one reason why it was never the public force that Hayek had originally hoped to establish. The membership grew from the original thirty-nine to 167 in 1951 and 258 in 1961. There is no way to tell whether this growth reflected the spread of free-market ideas or the willingness of the founding members to tap a supply that was already there. Either way, these numbers guaranteed that Hayek’s ambition—to rebuild a modernized neoliberalism on ethical foundations other than simple individualism—would go nowhere in the MPS. The range of opinions was too wide, even in a handpicked group of this size. Inevitably, serious discussion was replaced by prepared presentations followed by comments consisting largely of station identification. So far as I know, the MPS never produced and distributed an agreed public statement of its program. Outside the economics profession, it was invisible.

The MPS was no more influential inside the economics profession. There were no publications to be discussed. The American membership was apparently limited to economists of the Chicago School and its scattered university outposts, plus a few transplanted Europeans. “Some of my best friends” belonged. There was, of course, continuing research and debate among economists on the good and bad properties of competitive and noncompetitive markets, and the capacities and limitations of corrective regulation. But these would have gone on in the same way had the MPS not existed. It has to be remembered that academic economists were never optimistic about central planning. Even discussion about the economics of some conceivable socialism usually took the form of devising institutions and rules of behavior that would make a socialist economy function like a competitive market economy (perhaps more like one than any real-world market economy does). Maybe the main function of the MPS was to maintain the morale of the free-market fellowship.

THE SCENE GOT more interesting when the de facto leadership of the MPS (and whatever movement it represented) passed from Friedrich von Hayek to Milton Friedman, thirteen years younger and eventually altogether different in style and, to some extent, even in ideology. Friedman (I will refer to him this way, though he was a long-time personal friend and political opponent) attended the meeting of the MPS in April 1947, presumably at the insistence of his brother-in-law Aaron Director, an older Chicago fixture and a rigid right-winger. Friedman was then a junior scholar. His main professional achievement so far was an excellent empirical study, Income from Independent Professional Practice, written with Simon Kuznets, which served as his Ph.D. thesis at Columbia.

But he was also the co-author with George Stigler of a well-written and well-argued pamphlet against rent-control called Roofs or Ceilings?. In it, the authors recognized that allowing rents to respond freely to market forces would automatically give only the affluent access to comfortable housing and confine the less well-off to often miserable living conditions. But, they argued, although this was deplorable, the correct remedy was to choose public policies that would reduce inequality, not to try to offset it by distortion of the market for rental housing. The conservative sponsors of the pamphlet objected to this heresy about inequality. Friedman and Stigler stood their ground. In the end, the sponsors forced the inclusion of an editorial footnote suggesting that those alternative policies would consist mainly of undoing other errors committed by government. There is a lesson to be learned from this episode, but opinions might differ as to what that lesson is.

Friedman found that initial MPS meeting exhilarating. He met the eminent Europeans for the first time, and discovered himself in agreement with those who were aiming to create new foundations for neoliberalism. As his ideas and his career evolved, however, he moved in a different, almost opposite, direction, toward a cruder government-can-do-no-right position, certainly not given to ethical worries or even to economic-theoretical fine points. It is hard to say how much this shift was driven by the wish to have political influence and how much by natural inclination and a kind of flexing of intellectual muscles. He was not alone. As Burgin writes, “economists who supported free markets were not so eager as in former years ... to validate certain modes of government intervention and to emphasize the need for philosophical justifications for free markets that extended beyond the material abundance they ostensibly produced.”

When Friedman became president of the MPS in 1970, the number of members had risen to 330. One of them had remarked privately, a few years earlier, that the sessions had lost their intellectual character and become “a businessmen’s sort of trade association meeting.” Friedman attributed this loss of quality to the Society’s success in spreading its ideas. Yet he convened a meeting of the surviving founders and proposed that the MPS be dissolved after its twenty-fifth anniversary in 1972. This suggestion was rejected by the smaller group; but it is clear that Hayek’s original goal had not been achieved, and the action had passed into Friedman’s hands and therefore with Friedman’s goals and methods. If MPS had ever been a force, it was no longer needed. Burgin thinks that the MPS had served the purpose of providing a sort of institutional home for the cultivation of neoliberal ideology. I am skeptical, except in the sort of clubby sense already mentioned, but of course I was not there.

Under Milton Friedman’s influence, the free-market ideology shifted toward unmitigated laissez-faire. Whereas earlier advocates had worried about the stringent conditions that were needed for unregulated markets to work their magic, Friedman was the master of clever (sometimes too clever) arguments to the effect that those conditions were not really needed, or that they were actually met in real-world markets despite what looked a lot like evidence to the contrary. He was a natural-born debater: single-minded, earnestly persuasive, ingenious, and relentless. My late friend and colleague Paul Samuelson, who was often cast as Friedman’s opponent in such jousts, written and oral, once remarked that he often felt that he had won every argument and lost the debate.

As for relentlessness: Professor Friedman came to my department to give a talk to graduate students in economics. The custom was that, after the seminar, the speaker and a small group of students would have dinner together, and continue discussion. On one such occasion I went along for the dinner. The conversation was lively and predictable. I had a long drive home, so at about ten o’clock I excused myself and left. Next morning I saw one of the students and asked how the rest of the dinner had gone. “Well,” he replied, “Professor Friedman kept arguing and arguing, and after a while I heard myself agreeing to things I knew weren’t true.” I suspect that was not the only such occasion.

I have already referred to Friedman’s early, detailed empirical study of the incomes earned by doctors, lawyers, and others in independent practice. Burgin emphasizes Friedman’s general empirical orientation. Hayek, at least the Good Hayek, was interested mainly in high principle, while Friedman more often appealed to facts as being decisive in policy choices as well as in analytical matters. It is true that Friedman could be infinitely subtle in criticizing a student’s empirical work; but he could also be rather lax in finding support for his own opinions. To take one example, Friedman proposed abolishing the Food and Drug Administration because the harm done by its excessively cautious delays in approving new drugs outweighed the dangers that would come from simply making drugs freely available on the open market. How could he, or anyone, possibly know that? One can indeed imagine an immensely complicated empirical study, requiring all sorts of assumptions and approximations, the outcome of which would inevitably be clouded by complexity, guesswork, and great uncertainty. But that would win no hearts or minds. Friedman’s confident assertion just sounds like fact-based knowledge. A different sort of person would have looked for ways to speed up the FDA’s approval process.

THESE MATTERS OF personal style actually count for something. One of the great merits of Burgin’s book is to show how the character and the content of the free-market ideology changed when the flag passed from Hayek and Company to Friedman and Company. Despite the efforts of a small band of the faithful, the Tea Party is, and is likely to remain, more Friedman than Hayek: harder-line, more brashly confident, less concerned with getting things quite right, and without sympathy for losers.

It seems to me that Friedman’s professional life was more closely entangled with his political activities than was the case with Hayek or any of the other personalities in the story. In that connection, Burgin reports, and seems to credit, a belief among the faithful that Friedman’s Nobel Prize was delayed by elite hostility to his public role as a champion of free markets. I had never heard that story before, but in any case it is absurd. The Nobel Prize in economics is not about advocacy. It is intended to reward important contributions to the discipline of economics. Friedman’s was the eighth to be awarded after the prize was established. A knowledgeable person looking at the list of winners of the seven previous prizes—Hayek was one of them, by the way—would see that their scientific contributions matched or exceeded Friedman’s.

A more plausible case might be made that Friedman’s prominence on the public stage led to some overestimation of his professional achievement. His most important work, particularly cited by the Swedish Academy, was on the relation between consumer spending and income. He proposed that consumer expenditure responded primarily to long-run income prospects rather than to current income, and he suggested a particular measure of those long-run prospects that he called “permanent income.” This was indeed an important and useful idea. Something like it had been anticipated in much less satisfactory form by James Duesenberry, and Franco Modigliani developed a similar and in some ways more satisfactory theory at almost the same time. Friedman’s A Theory of the Consumption Function, which appeared in 1957, was a major work by any standards; but monetarism, the doctrine that autonomous change in the supply of money is the main actor in the determination of aggregate nominal income, has not proved to be tenable analytically or empirically. His Monetary History of the United States, 1867–1960 (written with the late Anna Schwartz), while highly interesting, is not a towering intellectual achievement.

Burgin is interested in a large question: how much did the ideas and the persuasive efforts of the MPS circle and the Friedman succession contribute to the widespread turn to the right in the politics of the Western world after 1970? How much did Ronald Reagan and Margaret Thatcher owe to Friedrich von Hayek and Milton Friedman, and how much did Hayek and Friedman owe to Reagan and Thatcher? Burgin clearly attaches a lot of importance to the respectability conferred on the political right by the ideas of Hayek, Friedman, and the others, and to the rhetorical devices they developed. I would not disagree, but it is of course a much more difficult matter to weigh these effects against more pedestrian facts: Thatcher profited from an ill-judged miners’ strike and, as Lyndon Johnson famously remarked, the passage of the Civil Rights Act lost the Solid South for the Democratic Party for at least a generation.

For a serious modern reader, the rhetoric is irrelevant or, worse, misleading, or, even worse, intentionally misleading. Everyone has known for a long time that a complicated industrial economy is either a market economy or a mess. The real issues are pragmatic. Which of the defects of a “free,” unregulated economy should be repaired by regulation, subsidization, or taxation? Which of them may have to be tolerated (and perhaps compensated), at least in part, because the best available fix would have even more costly side-effects? To the extent that the MPS circle made that kind of policy discussion more difficult to have, it did the market economy a disservice.