Vijay K. Mathur
Published in Standard-Examiner September 9, 2012
Let me first briefly
give you some background on both of these thinkers, who, according to media
reports, have shaped Rep. Paul Ryan’s thinking on government and free markets.
For more details on their views, you could read their books, "The
Fountainhead" and "Atlas Shrugged," by Ayn Rand and "The
Road to Serfdom," (1994), first published in 1944 by late Austrian
economist and Nobel laureate Friedrich A. Hayek.
Ayn Rand was born in
Russia in 1905 and developed intense dislike of the Bolsheviks and communism.
In 1926 she migrated to the U.S. Her two fictional novels contain some of her
views about government’s role in society and on economic policies. NPR site (www.npr.org)
presents an interview of Rand by late "60 Minutes" journalist Mike
Wallace, in which she expressed her concept of "objectivism." She
says this concept is a system of morality that is "not based on faith ...
but on reason." She was totally against all forms of controls, including
taxes, and a firm believer in laissez-faire with no government regulation. The
economic concept of laissez-faire was first proposed by a group of French writers
called physiocrats during 17th and 18th centuries.
Ayn Rand was
completely opposed to any general welfare programs such as Social Security,
Welfare, Medicare, Medicaid, and unemployment compensation. This ideology
contradicts the U.S. Constitution, since Article I, Section 8 specifies that
the Congress provide for national defence and general welfare. The idea of
laissez-faire advocated by Rand, was a critical response to mercantilism during
17th and 18th centuries’ Europe, whereby the merchant class persuaded states to
regulate the economy to serve their own self interests. It seems that they
believed in individual rights and property rights but only so long as their
interests were served.
Hayek admits that his
controversial book is a political book. He severely criticized socialism, where
means of production are controlled by government. According to him, socialism
works against individual freedom and it "…means abolition of private
enterprise, of private ownership of the means of production, and the creation
of a system of planned economy in which entrepreneurs working for profit are
replaced by a central planning body." He supported competitive markets and
criticized planning. Hayek was as critical of conservatives as he was of
liberals who advocated or sympathized with socialism. He states, "A
conservative movement by its very nature, is bound to be a defender of
established privilege and to lean on the power of government for the protection
of privilege." This comment exactly fits what current GOP and Romney/Ryan
have on their agenda.
The U.S. and
democracies of Western Europe have neither laissez-faire nor socialism, as
defined by Hayek. These are mixed economies where governments’ role in markets
is complementary in nature rather than a substitute for private enterprise.
Even China, India and many Eastern European countries are gradually moving away
from socialism as Hayek envisioned. Rand’s and Hayek’s fears of socialism and
ultimately totalitarianism are not based on reality of markets in the U.S. and
other countries of Western Europe. Rep. Ryan’s notion of free markets and
regulation is outmoded and indicative of muddled thinking on the role of
markets and government. Research, since the days of Rand and Hayek, has shown
that markets in some areas of the economy, without government assistance and/or
intervention, do not work efficiently due to market failure problems.
Environmental
quality, national defense, human capital accumulation (education), research and
development and space exploration are some of the examples of sectors where
markets break down. For example, if an oil refinery pollutes, it violates
homeowners’ property rights when they suffer health problems or property
damages. Therefore, unless government intervenes to force the refinery to
internalize its cost of pollution in the price of oil, the refinery has no
incentive to do so. One may argue that individuals could sue the refinery. That
is a very inefficient way to solve the problem. A cost effective strategy
requires the government to own property rights for air-sheds on behalf
Americans and hence enforce those rights by pollution taxation or by creating a
market for pollution rights.
Another example of
market failure arises when there is a very high risk in providing a product or
service, such as infrastructure development, space exploration, basic R&D
and other public goods. The U.S. government role is also called for in
providing services for the general welfare of its citizens, as the Constitution
specifies.
Mr. Ryan must understand
that Hayek’s ideas and especially Rand’s ideas on free markets must be tampered
with economic reality of markets. It is the government that had to come to the
rescue of markets in the Great Depression of 1930s and again in the great
recession of 2007-08; regulations had to be implemented to restore the
integrity of the financial system plagued by scandals.
Mathur
is former chair and professor of economics and now professor emeritus,
Department of Economics, Cleveland State University, Cleveland, Ohio. He also writes blogs for
the Standard-Examiner at http://blog.standard.net/economics,etc.
