Biological Ethics
Justice for Baby Charlie Gard

Retrospectives on Hayek

By Jonathan B. Wight

HayekFor those who love Hayek but don’t subscribe to laissez-faire (I’d put myself in that camp, and I’d include Adam Smith from the grave), you might want to read the latest piece in the Journal of Economic Perspectives 31(3)(Summer 2017): 

Samuel Bowles, Alan Kirman, and Rajiv Sethi, “Retrospectives:  Friedrich Hayek and the Market Algorithm.”

The authors argue that although Hayek had a prescient understanding of decentralized information and competitive markets, he failed to acknowledge how opportunistic behaviors could lead the market astray from social welfare. 

Disequilibrium (rather than equilibrium) can be profit-maximizing at the level of the entrepreneur, especially when speculative behavior is introduced.  (It is also the critique of speculation that led Adam Smith to argue that financial market regulations could promote the social welfare.)

If you are cynical, you will argue that economic researchers continue to search until they find a model that agrees with their preconceptions.  Bowles et. al. fit this bill—but so does Hayek—and probably every other economist.  Our biases may affect how we evaluate the truthfulness of a model.



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