Information and Economics: A Critique of Hayek
Outlines Hayek's false assumptions, and points out problems of market capitalist economic miscalculation.
Libertarians frequently resort to the "socialist calculation problem" as a blanket denial that socialism could work well. Yet we are surrounded with counterexamples, such as the decentralized socialist public school system, or highly centralized capitalist enterprises such as WalMart. This critique helps us understand why Hayek's arguments should be considered little better than propaganda now.
Placed in the Austrian Economics index.
Subscribe to:
Post Comments (Atom)
11 comments:
That essay seems a little silly to me. Have you read it? Specifically, sections 6 and 7?
Section 7's flaw is the most obvious. The information content of a price is neither the amount alone - 80 cents for a hypothetical cup of coffee is indeed very few bits of information - nor is it the changes in that amount. Rather, the important thing is changes in the relative price - relative to everything else in the economy.
When one kind of coffee becomes more expensive relative to another kind or relative to another drink, that both sends a message and simultaneously creates an incentive for anyone and everyone throughout the economy to try to use less, produce more, and find substitutes. It's impossible to know in advance who will be best positioned to react to the change, but with prices you don't have to know.
Section 6's flaws are a little more subtle. Their work breakdown includes some work market participants don't need to do and leaves out the most important work centralizers need to do. On the former: it is perfectly possible to run a profitable business without knowing your exact per-unit cost. They seem to be confusing how economists analyze the behavior of firms with how firms actually operate. On the latter: It is quite difficult for socialist planners to incentivise state-owned firms to produce what customers want rather than what planners are good at measuring. In the former soviet union a factory might end up being rewarded for how many tons of trucks it produced over a period of time, regardless of how well those trucks ran. In the capitalist system, failure to produce what customers want leads to business failure; the company that responds to tonnage rather than customer satisfaction goes broke and its resources are quickly freed up for use by a more efficient firm. How would the procedure they outline accomplish that goal?
Can you imagine trying to track a package you're expecting from UPS under a Hayekian system? "Hell, we don't know where your parcel is. The information is dispersed and beyond the ability of a central economic coordinator to know."
a) The US government-operated school system does not work well. In the 1996 TIMSS, the Singapore 5th (fifth) percentile score (8th grade Math) was higher than the US 50th (fiftieth) percentile score. Our aledictorians will shine their janitors' shoes.
It does not take 12 years at $10,000 per stude3nt year to teach a normal child to read and compute. Much vocational education occurs more effectively on the job. State (government, generally) provision of Civics instruction is as much a threat to democracy as State operation of newspapers would be (is, in totalitarian countries).
b) The US government-operated school system hardly qualifies as "decentralized". Compulsory attendance statutes are typically State-wide. In many US States, teacher credential requirements are State-mandated. Further, accreditation agencies enforce considerable uniformity.
Malcolm:
(a) The Singapore educational system is also government run. So what does your factoid demonstrate other than that the Singapore system famously teaches to that test?
(b) The US educational system is far more decentralized than Singapore's, and probably more decentralized than any other first world nation if only because we have 50 states and innumerable local governments running the public schools.
a) According to TIMSS, 40% of Singapore schools are independent, and the government subsidizes attendance.
b) 90% of students in Ireland and Hong Kong take tax subsidies to schools other that government schools. In the Netherlands, close to 70%, in Belgium, over 60%.
c) The apperance of decentralization of the US system is illusory, since compulsory attendance statutes, State-mandated curricula, State-mandated
teacher credentials, and accreditation criteria impose more uniformity than is appropriate for the variety of inputs (students' interests and abilities) and outputs (possible career paths).
d) "Factoid"? Facts.
a) Singapore is a one-party state that budgets S$7,000,000,000 for all schooling and is so rigid that chewing gum is a caning offense for adults. If you think they really have "independent" schools, then how do you explain that there IS compulsory attendance, that there ARE national exams? Schooling is planned by a centralized Ministry of Education.
b) Government finance of school inevitably comes with some government regulation. Look it up.
c) Any state that permits homeschooling (and I guess that they all do) gives the lie to your claims about curricula, credentials, and accreditation. Compulsary attendence has nothing to do with diversity of schooling except perhaps for teenagers.
But the heart of your argument is "more uniformity than is appropriate": in other words, you set yourself up as the judge, so whatever factoids you select are appropriate. Simple argument from personal authority.
d) So you're too lazy to look up the word factoid. You still haven't shown how Singapore doing well on an international math test shows that "The US government-operated school system does not work well."
"a) Singapore is a one-party state that budgets S$7,000,000,000 for all schooling and is so rigid that chewing gum is a caning offense for adults. If you think they really have "independent" schools, then how do you explain that there IS compulsory attendance, that there ARE national exams? Schooling is planned by a centralized Ministry of Education."
Would we gain anything from an argument over the meaning of "centralized" or "independent"? I doubt it. Better to place these terms on some sort of continuum and discuss what changes to expect from policy moves in one direction or another along some dimension of that continuum.
The government of a locality is the largest dealer in interpersonal violence in that locality. "Education" is rather difficult to define in abstract and simultaneously to get a definition close to contemporary usage, yet...
"b) Government finance of school inevitably comes with some government regulation. Look it up."
We could do w/o the condescention,
The State cannot subsidize education without a definition of "education". Seems to me that supports my side of this argument.
"c) Any state that permits homeschooling (and I guess that they all do) gives the lie to your claims about curricula, credentials, and accreditation. Compulsary attendence has nothing to do with diversity of schooling except perhaps for teenagers."
Homeschooling regulations vary considerably from State to State. Regardless, the combination of (a) taxation in support of schools, (b) regulations which (in most US States) restrict parents' options for the use of the taxpayers K-12 education subsidy to schools operated by dues-paying members of the NEA/AF/AFSCME cartel, (c.1) compulsory attendance statutes applied to children (truancy) and (c.2) compulsory education statutes applied to parents (educational neglect), (d) child labor laws, and (e) minimum wage laws, drive most parents into the workforce, limit their child-care options, and impose a uniform structure on the education institutions available to them.
"But the heart of your argument is "more uniformity than is appropriate": in other words, you set yourself up as the judge, so whatever factoids you select are appropriate. Simple argument from personal authority."
Dunno that I make an argument from personal authority over the issue of "appropriate" diversity in the education industry. I take a position. Wanna argue the issue? Lets!
The educatiom industry is not a natural monopoly and, beyond a very low level, there are no economies of scale at the delivery end of the education business as it currently operates. "Natural monopoly" and "economies of scale" are two usual welfare-econmic arguments for State (government, generally) operation of an industry. Even when an industry qualifies as a natural monopoly or exhibits significant economies of scale the case for State operation is not decisive, and the education industry is not a natural monopoly and, beyond a very low level, exhibits no economies of scale as it currently operates. Education only marginally qualifies as a public good as economists use the term and the "public goods" argument implies subsidy and regulation, at most, not State operation of an industry.
Given the enormous variation in inputs (students' interests and abilities) and outputs (their possible post-school career paths), the education industry is not a likely candidate for centralized operation or State (government, generally) operation. The early education/child care industry (age 0-8 or so) is naturally a cottage industry. Subsequently, an industry which included specialized institutions and on-the-job training would more realistically accommodate the variety of people's interests and abilities than does the full-service Math/Science/History/English high school.
The current US legal environment in most US States, which restricts parents' options for the use of the taxpayers' K-12 education subsidy to schools operated by dues-paying members of the NEA/AFT/AFSCME cartel, originated in anti-Catholic bigotry and survives on dedicated lobbying by current recipients of the US taxpayers' $500 billion per year K-12-dedicated revenue stream.
It does not take 12 years at $10,000 per student year to teach a normal child to read and compute. Much vocational training occurs more efficiently on the job than in a classroom. State provision of Civics instruction is as much a threat to democracy as State operation of newspapers would be (is, in totalitarian countries).
In the US, the K-12 education industry has become an employment program for dues-paying members of the NEA/AFT/AFSCME cartel, a source of padded construction and supplies contracts for politically-connected insiders, and a venue for State-worshipful indoctrination. If this is not so, why cannot any student take at any time an exit exam (the GED will do) and apply the taxpayers' $10,000 annual education subsidy toward post-secondary tuition at any VA-approved post-secondary instituton or toward a wage subsidy at any qualified (say, has submitted W-2 forms on at least three adult employees for at least the previous four years) private-sector employer?
If it is fraud for a mechanic to charge for the repair of a function motor, and if it is fraud for a physician to charge for the treatment of a healthy patient, then it is fraud for a teacher to charge for the instruction of a student who does not need our help.
"d) So you're too lazy to look up the word factoid. You still haven't shown how Singapore doing well on an international math test shows that "The US government-operated school system does not work well."
"Well" is relative, yes? I'd say a US median (50th percentile) score lower than Singapore's 5th (fifth) percentile score (1996 TIMSS 8th grade Math) pretty well establishes that US schools waste students' time.
In addition, in Hawaii, juvenile arrests fall when school is not in session. Juvenile hospitalizations for human-induced trauma fall when school is not in session.
a) Ah, so rather than admit your argument was complete BS, you attempt to change to another sort of argument.
Government is the largest dealer in interpersonal violence NOT because of some moral fault, but BECAUSE we choose to locate enforcement in government rather than private organizations.
b) When you make arguments that show a minimum of sense, I may stop condescending.
For example, how is your "side of the argument" supported by that silly statement? You left that out: you've made a claim without a rationale.
c) A nice set of unsupported assertions about cause, but you can't even get your facts right. No US schools are operated by union members: state or local school boards operate the schools, and the administrators are not union either. Only some of the teachers are union in most states: there is no requirement to join the union.
Now perhaps you consider educational neglect and truancy appropriate "diversity in schooling"?
The rest of your laundry list of anti-government rantings is very old and very specious. Typical ploy: regurgitate arugments as fast as you can, and hope the other person tires.
d) The difference in scores shows at most that the US has less emphasis on performance on that one test. It doesn't say anything about wasting time, as you stupidly assert. And if you'd used your brain looking at the Singapore statistics, roughly a quarter of the students do not enroll in secondary education (after 6th grade) and thus would not take the tests, whereas in the US 100% would be enrolled and take the tests. And of course there are other valid reasons having nothing to do with the schools, and everything to do with the differences in the populations (such as family environments, health, etc.)
"a) Ah, so rather than admit your argument was complete BS, you attempt to change to another sort of argument."
I could repeat myself, but since my first argument didn't persuade you, I'll try another way to express the point. What do you do with students who don't get it? Browbeat them, I'd guess from the way you argue here.
The argument hasn't changed all that much. We consider the relative merits of State (government, generally) control of education versus a market in education services. This follows the assertion that the US "decentralized socialist public school system" "works well".
"Centralization", and "control" are matters of degree. I agree that decentralized, government-operated school systems --can-- work well (relative to large centralized systems, government-operated or not). The State of North Dakota provides an example of a high-performance system, and N. Dakota has few students in independent schools and a level of TIMSS performance that puts it on par with Singapore.
Labor law, compulsory attendance statutes, State-mandated curricula, and State-mandated teacher credential requirements limit local autonomy. In the Brookings Institution study of school performance, "Politics, Markets, and America's Schools", Chubb and Moe compared high-performance schools to low-performance schools. After parent SES, the strongets predictor of school success (measured by gains on standardized tests of Reading, Math, and Science) was a composite variable the authors called "the degree of institutional autonomy".
I make less of the public/private distinction than most, and less of the for-profit/non-profit distinction than most. We are all public citizens and private individuals. Unions, even "public sector" unions, are private 501-c(5) corporations. Their assets are the property of their members and their legal obligations are to dues-paying members and agency-fee payers. Sometimes unions, like other organizations, get captured by insiders, who bend the institution to their purposes.
"A nice set of unsupported assertions about cause, but you can't even get your facts right. No US schools are operated by union members: state or local school boards operate the schools, and the administrators are not union either. Only some of the teachers are union in most states: there is no requirement to join the union."
In Hawaii, school administrators are unionized (AFSCME). Typically, they are ex-teachers (NEA). The local NEA K-12 subsidiary (HSTA) exerts considerable influence on elective politics. They support candidates for Board of Education and lobby in the legfislature. To say "No union members operate schools" is flat false. Even where it is technically correct (where administrators are non-union), administrators take orders from Boards of Education and legislators selected by public sector unions, in large part. Further, with mandatory collective bargaining laws (in many US States), school administrators develop an abiding relation with unions (see Axelrod's __The Evolution of Cooperation__, also Mancur Olsen, "The End of the Middle Way", __American Economic Review__, also Jack Hirschliefer's "Anarchy and its Breakdown", __The Journal of Political Economy__). Basically, students and parents (and teachers, to some extent) come and go but the institutions work together and over time become intertwined.
"Government is the largest dealer in interpersonal violence NOT because of some moral fault, but BECAUSE we choose to locate enforcement in government rather than private organizations."
I wasn't making a moral argument of asserting any causal relation; "the largest dealer in interpersonal violence" is the definition of "government". Basic argumentation: define your terms.
"b) When you make arguments that show a minimum of sense, I may stop condescending."
Unlikely. You were equally rude at David Friedman's site. It's odd that teachers aren't more protective of their image than they are.
"...(I)f you'd used your brain looking at the Singapore statistics, roughly a quarter of the students do not enroll in secondary education (after 6th grade) and thus would not take the tests, whereas in the US 100% would be enrolled and take the tests."
Where does that "a quarter" statistic originate? According to TIMSS __Mathematics Achievement in the Middle School Years (1996)__, the percent of 13-year-olds in 7th or 8th grade (the tested age) in Singapore was higher (97%) than the US (91%).
You cite Chubb as an authority, but perhaps don't realize that he was the Chief Education Officer of The Edison Project: a failed privatization effort. Now he's on conservative welfare at the Hoover Institute. Why should we believe him (or you) when he failed so conspicuously when given an enormous opportunity to prove his claims?
Interesting that Hawaii has administrative unions: NY and MA do not. You're right: Hawaii is unusual there.
Your unfocussed, rambling claims don't make much of an argument: they simply repeat conservative and libertarian talking point propaganda.
"You cite Chubb as an authority, but perhaps don't realize that he was the Chief Education Officer of The Edison Project: a failed privatization effort."
As I understand it, Edison is still up and running. They have to compete with the dominant player in the education industry, the NEA/AFT/AFSCME cartel's schools.
John Chubb was a Brookings Fellow when Brookings published the study he co-wrote with Terry Moe. The original title. __What Price Democracy? Pilitics, Markets, & America's Schools__ was subsequently shortened to __Politics, Markets, and America's Schools__. I recommend it.
"Now he's on conservative welfare..."
I see you're a school teacher.
Careful with those stones. Any public-sector employment could just as aptly merit the description "socialist welfare".
"...at the Hoover Institute. Why should we believe him (or you) when he failed so conspicuously when given an enormous opportunity to prove his claims?"
Edison failed in a rigged game. Subsidies and regulations stack the deck in favor of the NEA/AFT/AFSCME cartel.
"Your unfocussed, rambling claims don't make much of an argument: they simply repeat conservative and libertarian talking point propaganda."
You call standard economic analysis "conservative and libertarian talking point propaganda". It's a free country. Call yourself a flock of sparrows if you like. I don't see a rebuttal to anything I said.
PS. Where did you get the "...looking at the Singapore statistics, roughly a quarter of the students do not enroll in secondary education (after 6th grade) and thus would not take the tests, whereas in the US 100% would be enrolled and take the tests" statistics? TIMSS __Mathematics Achievement in the Middle School Years__ says otherwise.
Post a Comment