Friday, September 30, 2011

Hayek on Social Security

Okay, I've read Hayek on Social Security in The Constitution of Liberty and I simply have no idea what Greg Ransom is talking about. I see nothing fallacious about what Levine and Zernike have written, and in the context of The Constitution of Liberty I find this story about Hayek, Social Security, and Charles Koch all the more fascinating and relevant.

My read on Hayek is that he sees a role for a bare minimum level of social insurance, but that he is wholly opposed to Social Security, Medicare, and the national health systems of Europe. The entire chapter is dedicated to contrasting these programs with the bare minimum insurance to provide for what he calls "extreme need", which he would accept. I have no idea what Greg could possibly have in mind when he says the terrible things about Levine and Zernike that he did, and he really does owe both of them an apology. I can't find a single thing they wrote that Hayek didn't express in The Constitution of Liberty.

"Though a redistribution of incomes was never the avowed initial purpose of the apparatus of social security, it has now become the actual and admitted aim everywhere. No system of monopolistic compulsory insurance has resisted this transformation into something quite different, an instrument for the compulsory redistribution of income. The ethics of such a system, in which it is not a majority of givers who determine what should be given to the unfortunate few, but a majority of takers who decide what they will take from a wealthier minority, will occupy us in the next chapter. At the moment we are concerned only with the process by which an apparatus originally meant to relieve poverty is generally being turned into a tool of egalitarian redistribution. It is as a means of socializing income, of creating a sort of household state which allocates benefits in money or in kind to those who are thought to be most deserving, that the welfare state has for many become the substitute for old-fashioned socialism. Seen as an alternative to the now discredited method of directly steering production, the technique of the welfare state, which attempts to bring about a "just distribution" by handing out income in such proportions and forms as it sees fit, is indeed merely a new method of pursuing the old aims of socialism."

And on the way Social Security benefits are paid, Hayek writes,

"This is all part of the endeavor to persuade the public through concealment, to accept a new method of income distribution, which the managers of the new machine seem from the beginning to have regarded merely as a transitional half-measure which must be developed into an apparatus expressly aimed at redistribution. This development can be prevented only if, from the outset, the distinction is clearly made between benefits for which the recipient has fully paid, to which he has therefore a moral as well as a legal right, and those based on need and therefore dependent on proof of need."

Levine and Zernike refer to this passage (accurately):

"In this connection we must note still another peculiarity of the unitary state machine of social security: its power to use funds raised by compulsory means to make propaganda for an extension of this compulsory system. The fundamental absurdity of a majority taxing itself in order to maintain a propaganda organization aimed at persuading the same majority to go further than it is yet willing should be obvious."

He concludes this thought with:

"Such subsidized propaganda , which is conducted by a single tax-maintained organization, can in no way be compared with competitive advertising. It confers on the organization a power over minds that is in the same class with the powers of a totalitarian state which has the monopoly of the means of supplying information".

He also writes:

"Though in a formal sense the existing social security systems have been created by democratic decisions, one may well doubt whether the majority of the beneficiaries would really approve of them if they were fully aware of what they involved."

He also calls it "a tool of politics, a play ball for vote-catching demagogues"

And as for that Austrian public health care he was getting: "There are so many serious problems raised by the nationalization of medicine that we cannot mention even all the more important ones". He's mostly referring to single payer type stuff here, and I have issues with single payer too. But the point is it's precisely such a system that he had to be cajoled away from by Charles Koch. That's what's so ironic about it. I don't think single payer is wise, but if I had reason to believe I couldn't get a certain degree of medical care outside of a European country that provides that benefit, I might resist leaving too! And perhaps that would be hypocritical of me. But my case wouldn't be remarkable because I'm not giant of the libertarian movement that's written extensive criticisms of this stuff!

This is particularly good too:

"There can be no principle of justice in a free society that confers a right to "non-deterrent" or "non-discretionary" support irrespective of proved need. If such claims have been introduced under the disguise of "social insurance" and through an admitted deception of the public - a deception which is a source of pride to its authors - they have certainly nothing to do with the principle of equality under the law".

And this is a nice conclusion:

"It has been well said that, while we used to suffer from social evils we now suffer from the remedies for them."

Hayek clearly and unequivocally supports a minimal level of social insurance, but I could fine nothing but scorn for the currently operating social security and public health insurance systems. He likened their public relations arms to totalitarian propaganda. He said they were fulfilling the agenda of socialism. He went through what would be necessary to end them. He challenged the idea that they represented any notion of equality under the law. He called it the tool of demagogues. Nothing in the chapter on Social Security in The Constitution of Liberty suggests that anything Levine and Zernike said was wrong. The man claimed quite clearly that he did not like Social Security and he did not like public health insurance programs. Period.

This is not the first time people have questioned Ransom's grasp of Hayek either (see here and here, and lots of the convos on Coordination Problem). I advise my readers to take what he says with a grain of salt from now on. Read that chapter in The Constitution of Liberty. Levine and Zernike don't deserve the terrible treatment that Ransom gave them, and they seem to understand Hayek a lot better than he does on this point.


  1. Levine and Ames,

    "Hayek devoted an entire chapter—titled “Social Security”—to denouncing the modern welfare state as a gateway to tyranny and moral decay."

    He did no such thing.

  2. Levine and Ames,

    "Hayek, Koch .. reveal themselves to be fans of state-backed health care and retirement benefits in private, while publicly denouncing and destroying these same programs."

    Show me where Hayek "denounces" an old age safety net or advocates "destroying" an old age safety net. He doesn't.

  3. Kate Zernike:

    "This was more than a decade after Hayek had written against Social Security in “The Constitution of Liberty,” calling such safety net programs the pathway to social and moral decay."

    Hayek's discussion is about how to improve and save a social safety net system -- he's not "writing against it", he's discussing how to fix problems that are widely recognized. And Zernike is simply parroting the words she's taken from Levine and Ames with her "social and moral decay" talk -- this isn't something she's found in Hayek Chapter on SS.

  4. I for one am happy to accept that Hayek loved the welfare state and only had a few mild criticisms of it and that it is later austrians that are grossly/hysterically misrepresenting his views.

  5. First - could the Anonymous commenting please stop. Use a pseudonym, please.

    re: "He did no such thing."

    It's exactly what he did. Read the chapter. He sets up the standards for what would be acceptable in social insurance, then he spends several pages talking about why social security schemes in the U.S. and around the world don't meet that standard and are evolving towards socialism. Then he spends several pages doing the same for national health schemes, then he spends several pages doing the same for unemployment insurance. Don't tell me "he did no such thing" - I read it for myself. It's EXACTLY what he did.

  6. Andrew -
    re: "I for one am happy to accept that Hayek loved the welfare state and only had a few mild criticisms of it and that it is later austrians that are grossly/hysterically misrepresenting his views."

    I think there's a degree of this. Hayek clearly advocates a minimal social insurance program - more so than many Austrians and libertarians today. But I don't think what he advocates is any more extensive than what most libertarians who don't explicitly adopt the "anarcho-capitalist" label would have a problem with. But he's definitely not a fan of Social Security - that comes across very clearly. Saying "I wouldn't have the poor and destitute just fend for themselves" is a long way from embracing Social Security, medicaid, etc.

    One thing that I would say Levine and Zernike have wrong is the sharp contrast they draw between Road to Serfdom and The Constitution of Liberty. Maybe some of Hayek's views hardened over that time, but he seems to hold the same views he did before on the acceptability of a minimal level of social insurance. But I don't think this interpretive problem justifies calling them "sewer rats from Russia", personally.

  7. Andrew Bossie,

    Well, that wasn't Hayek's view. A welfare society is based on commands; dictates. Generally very specific ones which run over individual experience and local knowledge. It runs rather counter to Hayek's views on spontaneous order, etc., which are the bedrock concepts of his worldview.

    The amusing thing is that Hayek has only been dead for 19 years and people intensely disagree about his legacy, what he thought, etc.

    As for his desire to have good healthcare, etc. Hayek, he was acting about as rationally as he could on the matter given the context. By the early to mid 1970s Hayek (born in 1899) was in his seventies, he wasn't going to be changing the system around him, and really the practical effects of his work in the political realm had not even come to fruition as of yet. This was a time when privately ordering your retirement in particular was more difficult than it is today (the instruments to get around the state run system had not come into being as of yet - in the U.S. the IRA only came into being under ERISA in 1974). I'm not going to blast him for failing the libertarian purity test on this matter - he can keep his decoder ring as far as I'm concerned.

  8. re: "It runs rather counter to Hayek's views on spontaneous order, etc., which are the bedrock concepts of his worldview."

    This was one very odd point of the chapter. Hayek was denouncing social insurance as it existed as violating spontaneous order at the same time that he seemed to be presenting evidence that the welfare state we have today is a RESULT of spontaneous order. He goes through how the welfare state evolved over time, and then he talks about all these other things evolved to supplement faults in the welfare state (he didn't mention IRAs, but that sort of thing obviously is relevant). I thought that was very strange - and I have this reaction a lot to the way libertarians talk about spontaneous order.

    My view is - and Hayek seemed to present great evidence for this - that market governance often doesn't provide what we want, particularly if there are externalities or if we want more equitable distribution for the sake of equity. Private governance usually emerges to take care of this: families providing for each other, charitable institutions, and communities supporting their weaker members. When society changes rapidly or when private governance is deemed inadequate for these things, surpluses from prosperity are used by institutions of public governance to supplement and expand these sorts of social supports. None of these institutions - market, private governance, or public governance - is perfect. All have their faults in implementing these sorts of social supports. So the system is constantly evolving and reacting to itself.

    Hayek seems to present a history that I would say demonstrates that Social Security and the welfare state ARE THE PRODUCT OF SPONTANEOUS ORDER, and that they are continually evolving.

    Somehow, he presents this evidence and comes to the exact opposite conclusion.

    He's wrong that they are fundamentally socialist or totalitarian. He's wrong when he implies that democracy doesn't matter here because we're all too naive to be "fully aware of what they involved" (his words). The welfare state evolves precisely because it's not socialist and it's certainly not totalitarian in nature. We reform, devolve, centralize, devolve again, change eligibility requirements, phase out welfare, phase in EITC, supplement public programs with private programs, etc. etc. We do this all the time. It's in constant flux. The welfare state is a product of spontaneous order that comes out of the interaction with the market and with private governance in a free society.

    Why Hayek presents evidence for this and then seems to completely miss this isn't clear to me.

  9. Daniel,

    IRAs didn't exist in 1960 when the Constitution of Liberty was written (see above). The Roth IRA came into being in 1981. 401ks come about following 1978. During Hayek's time in writing The Constitution of Liberty there were "cash or deferred arrangments" (known as CODAs); but they were the subject of a fair amount of litigation. It is fair to say that people and businesses were trying to create products that would be appealing to employees who wanted more control over their retirements; thus they tussled with the government over the matter in the courts and eventually the Congress got involved with stuff like ERISA, the changes to the Internal Revenue Act in 1978, etc. Things aren't more flexible though because some bright-eyed bureaucratic came up with a plan, they are more flexible because people wanted that and found some roadblocks in their way and petitioned that they be moved or at least adjusted.

    "This was one very odd point of the chapter."

    Not for me. Governance is mostly about anything but spontaneous order; it is instead about centralized decision making based on trying to vacuum up all available data. This is why government planning invariably talks about creating "nodes of decisionmaking" and the like that are declared beforehand, and why so much emphasis is placed in "official" guarantees of expertise in government bureaucracies, as oppose to practical guarantees.

  10. A lot of the difference between you and libertarians is how little libertarians buy into the Walrasian concept of what the government is good for; Hayek is definitely heterodox when it comes to that issue. It really isn't any sort of mystery.

  11. BTW, if you are looking to read more Hayek, this is something you may want to look at:

    When he talks about dictatorships, Latin America, etc. I personally think he goes off the rails (plus it is tinged with a lot of Whig history to boot - which seems to be the SOP of so many involved in scholarship). For example, neither of the first two Stuart monarchs ever exercised absolute power, nor did they ever really make a bid to do so; Charles I's basic problem is that he favored one party of the narrow political class of his kingdom over the other parties (that explains a great deal of the violence which exists throughout human history).

    There are plenty of things to criticize Hayek for, really interesting things, intellectually meaty stuff, but whether he partook of Austria's system of social insurance is not one of them IMO.

  12. re: "IRAs didn't exist in 1960 when the Constitution of Liberty was written (see above). The Roth IRA came into being in 1981. 401ks come about following 1978."

    Right. But it's exactly the sort of thing he's talking about, Gary.

    re: "Things aren't more flexible though because some bright-eyed bureaucratic came up with a plan, they are more flexible because people wanted that and found some roadblocks in their way and petitioned that they be moved or at least adjusted."

    Exactly! This is precisely what public governance is Gary! I am afraid you are thinking I am thinking about public governance that I'm not. People wanting to deal with problems and figuring out ways to deal with it is public governance. Bureaucrats are part of executing anything (in the public or private sector), but rule by bureaucrats is not a functional form of governance that I've ever advocated.

    re: "There are plenty of things to criticize Hayek for, really interesting things, intellectually meaty stuff, but whether he partook of Austria's system of social insurance is not one of them IMO."

    Now hold on - I want to make something personally clear. I'm not trying to criticize Hayek for anything. I'd disagree with a lot in the chapter, but my interest in this is more of a "revealed preference" type of thing. Hayek's personal reactions to the world in which he lives demonstrates insights that were lacking in some of what he wrote. There's no criticism of Hayek from me on this point (maybe from Levine and Zernike). I find the episode demonstrative of something important.

  13. Ultimately you're doing exactly what Hayek was doing - pointing DIRECTLY AT spontaneous order in the welfare state, and then claiming that the problem with the welfare state is that it violates principles of spontaneous order!!!

  14. Well, Hayek's revealed preference was related to the fact that he was very sick in the early 1970s (this subsided and he some more productive years until the mid-1980s); he'd probably argue that his choices had been constrained by people making decisions without consulting him, so he had to make a much more limited choice within that context. I find the episode demonstratively important too; but probably for different reasons.

  15. There National Enquirer / yellow journalism / Hustler magazine style journalism in Russia justifies their being called sewer rats from Russia

    "But I don't think this interpretive problem justifies calling them "sewer rats from Russia"

  16. So. It looks as if the "sewer rats from russia" did a fact based and accurate article. Hmmmm.

  17. About six times I've explained to you Daniel why Levine & Ames are correctly described as "sewer rats from Russia" and just as many times you are intentionally ignored that and and said something which was not my reason -- in other word you made it up contrary to evidence.

    This is the kind of bad faith and poor reading skills that typify your interactions on the web.

    What's up with that?

  18. For all the "purists" out there, these "contradictions" between Hayek's public assertions and his private life may be troublesome. But I see no problem, nor contradiction, with advocating one system, yet taking advantage of the existing system. A variety of current libertarian intellectuals are employed at public universities. Does that make them hypocritical? I wouldn't say so.

    Look, it's perfectly sound to criticize inefficiencies - from a welfare perspective - arising from certain institutions or policies, but at the same time, exploit the fact that they exist. For example, I think the "food stamps" program is a complete disaster. The amount that it's abused is extraordinary. And if you think that most the people using it are in dire need of food assistance, just calculate their average weight and compare it to those not using it. I think most are all aware of this funny reality. Yet I do, and will continue to in the future, make use of the food stamps whenever possible. Why wouldn't I? I NEVER claimed that the individual use of the system, as such, is evil. In fact, I'm only affirming my own arguments in taking advantage of low-hanging fruit. The same applies to Hayek. I see nothing wrong with Zernike and Levine's factual claims. It's the implication they're hoping shallow thinkers - an implication that they seem to believe - will latch on to - that there's a sort of contradiction between these things.

  19. re:"This was one very odd point of the chapter. Hayek was denouncing social insurance as it existed as violating spontaneous order at the same time that he seemed to be presenting evidence that the welfare state we have today is a RESULT of spontaneous order".

    I don't find it odd at all. He spends a lot of time explaining in his work the difference between spontaneous order and other types of order. I think he devotes the most to this in "Law, Legislation, and Liberty" - especially the first book. You at least need to acknowledge that the mechanisms governing the development and administering of social security vs. those governing private retirement insurance are quite different in many important respects, and to ignore those would lead to faulty conclusions. You can argue that the semantics of his distinction is poor, but hardly that the substance of it is illusory.

  20. I'm not sure what Hayek is supposed to have done wrong.

    In the optimal economic system people envisaged by Hayek people would be responsible for their own health and retirement planning.

    In the economy where Hayek actually lived government intervention in the form of high taxation and compulsory social security payments distorts the ability to carry out such planning.

    In Austria Hayek would have been forced to pay into the Austrian system and it would have been irrational for him to be planning his finances on the assumption he would be moving to the US in his old age.

    During his years in the US(it is not clear to me if he chose to pay into SS or if it was also compulsory) it sounds again like he was just making rational economic choices given the available options - and luckily for him this gave him coverage when he ne3eded it.

    My point is: It is absurd to expect believers in a free-market system to live there own lives as if they lived in their ideal system. They will make rational economic decisions based on the economy they actually live in , not the one they would like to live in.

  21. I agree completely rob. The point isn't that Hayek has done something "wrong". It's just a telling incident.

    He had plenty of opportunity to provide for himself, though, and probably did to a certain extent. But he found that could be challenging and found real value in public solutions - so much so that he'd rather participate in a society where it was publicly provided then risk it in another one. That's not "wrong". That's illustrative.

  22. rob's point just went straight over your head....

  23. C'mon Daniel. Set up an OLG model with social security and see what it's effect on optimal savings is....

    Are we to interpret this as the agents affirming the value of public solutions?! Is that illustrative?!

    Sometimes the lens you see things through....

  24. Others are saying (or implying) that Hayek was a hypocrite to take advantage of a social security system he was against in principal, and therefore his ideas are somehow devalued.

    My post was meant to demonstrate that this is an absurd charge.

    This incident does make one wonder how confident those who would use this kind of thing to push their own agenda are of their own positions, though I suppose to be fair one does see the same sort of thing from the free-market side as well from time to time (for example around Keynes allegedly pro-Nazi preface to the German edition of the General Theory).

  25. re: "rob's point just went straight over your head...."

    Why do people always think that when I don't agree that a given point is the most important point, I somehow don't understand the point.

    rob was saying that Hayek was acting rationally given the institutions he was faced with. I agreed and agreed.

    rob was worried Hayek was being criticized. I assured him I don't think that's really the point.

    MY POINT, which I understand you and rob aren't as interested in, is that Hayek had ample opportunity to plan for himself, and he found value in an existing system. That's worth noting.

    Stop assuming people don't understand your point just because they don't fawn over you and the value of your points.

    re: "C'mon Daniel. Set up an OLG model with social security and see what it's effect on optimal savings is...."

    That brings back memories!

    rob -
    re: "My post was meant to demonstrate that this is an absurd charge."

    I'd agree - although I'd be careful not to take this too far. Was Hayek acting rationally? Sure. Was he acting on principle? That's more questionable. And if you fail to act on principle enough one starts to wonder about your principles. But I agree - my takeaway from this certainly isn't that Hayek did something wrong or that I'm in a mood to criticize Hayek.

    re: "(for example around Keynes allegedly pro-Nazi preface to the German edition of the General Theory)."

    Well now you're just trying to ingratiate yourself to me :)

  26. What amazes me about Austrians is how blind they often are to the disgusting way they interact with people. Is it LvMI? Have they intentionally bred a dogmatic, rude internet army to pervade the web? Bob Murphy and George Selgin are the only Austrians I can debate without feeling physically violated.

    They also seem to live in a freedom hating parallel universe where Keynesianism only survives because of state subsidies by evil politicians who just want to keep spending (funny, I could have sworn they are all trying to outdo each other on spending cuts).

  27. "Ultimately you're doing exactly what Hayek was doing..."

    Yeah, you're right, because we both have a different philosophical position than you do Daniel. The breakdown and reform of the welfare state is part of a spontaneous order; its creation is due to different forces of ordering social life.

    "But he found that could be challenging..."

    In a system that took from him resources so it could make decisions for him, yes. There are a preceding set of facts after all. Your narrative only works by ignoring this inconvenient fact. But you know facts are stubborn things.


    Well put.

  28. Cahal,

    What I find amusing is the persecution complex that is common across the economic discipline (which of course other academic fields share), no matter what economic ideology is involved. I wonder if a sociologist has ever done a focused study on the in-group and out-group dynamics of economists.

  29. One more quick point. You seem to be confusing "principles" with "theory".

    In none of Hayek's writings do you find criticism of individuals making use of public facilities. What you find is criticism of the incentive structure and selection mechanism.

    In fact, if Hayek had rejected public facilities, that could be interpreted as being more in conflict with his theory than had he not, as this would suggest that individuals will not exploit opportunities when presented.

    The point is that this has nothing to do with principles - I'm not sure how you've come to that conclusion.

  30. edarniw,

    You just won the thread I'd say.

  31. eardniw -
    My read of that chapter is that he presents a great deal of both theory and principle. Perhaps you read it differently, but I'm not seeing that.

  32. This comment has been removed by the author.

  33. It looks like Daniel is the one who deletes posts ....

  34. I'm done being trolled by you, Daniel.

    You can't repeatedly put words in my mouth, and then deny doing it, you can't keep pretending not to have read may positions which you then report as something else, and you can't delete my comments here pointing this out, etc. and still find a welcome invitation to my blog.

    Time is too limited to deal with such nonsense, reading incapacity, dishonesty, or whatever it is.

    I've marked your comments at my blog as spam, and I will not be coming back here.

  35. re: "It looks like Daniel is the one who deletes posts ...."

    I most definitely have a commenting policy that I've made no secret of. If you have a comment that does nothing but fill my comment space with several lines of insults, I'm not going to keep it.

    If you continue to make assertions about Hayek that are relevant to the content of this blog, I'm going to continue to critique them here. You haven't answered any of my criticisms of you and more importantly you haven't offered any counter-argument to my interpretation of Hayek on Social Security. Don't get upset when people note that you aren't contributing any viable arguments to the conversation.

    re: "I've marked your comments at my blog as spam, and I will not be coming back here."

    That's unfortunate because nothing I have said on your blog - not a single thing - amounts to spam or trolling. I've kept it entirely substantive and provided evidence for all my claims. If that's how you want to run your comment thread, that's your business but I consider that unfortunate.

    You are, of course, always welcome at Facts and Other Stubborn Things. And of course if you post other comments that do nothing but insult me or my commenters, I will delete those in the future too.

  36. If you do happen to come back here, I'm still interested in an articulated argument as to why my understanding of the chapter is wrong. I have yet to see that from you.

    To reiterate, it seems clear to me that:

    1. Hayek supports a social safety net

    2. Hayek does not support any of the Social Security, national health, or welfare programs existing in Western Europe or the United States.

    3. Hayek does not support them because of their socialist and totalitarian qualities

    4. Hayek wants them gone and wants his prefered social safety net in place.

    These four points seem to be EXACTLY what the chapter says, and so I don't see anything wrong with what Levine and Zernike wrote.

    If you can show me how I'm wrong in this four point interpretation WITHOUT yelling about how I "spread bullshit" and am "pathetic", I would appreciate it.

  37. Daniel-

    Why don't you like single-payer? It works well and is popular everywhere they have it (including here). The best criticism of it would seem to be that it is less efficient than NHS/VA-style systems.


    What have you got against yellow journalism and pornography? I should think that libertarians would see the value of both.

  38. FWIW: According to Rasmussen only 34% of Americans as of 2010 favored single-payer.

    FWIW: Politifact stated this in 2009:

    Only four countries have single-payer plans, the rest of the world does something else. Indeed, the only non-Anglophone nation to have single-payer is Taiwan.

  39. Gary-

    And what percentage of Americans favor Medicare? How many would favor its abolition if told that it is a dreaded "single-payer" system?

    If we're going to consider the systems in continental Europe not to be single-payer, then I'll modify the claim: public health insurance, whether single-payer, Bismarck, or Beveridge, works well and is popular everywhere they have it, including here.

  40. I dunno.

    Medicare clearly isn't a single-payer system, since people supplement it with health insurance from the private market.

    Single-payer means an abolition of private health insurance. Most of Europe works rather differently (see Switzerland).

  41. Hayek's concern wasn't the level of redistribution, but whether funds were being designated for specific groups in such a way that fit someone's conception of how society "should" look like.

    The Constitution of Liberty is still confusing on these points. I would recommend looking at the third volume of Law, Legislation, and Liberty if you wanted something clearer. Ransom is mostly right.


All anonymous comments will be deleted. Consistent pseudonyms are fine.