Hayek To Olson: Democratic Sclerosis

Via @Openworld, Amity Shlaes in Bloomberg Markets:

“‘Emergencies,’” Hayek wrote, “have always been the pretext on which the safeguards of individual liberty have eroded.”

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For a number of decades the main thing about Hayek seemed to be that he was wrong. Britain did head to the left, far to the left. After the war, the U.S. also institutionalized government planning in new areas. Yet neither Britain nor the U.S. went socialist or trampled personal freedoms.

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But this low estimation of Hayek fails to appreciate his central thought: the economic damage is subtle and is evident only over time.

Expanded health care, which the Democratic-controlled Congress is attempting to adopt, provides the best example. In 1964 the Democratic Party platform document contained a passage on health care. “We will continue to fight until we have succeeded in including hospital care for older Americans in the Social Security Program and have insured adequate assistance to those elderly people suffering from mental illness,” the platform said.

At the time, the idea seemed radical. Something beyond Social Security for seniors? This was the new, final benefit. But once a hospital-care program was in place lawmakers decided that wasn’t enough, and added doctor visits to the benefits list. In later years they expanded yet more, including, under President George W. Bush, the inclusion of Medicare Part D and prescription drugs in the offering.

Hayek’s Prescience

Even that didn’t suffice, which is why House Speaker Nancy Pelosi and Senate leaders are trying to ram through a vastly expanded public health program this month. The various health- care bills, with their proposed mandates on individuals and their new taxes on wealthy earners or on gilded health-insurance policies, are probably something Lyndon Johnson himself never envisioned.

But Hayek did. Hayek understood that a good decade where government expansion seems to stall — the 1990s — doesn’t mean government won’t expand when the next crisis comes.

The recent pattern of following a war and a financial collapse with the creation of a new entitlement is a perfect example of the Hayekian dynamic in action. No doubt, a new health-care program would be only the first in a number of government incursions, no matter how Republicans do in the midterms.

Amity’s analysis is excellent, but at the end she veers off-track, failing to pursue her ideas to their inevitable depressing conclusion:

Hayek was such a dire fellow that many tend to resist his ideas. Even those of us with serious concerns at seeing a great portion of the economy tip into the public sector were buoyed this weekend by the anniversary of the fall of the Berlin Wall. If a big thing like the Wall can come down, then surely it won’t be impossible to kill off a small thing like the surtax on gold- plated health plans.

I and plenty of others think that Hayek is wrong. The U.S. won’t necessarily tip into socialism. It will eventually again embrace markets. Too bad we’ll all have to endure the long wait to find out if we’re right.

The Berlin Wall fell because the barrier to customer choice could not hold up against consumer pressure. It was a victim of competition, beaten fair and square by democracy. But there is nothing yet effectively competing against decaying Western social democracies, nor will there be until we open the next frontier. Just like any huge entity which would rather focus on enjoying its power rather than innovating and competing, the US will not embrace markets until it has to.

Unless you have some specific theory as to why things will move in a good direction if good people don’t act, waiting is not much of a strategy. In this case, unfortunately, theory says the opposite. The time for waiting is over.