Easterly on Fukuyama

by Russ Roberts on May 9, 2011

in Hayek

Bill Easterly does a nice job on Fukuyama’s claim that Hayek’s confident distrust of government made him unHayekian. Easterly sums up his argument this way:

Hayek’s skepticism about government was NOT based on his certainty, as Fukuyama would have it, but on his awareness of his ignorance. (and everyone else’s)

Don’s reactions to Fukuyama are here and here.

Here is Fukuyama’s concluding paragraph:

In the end, there is a deep contradiction in Hayek’s thought. His great insight is that individual human beings muddle along, making progress by planning, experimenting, trying, failing and trying again. They never have as much clarity about the future as they think they do. But Hayek somehow knows with great certainty that when governments, as opposed to individuals, engage in a similar process of innovation and discovery, they will fail. He insists that the dividing line between state and society must be drawn according to a strict abstract principle rather than through empirical adaptation. In so doing, he proves himself to be far more of a hubristic Cartesian than a true Hayekian.

My take on this is that trial and error is indeed a great way to make progress as long as there is a mechanism for generating the trials and a mechanism for choosing which are the errors, rejecting those, and moving forward. What is the mechanism for rejecting errors in the political system? The Edsel is dead. New Coke, dead. Corfam shoes, pretty much dead. Big SUVs, pretty dead for a while until gas prices go south. Phones the size of WWII walkie-talkies, dead. Big mainframes the size of a warehouse, dead. Shirts that need ironing, on their way out. They survive because they’re cheap. That’s fine. Gives people a choice. The market culls losers and shunts them off to the side or keeps inferior products around if they’re cheap enough to make someone happy.

How good is the political system at culling losers? Not great. Not horrible–really really bad ideas do get shunted to the side–communism isn’t real popular right now. Price controls on gasoline aren’t on the table. That’s pretty good. But we do have price controls at the state level for items after a natural disaster. We do have price controls rampant throughout the medical system. How about ethanol? Even Al Gore thinks ethanol subsidies are a bad idea. There is talk about getting rid of them. We’ll see. Or sugar quotas. Still here. They benefit a few American families and punish the rest of us.

I think it’s Hayekian to be skeptical of systems where feedback loops don’t work very well. “More from the bottom up or more top down?” More bottom up, please.

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kyle8 May 9, 2011 at 4:57 pm

A small quibble, in politics, no idea is ever bad enough not to be brought back. We have nearly 5000 years of recorded history to prove that price controls are a total, unmitigated, abysmal failure and yet they still pop up every once in a while.

Methinks1776 May 9, 2011 at 5:11 pm

They’re still around in a less direct form. For instance, there are a myriad of regulations from price tests to shorting and buying restrictions meant to influence securities prices without directly setting the price. Like price controls, though, these regs inhibit price discovery. And that’s just one example.

Joshua May 9, 2011 at 5:00 pm

We have awful dairy quotas here in Canada. A licence to produce milk costs millions.

Russ Nelson May 9, 2011 at 5:35 pm

Price controls also exist in the form of quantity controls. And you see them in the form of NYC taxi medallions. Or hairdresser licensure. Or mortician licensure. Or building codes, which specify installation by licensed practitioners.

Joshua May 9, 2011 at 5:50 pm

As a former electrician, you want certain trades people to have a demonstrated level of competency. Now, are these guilds (including the medical association, all professional associations) too havy handed? Should I be able to teach your classes? ;)

Don Boudreaux May 9, 2011 at 5:57 pm


It’s not up to Russ Nelson who takes his classes. That’s up to his students and potential students. The question is not “who should be allowed to teach Prof. X’s class?” Instead, the question is “Why not let people – students, customers – choose whose classes they wish to take and whose classes they wish to avoid?” There’s no need for state intervention on this front.

Joshua May 9, 2011 at 6:26 pm

I would say It isn’t the state, but rather the insiders of the particular profession who self regulate and self protect vs compitition. They use the political process to further their aims in this. In Columbia for example, any student can pay for med school instruction and challenge the exams. THAT would be a libertarian way to control health care costs, rather than phasing out medicare.

Methinks1776 May 9, 2011 at 8:38 pm

Do you not understand how medicare affects the price of health care?

John V May 9, 2011 at 6:07 pm

Your POV fails to appreciate how the market process forces market-based institutions to evolve that address aspects of information in economic exchange that go beyond the most elementary level….in this case…account for informing customers of credentials.

You basically need to start by asking logical questions about what YOU would do, as a consumer, without certain publicly enforced arrangements like licensing. That opens a pandoras box that we can take out, perhaps, to a few logical, common-sense steps. You can start to see how things will evolve to address concerns and obstacles.

Economiser May 9, 2011 at 6:52 pm

Exactly. Look at the fields that are relatively free of government regulation and think of how you choose products or services in those areas.

I’m looking to buy a new computer. There are no licenses or government certifications that ensure quality. But there are reputations (of both the manufacturer and the retailer), recommendations from friends and colleagues, and any number of objective private parties that provide reviews and guides.

The market has an amazing ability to come up with solutions on its own…

John V May 9, 2011 at 6:25 pm


As a follow-up on my previous comment about appreciating how markets find solutions to information problems:

Ever wonder where the credit score came from? Most people probably don’t. People just take it for granted that these things just “happen”. Well, they don’t. It’s not that old but it’s logical to see that as lenders sought to make more loans in an ever wealthier country, pressure to find a solution to make these decisions clearer for the lender mounted. Enter FICO score.

Markets produce solutions when left to evolve…in this case: information for lenders. It’s safe to assume that in an alternate world where the history of lending and approval/denial was more strictly dictated by public policy, such an organic solution would not have evolved. Now, the fact that government has become increasingly involved in influencing the lending industry has forced evolution of lending practices in different directions that lead us to where we are today….for better and worse and both.

Ken May 9, 2011 at 6:26 pm


“Should I be able to teach your classes?”

If only we had some sort of non-state mechanism to determine the quality of a product, some sort of profit or loss system, to determine who was good at what and who wasn’t.

You are more than welcome to start up an economics class and have people enroll. The question isn’t whether you can teach an economics class, the question is whether people will pay you to teach them economics. Once people realize you don’t know what you’re talking about, very few will take classes from you.

Also, I’m sure I know more about electricity than most electricians, particularly since the last electrician I worked with actually told me that electricity was just a theory, when I questioned his grounding methods. However, since I am not licensed with the state of Maryland, I am not even allowed to add a circuit breaker to my circuit breaker panel in my house, as if this were some difficult and engaging activity. Why should I be forced to pay someone to do work that I all ready know how to do?

In other words, licensing isn’t about quality as you’re implying with your “level of competency” as many licensing requirements are about time spent learning rather than testing actual knowledge. In Maryland “To qualify for the exam you must have seven years of work experience under the supervision of a master electrician or similarly-qualified person.” In other words, how much you actually know and how capable you are isn’t nearly as important as spending seven years under that supervision of some dude who is going to claim electricity is just a theory.


Joshua May 9, 2011 at 6:32 pm

grounding is overrated

HaywoodU May 9, 2011 at 6:44 pm

Tell that to a patient lying on a surgical table with hundreds of amps surging around them.

Ken May 9, 2011 at 8:45 pm


Maybe, but I don’t want to be the ground for 120 VAC. And it still doesn’t negate my comment about licensing. There can be no doubt that licensing for the most part is about keeping competition out, not for a “demonstrated level of competency.”


Joshua May 9, 2011 at 9:02 pm

You can still become part of the circuit even if its grounded. Grounding is mostly to reduce the risk of fire.

Joshua May 9, 2011 at 9:07 pm

But yes you are correct, you dont want that.

Methinks1776 May 9, 2011 at 9:15 pm


I know plenty of really crappy licensed:

Drivers (good Lord there are enough idiots on the road!)
Nail techs

How do you explain that?

Joshua May 9, 2011 at 9:37 pm

I’m not saying it’s a very good system. I said you need some way to filter people out, which is mostly abused as is now.

Methinks1776 May 9, 2011 at 9:52 pm

Private certification and word of mouth.

Cheaper and more reliable. Whether buying cars of dishwashers, I’ve relied on the recommendations of Consumer Reports and I’ve never been disappointed or surprised.

My contractor, architect, real estate agent, electrician, plumber, doctor, dentist, hair stylist and nail tech were all word of mouth. That they are certified by some government body tells me nothing. I suspect you don’t settle on the first dentist you see in the phone book either.

vidyohs May 10, 2011 at 10:21 am

Re: The unbridgeable rift between the looney left and the righteous right, the collectivist Vs the individual.

This rift is again made clear by the sudden appearance of Joshua, who in fact could be the muirduck using a new nametag.

It is a paradox that if one listens to and reads the words of the looney lefty with as much objectivity as possible, I believe that those on both sides of the rift all see, complain about, and fear exactly the same things.

The rift is created because both sides of the rift see the cause and solutions in exact reverse.

The righteous right see the problems being caused by control and the solution being freedom.

The looney left sees the problems being caused by freedom and the solution is control.

The rift will remain.

As for the idea of guilds and unions, I personally see no problem with having either, with the following provision: That they be purely privately organized and administered, freely joined, self policing, and with no standing in government that any other individual would have.

The problem with guilds and unions, we on the right side of the rift all know, is that they used political influence to gain government backing and have thus gained semi-official status vis-a-vis their relations (the right to the coercive power of government) with employers and the public.

W.E. Heasley May 9, 2011 at 5:35 pm

“He insists that the dividing line between state and society must be drawn according to a strict abstract principle rather than through empirical adaptation.” – Fukuyama

Hmmm. Society? Talk about abstract!

Hmmm. State? More abstract.

Lets help Fukuyama: “He insists that the dividing line between [politicos through the mechanism of government and the free thinking individual living in an economy based on private property rights with the rule of law]…..”.

Upon leaving Fukuyama’s purposely abstract world, the world he insists upon has “strict abstract principle” and identifying the real flesh and blood humans, we find Fukuyama was merely making an abstract argument in order to find an abstract conclusion.

John V May 9, 2011 at 5:55 pm

Well said.

People who don’t think about such things take for granted (and often seem unaware of) how much stuff evolves and changes or is simply phased out through innovation and competition.

And while this is a powerful argument that speaks for itself in matters concerning many consumer goods that are generally left to the market, it’s still a powerful argument for many goods and services provided by or significantly controlled by the government:

-Health Care
-Financial Regulation and institutions that evolved therefrom

3 big examples of services that always have a lot of tension about them and are very political. Their anatomy and evolution are also heavily influenced by public policy.

So, even though we can use the same logic for these heavily politicized services that we use for ever evolving and improving goods (or defunct goods) at the mercy of the market and choice, it’s harder to explain because the part involving consumer goods that “speaks for itself” isn’t as obvious for these government controlled services. It takes a degree of logic by association that many refuse to trust.

Kurlos May 9, 2011 at 6:29 pm

I’m can predict that no one can predict the winning lottery numbers, therefore I deeply contradict myself?

Kurlos May 9, 2011 at 6:30 pm

I can predict…

Paul Marks May 10, 2011 at 7:32 am

Some works on exactly how the government not a free market (contrary to F.F. and the New York Times) caused the economic crises should have been cited.

Thomas Woods’ “Meltdown” (on the general background) and Thomas Sowell’s “The Housing Boom and Bust” (for the specfic area of housing) will do as a start.

hayseed May 11, 2011 at 12:56 am

Part of Hayek’s counter would dipute Fukuyama’s claim that governments and individuals engage in a “similar process of innovation and discovery”.
Governments take the resources from the individual, preventing his efforts and the expend those resources on State “trial and error”
There is a vast difference between the two.

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