Recommended economics writing

"But we see no reason for thinking that the opinions of the magistrate on speculative questions are more likely to be right than those of any other man. None of the modes by which a magistrate is appointed, popular election, the accident of the lot, or the accident of birth, affords, as far as we can perceive, much security for his being wiser than any of his neighbors. The chance of his being wiser than all his neighbors together is still smaller . . . "

from Thomas Babington Macaulay’s 1830 essay “Southey’s Colloquies on Society.” http://www.cafehayek.com/

After Keynes read Hayek’s “Road to Serfdom” he told Hayek that he agreed with pretty much everything in the book. However, he didn’t think socialism would lead to tyranny as long as the right sort of person (meaning him) was in charge.

That highlights one of the main differences between socialists and libertarians. Socialists put all of their trust in enlightened leaders, as they did in President Obama. That has been true since socialism’s founding by Saint-Simon in early 19th century France.

Essential socialism is the idea that the masses are too stupid for their own good. Progress can only be achieved by having enlightened leaders dictate behavior to the stupid masses.

Libertarians have much less confidence in leadership and more confidence in the masses. For libertarians, freedom happens only under the rule of principles, not the rule of enlightened despots.

And the main reason for fear of leaders and the desire to restrict through principles and rules (like the Constitution) what leaders can do is the realization that there are no enlightened leaders. Leaders are no smarter than the people they come from.

More specifically, leaders don’t have and can’t get the knowledge they need to direct the economy. That’s especially true of monetary policy. That knowledge is too particular, widely dispersed and voluminous for the Fed to even begin to have what it needs to make good decisions, no matter how smart the leader.

Socialists suffer from what Hayek called the “Fatal Conceit” that they know more than they know and control more than they can control. As Friedman used to say, the lags between policy and effect are too long and variable for the Fed to be able to micromanage money.

Bampbs, so why hasn't it succeeded? The history of the Fed proves that it has been procyclical most of the time.

If there is anything in this world that requires good judgment, breadth of understanding, inspired guesswork and an open mind, it's running monetary policy. Only genuine expertise can succeed where rules fail.