Election Economics: Meeting Paul Ryan’s Economic Muse
People tend to ask, “Who??” when Friedrich von Hayek is named as Paul Ryan’s economic muse. Our purpose right now is to get to know some Hayek basics to see what Ryan brings to the Romney/Ryan candidacy.
Austrian born, a naturalized British citizen, a University of Chicago professor, Friedrich von Hayek (1899-1992) was an economist who saw firsthand the Austrian hyperinflation that followed WW I. Working for the Austrian government, in just 9 months, through 200 pay increases, Hayek blamed government when his salary rose from 5,000 kronen to 1 million but his buying power remained the same. At the London School of Economics, supporting less government, during the 1930s and through the war, he debated John Maynard Keynes (1883-1946; an advocate of government stimulus programs for an economy in depression).
Thinking of Hayek, we can remember two words: prices and freedom.
- Hayek believed that prices provide crucial information. In a market economy, millions of individuals use prices to figure out value as they make decisions about what to produce and what to buy. Without markets, there are no prices. Without prices, there can be no data on which to base production and distribution decisions. Any attempt by government to do central planning was futile because government could not possibly gather the countless bits of pricing information that millions of businesses and consumer use to make individual decisions.
- Hayek said that economic freedom could not be separated from political freedom. Whenever government curtailed the right of the individual to use prices to make buying and selling decisions, it was limiting a fundamental right.
As a result, though, Hayek challenged the world’s idealists and optimists by saying you cannot use government to make the world a better place because it will not work. Since government cannot have the (price) data to make the appropriate decisions that only countless individuals separately know, it will ultimately create huge problems like the Austrian hyperinflation that following the WW I.
As the Chair of the House Budget Committee, with Hayek’s ideas as some of his rationale, Representative Paul Ryan (R-Wisconsin) has sought to diminish the healthcare role government is playing through Medicare and Medicaid. In future posts, we will look at the specifics.
My Sources: I started getting to know Paul Ryan through this New Yorker article and an NPR Fresh Air podcast interview of Ryan Lizza, its writer. To become more familiar with Friedrich von Hayek and his most famous book, The Road to Serfdom, I read Nicholas Wapshott’s Keynes Hayek: The Clash That Defined Modern Economics and Sylvia Nasar’s Grand Pursuit The Story of Economic Genius. For a much shorter bio, I suggest econlib summary of Hayek and his ideas.
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