Monday Hard Copy:
Political Economy
22 July 2013

¶ In the Times, Paul Krugman argues against likening the mess in Detroit to the mess in Greece.

So was Detroit just uniquely irresponsible? Again, no. Detroit does seem to have had especially bad governance, but for the most part the city was just an innocent victim of market forces.

What? Market forces have victims? Of course they do. After all, free-market enthusiasts love to quote Joseph Schumpeter about the inevitability of “creative destruction” — but they and their audiences invariably picture themselves as being the creative destroyers, not the creatively destroyed. Well, guess what: Someone always ends up being the modern equivalent of a buggy-whip producer, and it might be you.

Sometimes the losers from economic change are individuals whose skills have become redundant; sometimes they’re companies, serving a market niche that no longer exists; and sometimes they’re whole cities that lose their place in the economic ecosystem. Decline happens.

This is Krugman’s latest proxy fight with the austerity hawks, and we’re very much on his side. But there’s more to Detroit than the funding of pensions. Owing to the flight, long ago, of Detroit’s upper-middle class to the suburbs to the north, Detroit’s economics became entirely divorced from its politics. The people who ran the economy did not live in the city, and eventually they sent the economy elsewhere. Imagine New York City without Manhattan! “Decline happens” is a lazy way of overlooking the same piece’s observations about Pittsburgh.

¶ Sadly behind the paywall, “Mountain Views,” Kim Phillips-Fein’s review of a new book about Friedrich Hayek and the Mont Pelerin Society, The Great Persuasion: Reinventing Free Markets Since the Depression, by Angus Burgin, is an engaging essay about what looks to be an important book, for the simple reason that Burgin reconstitutes — recomplexifies — the Austrian economist’s thinking, taking it back from libertarian morons. In passing, Phillips-Fein considers the changes (for the worse) wrought by Milton Friedman at the University of Chicago.

Today, “Chicago School” is shorthand for the aggressive advocacy of free markets and opposition to government intervention. But even the economists who taught at the University of Chicago in the 1920s, ’30s and ’40s were skeptical about capitalism and wary of openly advocating on its behalf. Frank Knight, one of the department’s leading lights (best known for his book Risk, Uncertainty and Profit), feared that market societies subordinated all social values to the quest for profit: “Economic man is the selfish, ruthless object of moral condemnation.” Jacob Viner was sharply critical of corporate bombast: “Nothing in the history of American business justifies undue confidence on the part of the American public that it can trust big business to take care of the community without supervision, regulation or eternal vigilance.” And Henry Simons—the most politically engaged of the three—denounced monopoly power as the “great enemy of democracy.”

Small wonder, then, that Hayek began to believe that if a market society was to survive, it would need a new philosophical grounding. Its defense couldn’t be limited to its ability to produce abundant wealth; nor could its workings be so atomized and individualistic.

It is easy to see now that the Hayek’s many ambivalences were, like everyone else’s, crushed by Cold War polarities.

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