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April 13th 2010 print

Greg Lindsay

Robert Manne’s bad economics

Manne held Hayek responsible for everything from the collapse of the derivatives market to some colourful rhetoric of Sarah Palin and Rush Limbaugh. It probably needs the analytical skills of an historian to make sense of all this.

In the introduction to the 1982 publication The New Conservatism in Australia edited by Robert Manne, the editor admits ‘to having no competence in economics whatsoever’.  That has not stopped him from inserting himself into various debates about economic issues ever since. His dismal record was highlighted in the book Shutdown from 1992 that he co-edited, which declared that economic reform had failed in Australia and that ‘the most important contemporary example of economic success is Japan’, and, well you can guess the rest. The fact that Australia is now the strongest OECD economy and on the various scales of economic freedom, quality of life and prosperity, pretty much leads the way, seems to have escaped this academic Nostradamus.  Sure, there is room for improvement and our modern democracy exhibits the usual tussles over how this might be done, but no serious observer challenges the moral and economic power of the market.

Well, I’m mostly right.  An outbreak of less serious commentary began with the setting up of a straw man some years back called ‘neo-liberalism’.  It’s a term that started to appear in its latest manifestation in Australia more than a decade ago.  We at CIS decided that it was essentially being used as a term of abuse and we would not succumb to the intentions of its promoters. We couldn’t quite work out what it really meant anyway.  In the lead up to the 2007 election,  then opposition leader Kevin Rudd added his five cents worth and, with some other essays since then,’ neo-liberalism’ and ‘market fundamentalism’ marched hand in hand.  ‘Economic conservatism’ seems to have been trampled in the parade.  My colleague Oliver Hartwich tried his best to clarify the issue and in fact showed that the now Prime Minister was in fact a ‘neo-liberal’.

Of course the Global Financial Crisis gave neo-socialists of all kinds a whole new field to play on, and so they have.  Professor Manne, highlighting his lack of expertise in economics once again, is back in print, this time in The Weekend Australian recently with an extract of a chapter in a new book he has edited with David McKnight.  What’s regrettable about this piece is the tone Manne’s chapter exhibits.

We at the CIS admire greatly the work of F.A. Hayek. That’s no great surprise. Indeed there’s a long list of thinkers we admire stretching right back to the founding decades of the Enlightenment. The ideas of such people have taught us much and have laid the groundwork for the prosperity and freedom we see today, especially in the West.  In his recent essay, Manne attacked Hayek personally. He held Hayek responsible for everything from the collapse of the derivatives market to some colourful rhetoric of Sarah Palin and Rush Limbaugh. It probably needs the analytical skills of an historian to make sense of all this.

Manne’s tasteless remarks about Hayek and his philosophy of liberty, however, show to some extent what liberals are up against these days. The financial crisis is eagerly interpreted by the opponents of liberty as ‘evidence’ that free markets don’t work. The troubles in financial markets serve them as a new justification for more government control, whether it is in US health care or Australia’s new broadband network.

The mistake Manne and his neo-socialist friends are making is twofold. First, they are ignoring the role that state institutions like government-owned enterprises, regulatory regimes and central banks played in the build-up of the crisis. Governments failed at least as much as markets may have.  Second, liberals have never argued that their philosophy would create heaven on earth. With free markets it’s a little bit like with democracy, to paraphrase Winston Churchill’s famous dictum: They are the worst form to coordinate human activity bar all others. Markets can be a messy business with ups and downs. Yet given the right institutions, they generally work rather well.

Markets are not perfect and few economists would argue that they are, but then again nothing on earth is.  Even though utopian dreamers may believe in the omnipotence and benevolence of government, history teaches us that such belief has often led to disaster. Or, as Hayek has argued, they lead us down the slippery road to serfdom.

The current neo-liberal straw man is just that, a straw man, and should be given no credence. Markets are not going away. Yes, some institutions in some countries may have been inadequate and can be improved.  Many might learn from Australia in that regard and I hope they do.  And that of course is not to say that institutional arrangements here are beyond consideration for improvement to the benefit of all.

Just one last word on Hayek.  One of his lasting legacies was the founding in 1947 of the Mont Pelerin Society, an international organisation  of economists, political scientists and others interested in furthering the ideals of a free society. It has had in its membership some of the world’s foremost intellectuals, including eight Nobel Laureates in economics, Hayek himself being one.  Details can be found at www.montpelerin.org.  Its 2010 General Meeting is being held in Sydney in October, only the second time a General Meeting has been held in the southern hemisphere.   At each such meeting, an F.A. Hayek Essay Competition is held with prizes including attendance at the meeting with assistance for travel and accommodation.  Details are below.

The MPS conference will bring to Australia some of the world’s leading scholars of liberty and will be a symbolic and cogent reminder to those who still forget so many lessons from history.

Crossposted from e-PreCIS, April 2010

Greg Lindsay is the founder and Executive Director of The Centre for Independent Studies.