The Hayek Effect: The Political Consequences of Planned Austerity

by alexvanbuskirk

The Hayek Effect: The Political Consequences of Planned Austerity

By Lee Harris @ AEI (May 17, 2012)

…My reading of Hayek, however, convinced me that this was a misleading, naive misinterpretation of the Soviet collapse. The lesson I drew applied not only to Soviet Communism, but to any form of centralized economic planning, including the kind favored under the European model. The problem with centralized planning is not that it makes bad decisions. The problem is that, even if it makes good decisions, these decisions will be made by a group of centralized planners and not by anonymous market forces. When these decisions demand austerity, loss of wages, higher prices, and cuts in social benefits, the people will resist them. And if the people get angry enough, they can bring down the government that has tried to impose an austerity regime on them, leading to both increased economic distress and political instability.

Even if the European austerity programs are right on the economics, they are politically disastrous. An oppressive totalitarian regime might try to impose them on its people against their will, through terror and intimidation, but no democracy can hope to do this. The political revolt in Greece, therefore, is not a fluke, but a harbinger of more revolts to come, along with more economic crises and more political paralysis. It would be absurd to compare the EU with the USSR in terms of their relative respect for freedom and democracy, but it is precisely the EU’s tradition of democratic principles that may well doom it to the same fate that befell the Soviet Union—a sudden and shocking collapse, followed by years of economic decline and political turmoil.

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