Tag Archives: soros

Soros on Hayek

George Soros spoke about Hayek at a Cato forum today. I didn’t attend, but I did read this excerpt that Politico put up an hour or two before the event. Soros does a pretty good job of slaying a straw man. Hayek’s actual ideas, however, remain intact. As it turns out, the two have a lot in common.

Soros points to Hayek as a believer in perfect competition, and perfect knowledge. That is, buyers and sellers have perfect knowledge of market conditions, can buy and sell in unlimited quantities with zero transaction costs, etc.

Economists commonly assume perfect competition in their models for purposes of simplicity. Soros rightly points out that this is thoroughly unrealistic, and should not be taken too seriously.

The trouble is that Hayek spent almost his entire career pointing out that, just like Soros, he believes perfect competition is a fiction. In Individualism and Economic Order, he points out that if such conditions came true, the world would be static. Nothing would ever change.

Markets change and adapt every day because people are finding out new information and acting on it. If everyone already knew all relevant information, nobody could find out new information. They’d already have it. Perfect competition means a permanent, unchanging equilibrium.

The real world is anything but equilibrated. Therefore, perfect competition does not exist. Case closed.

Hayek’s most enduring contribution is the Knowledge Problem, which is the very opposite of perfect competition. For Hayek, the economy is so complex and so dynamic, that no one person can possibly understand it well enough to direct it.

Distant regulators, no matter how smart, can never have a good enough command of the facts on the ground to come up with a better outcome than the people actually buying and selling in the economy.  Everyone has a tiny sliver of specialized knowledge that nobody else has, and they act on it.

The best policies are the ones that let people act freely. Shortages and surpluses are revealed faster. Resources flow more quickly to the people who need them the most. That’s why Hayek supported free markets. He never said they were perfect. He did say they worked better than top-down alternatives because of the Knowledge Problem.

Soros and Hayek completely agree in rejecting perfect competition as a useful guide to policy, and on the chronic instability of markets. Where they differ is that Hayek actually rejects perfect competition more strongly than Soros does.

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Disclosure and Campaign Finance

Regarding my last post on the ill-fated DISCLOSE Act, commenter Ben Hoffman writes:

How the [expletive] is disclosure “abridging freedom of speech[?]” There’s nothing wrong with knowing who paid for an ad, especially when it contains lies.

Ben raises a good point, if not very tactfully. The answer to his question is that freedom of speech includes the right to make speech anonymously.

Politics is such a combative sport that even donors are viciously attacked by the other side. Think of how Republicans treat George Soros. Now think of how Democrats treat Charles and David Koch. They are punching bags.

This is a deterrent to speech. It has a chilling effect on people who want to have their say, but would prefer not endure those ad hominem attacks. Or in some cases, threats of physical violence. People like Soros and the Kochs have much thicker skin than most people to endure all the ad hominems thrown their way on a daily basis. Think of how many potential donors stay silent because of that. How much speech is left unspoken?

Supporters of California’s wrong-headed Proposition 8 to ban same-sex marriage feared physical retaliation for their political donations when some activists published the names and addresses of donors who supported the measure, along with unsubtle hints that they deserved retaliation. Opponents of same-sex marriage are wrong on the merits of the issue. But they do not deserve to be threatened for being wrong. For them, the right to remain anonymous is a key part of respecting their freedom of speech.

Mandatory disclosure actively harms the right to free speech. It would cause a lot of people to stay silent when they would rather speak. That is wrong.

But that isn’t commenter Ben’s only concern. He worries that anonymity would embolden people to tell lies in political ads. Would it?

After all, under today’s partial disclosure system, both parties already tell plenty of lies in their ads every election cycle. Partisanship trumps truth for Republican and Democrat alike. But that does not mean that therefore, more disclosure is needed.

Ads that contain the real names of donors are taken with added credibility by people. Anonymous ads are taken with a grain of salt. And sometimes for good reason. That means anonymity has a cost. People hold an anonymous message to a higher standard before taking it seriously. Shockingly, voters are smart enough to come to their own conclusions.

According to the law of demand, raising the cost of anonymity means there will be less of it. If an anonymous ad has less impact of an otherwise identical disclosed ad costing the same amount of money, any rational donors will disclose their names unless they place very high values on avoiding Soros-Koch-style attacks. And if they feel that’s a fair tradeoff for reduced credibility, that’s their right.

There are already plenty of regulations for truth in advertising, libel, and the like. Let’s try doing a better job of enforcing those instead of passing more restrictions on the right to free speech.