In the last section of my intellectual autobiograph I outlined my evolving views on political issues as of 1990. I still stand by most of what I said there except that I would no longer describe myself as a follower of Hyek — J.S. Mill yes but Hyek no. The essay was written at a water-shed time whose importance I did not then appreciate. The 1970s were the high water mark of a number of liberal social experiments that went wrong. For examples, the governments of many European countries, including those of the UK, adopted a series of labour market “reforms” that built in rigidities that seemed sustainable in the golden age of the post war boom but which quickly went sour when dramatic changes brought on by the ICT revolution required major adjustments in the economic structure, including labour markets. Also, in the 1970s, the UK labour government in a vain attempt to control inflation by legislative fiat granted increasingly onerous powers to labour unions to gain their acceptance of the wage restrictions that were a major part of their income policies. Among the concessions was government support for spreading closed shop agreements. By the late 1970s, strikes of increasing frequency and violence were spreading in the UK threatening, it seemed to many, the very social fabric. In Canada, the unemployment insurance scheme had been diverted from its original objective of providing insurance against cyclical fluctuations in employment to providing permanent support for depressed areas particularly in the Maritime provinces.
In the 1980s, the Thatcher government the UK and the Tory government in Canada undid some of the most harmful of these measurers. But the conservative movement went much further in a typical swing of the pendulum which starts in the right direction but then overshoots by swinging way past center. By the early 2000s, conservative governments in many market economies had gone well beyond dismantling failed social experiments to dismantling many of those with proven success records.
Then, aided and abetted by orthodox neoclassical economists who overstressed the virtues of a market economy turning it into a model of perfection, a major attack on stabilization policy, the social safety net, and many political freedoms gained strength. The great crash late in the first decade of the 21st century should have spelled the end of free market worship. But instead, as so often happens, many argued that the failure of their policies (following from right wing market worship in this case) was caused by not going far enough in the wrong direction rather than going too far.
So right now it seems to me that we need to accept that
- market economies are the best of all known alternatives;
- market economies are very far from perfect and need major regulation from governments to control their excesses, including speculative booms and busts and the economic power that it confers on large businesses and the very wealthy;
- major social safety net measures should be an important part of the social contract in any market economy and they constantly need to be surveyed so that failures can be eliminated, while those that are successes can be strengthened;
- Keynesian demand-management policies are required to alleviate major recessions such as were being suffered by most western economies at the beginning of the second decade of the 21st century. This was more difficult than it should have been because the need for strong stimulus came after many government, particularly in the US and southern Europe, had gone on spending binges that ran up large debt/GDP ratios.