On Demand (Part 3, Endnote 378)
From Section V.2E of II.1 ("The Problem of Scale (Part I)"). Considering “The General Theory” of Lord Keynes
Photo by David Martin
378Let us now explore the possibility that Keynes is right about DEH but overly optimistic about the State’s ability to create demand (which would mean WWII helped us out of the Great Depression more so than FDR). This could be the worst of all possible worlds, but I fear it’s a possibility we must take seriously. It could be the case that Conservative economists are correct about the inefficient of the State, while more Liberal economists are correct that the market isn’t always self-correcting. To use Hayek as a placeholder for Conservative thought, it could be that Hayek was right about the State but let’s say wrong about “market self-correction,” while Keynes was wrong about the State but right about DEH.
Keynes believed the government could create the demand needed to keep the market from falling below the DEH or to help the market recover back above the DEH, at which point it would begin taking care of itself again. But if Keynes was right about the DEH but wrong about the possibility of the State creating demand, then that would mean for a society to fall below the DHE would be for the society to fall beyond the State’s help. Thinkers like Hayek were perhaps right that the State theoretically could create demand, but practically they would always fail. Why? Perhaps because the information needed to do this well is too great for the State to ever-garner and/or organize as effectively as price mechanisms; perhaps because political realities will come crashing in and use Keynesianism to justify “The Great Society” of Lyndon Johnson when it only should have justified “The New Deal” of Franklin Roosevelt—numerous possibilities could be presented. Here, it is tempting to deeply review Hayekian thought, but it is my hope that enough of the case has been made throughout O.G. Rose to save us that effort here. Still, I’ll briefly cover three main points from Hayek against the possibility of the State effectively managing and stimulating the economy.
Friedrich Hayek famously argued in his Noble Prize speech, “The Pretence of Knowledge,” that the economy is not an engine we can tinker with and adjust, but a greenhouse that’s conditions we can manage and nothing more. We cannot force a flower to grow, and if we tinker with a seed to accelerate and/or “optimize” its process, we will kill the seed. If we are suffering a famine and need food desperately, there’s nothing we can do: seeds still grow on their own and in their own time. Trying to speedup the process, even if for good reason (to feed people), will only worsen our plight. Thus, to start, Hayek argues that Keynes treats the economy like an engine when really it is like a garden, and that “metaphoric mistake” changes everything.
Hayek’s second key argument against Central Planning is the distinction between what I will call here “general knowledge” and “particular knowledge.” Basically, the point is that I could be Albert Einstein, perhaps the smartest man in the world, but if I don’t work at the McDonalds down the road, I have no idea how many plastic forks I need to order for next week. Einstein’s famous formula E=mc2 is not bound to a particular place and time—it is “generally” and universally true—but how number of forks a McDonalds in Virginia needs to order can be radically different from the forks a McDonalds in California needs to order. The knowledge regarding plastic utensils is contingent and “particular,” and that means I can’t know the knowledge unless I’m embedded in the particularity circumstance in which the particular knowledge can be known. “Particular knowledge” cannot be known without a connection to the particularities which arise to the knowledge (high IQ is no exception), and Hayek’s point is that the vast majority of information that makes an economy efficient is according to “particular knowledge,” not “general knowledge.” This being the case, if a Central Planner consisted of a hundred Einsteins, it wouldn’t matter: the Central Planner would necessarily fail.A
Third, as noted by both Minsky and the great biographer of Keynes, Robert Skidelsky, Keynes held a “Victorian faith” in public servants to do what was right and best for the people, and this was also a few Hayek did not share. In fact, Hayek believed that the more powerful the State became (say to implement Keynesianism), the less likely “good people” would hold positions of power. This is traced out in The Road to Serfdom, the section “Why the Worst Get on Top,” and it’s a line of argument that I myself find compelling. Basically, Hayek argues that the more complex a system becomes, whether a State or corporations, the more it “attracts” the worst kinds of people, because “bad people” like to have power and control others, while “good people” like to leave people alone. The argument is more complex than that but that’s the essence: theoretically, the bigger and more powerful a system becomes, the “more good” it could do, but practically that “greater good” never manifests precisely because the people who end up wielding the power aren’t of the right caliber. But since the potential for “greater good” increases with system size and power, we have “rational” incentive to keep growing systems, which paradoxically, according to Hayek, lowers the probability that any good will actually be done. “But this time is different,” we might tell ourselves. “This time is different.”
These are three powerful points from Hayek against the possibility of Central Planning (though of course much more can be said about Hayek, just not here). Personally, I am extremely sympathetic to Hayek’s argument on the difference between “general and particular knowledge,” as I agree that, on average, “big systems attract the worst people.” I also think Hayek is correct that the economy is more like a garden than an engine. At the same time, even if Hayek successfully demolishes the possibility of effective “Central Planning” (especially before Artificial Intelligence), it does not follow that the “investment multiplier” that Keynes supports cannot work, which please note is what I understand is the lynchpin of Keynes’s thinking. Though a common misconception, Keynes doesn’t want a Central Planner like a socialist: Keynes believes the “free market” is the best system around (as already discussed). Keynes’s point is only that Capitalism isn’t necessarily self-correcting, and that thus the State should play a role to keep Capitalism from falling below the DEH. And I personally am convinced that the DEH exists and that Capitalism suffers terribly if demand dries up. I am also convinced that we need a new morality which favors investment over “mere saving” (like “the bourgeoisies virtues”), and that “the investment multiplier” is very different from “the money multiplier.”
I’m not as sure as Hayek that Keynes treats the economy “like an engine,” but Keynes certainly treats the economy, under certain conditions, like a patient in the Emergency Room. The heart is failing, and the doctors must act quickly: if they’re too slow, the patient won’t come back. The patient doesn’t spend a lot of time in the ER, and if the patient survives, he’ll be able to go back to living his life as if the emergency never happened at all. Doctors will fade into the background for the patient, and it won’t be the case that the doctors will then get to control what the patient eats, when the patient goes to work, how much the patient gets paid, etc. (though the doctor might have “suggestions” about all these). The amount of time the patient spends in the ER is likely less than a week (perhaps even a day), while the other 99% of the patient’s life is spent by the patient doing what he or she so wants. Just because the doctor saved the patient’s life, it doesn’t mean the doctor is now an “omnipotent dictator”; in fact, though the role the doctor played was critical and essential, the role was incredibly small.
Since we have the metaphoric structure of a “Command Economy” in our minds when thinking about Keynes, it’s hard for us not to see the role of the State as “seizing total control” if it were to intervene and save the economy: the image we have in mind is a dictator ascending to power. This metaphoric structure impedes our ability to understand Keynesianism: for Keynes, the State is a doctor who saves the economy during an emergency, but after the emergency is over, the doctor fades into the background. It may be the case that Hayek critiqued Keynes with an improver metaphoric structure in mind, and though I think Hayek is extremely valuable for deconstructing “Johnson economics,” I’m not sure if the critiques equally apply to Keynes. But even if they don’t, it could still be the case that the State cannot create demand, or at least cannot easily create enough of it.
Does Hayek disprove FDR? That’s a better question, but please note that even if Hayek doesn’t disprove FDR, it doesn’t follow that FDR necessarily works. Perhaps Hayek deconstructs Johnson’s State, but it does not seem to me that FDR supported a role of government like we see in Johnson (as didn’t Keynes). So, does Hayek disprove Keynes’s vision of a demand-creating State, or does instead perhaps Keynes prove inadequate on his own terms? Hard to say, but moving forward, please note that I will use “FDR” as a shorthand for the Keynesian idea that the State can create demand, as most prominent in infrastructure spending.
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To cut to the chase, though I am less sympathetic to “money multipliers”—I believe they can cause the inflation and stagflation which Keynes is unfairly blamed for while worsening income inequality—I am convinced of the “investment multiplier” Keynes writes on, and though I think Hayek destroys Central Planners, Hayek does not necessarily deconstruct all efforts of the State to incentivize investment (say through grants) and/or to invest itself (say in infrastructure). Grants and infrastructure spending can perhaps tend toward Central Planning, but this doesn’t necessarily have to be the case. That said, I question how well “FDR’s Program” works after “the low-hanging fruit” of infrastructure spending and grant-gifting run out, which is relative to the complexity and technological sophistication of the infrastructure in question. In other words, even if FDR worked in the 1930s, I’m not sure if it can work in 2020: the capacity of the State to create demand via “investment multipliers” might have an expiration date (relative to the complexity of technology).
To explain what I mean, imagine we are in the middle of a desert. There are no houses or signs of civilization. What would increase wealth? Well, though certainty is impossible in this life, we can take a safe bet that building a house would be a good first step (assuming there are people in need of housing nearby, which again isn’t hard to figure out). Alright, so we build a house, and then we go on and construct a town. Did we increase wealth? Again, if we solved a problem, say homelessness, then we probably did. Now let’s say we build wells for each family, construct some electrical wires, and install heating. Did the new town become more productive? I think it’s fair to “assume” it did, and please note that whenever we are discussing “if we increased wealth or not,” we ultimately will have to make “a guess,” for what constitutes wealth and productivity will always ultimately be somewhat relative and conditional. But we know everyone needs food and shelter, and we also know that electricity opens up possibilities that we otherwise couldn’t access (like the internet and electrical lightening), so it’s pretty obvious that we’ve increased wealth so far and also increased potential productivity. People can’t be very productive when they’re hungry, and it’s also hard for them to get anything done without electricity (or at least efficiently)—this is all obvious enough, and we don’t need a PhD to see that life is better for people with running water. Frankly, the increase in value is practically self-evident.
Now let’s say someone comes in and claims he has an idea. He would like to collect taxes on the town and use the money to build a bridge connecting the two sides of a nearby river. Currently, to plant crops on the other side of the river with the good soil, the townspeople must make a twenty-minute trip to a part of the river where they can cross with cattle and equipment. If a bridge was constructed, the town would save not just forty minutes of travel time each day (and resulting increase in productivity), but forty minutes times the number of people who make the trip. Considering this, the man argues that bridge will pay for itself quickly, and the two agrees. The taxes are raised, and the bridge is built. Was the money worth it? The town feels like it was: lots of time is saved, and the amount of land the town can cultivate is doubled. The citizens are comfortable that they made an investment with their taxes: they can see it with their own eyes.
More taxes are raised to connect the town with a nearby city, but a highway to a place that far away will take more than taxes: the town will also have to go into debt. This makes a lot of the citizens uncomfortable, but at the same time they don’t have an easy way to access the city, and a lot of the young men could find high paying jobs there with each. They debate it for a month, but eventually the town comes around and agrees to taking out the loans with the State government. The town is isolated: everyone can see a highway could have some benefits. The project commences.
The wealth and prosperity of the town multiplies quickly, and there’s little down the construction of the road, houses, and bridge were bad investments. The debts are paid off, and new debts are taken on to start a water treatment plant. This debt isn’t paid off immediately, but the town doesn’t worry about it: as long as productivity is up, the hanging debt doesn’t mean the town is financially insolvent. In fact, a little debt can be a good thing: it gives the town some leverage with the construction companies. One afternoon, a new proposal is offered: everyone should be given an electric washer and drier. The town pauses. Is that really needed? People have been drying their clothes for years outside on a clothesline: what good is a drier going to do? Also, the technology might just incentive people to dirty new clothes more often: if they know they can just throw an outfit into a machine, people will be less careful on how they use the clothes they own. Some members of the town argue the new technologies will cause complacency and carelessness, where other argues that if we don’t have to spend two hours a day cleaning clothes, we’ll have more time to work in the gardens, focus on construction, and spend time with our families. The debate rages on, and eventually the people opposed to the tax raises are won over. An electric washer and drier is provided for everyone in the town, and though most people agree this has increased value and efficiency, some people question it. It was obvious the bridge and road made a difference, but did we actually need these appliances? Trust in the State begins to wane.
Aware of the growing distrust in the State’s discernment, a candidate for governor runs on a platform arguing for a new to repair the bridge and road, and he claims that the spending will strengthen the economy. The townspeople stare at him. “The roads don’t need to be fixed,” someone says. “The bridge is fine.” A few men mummer about how this will be a waste of money. The governor says a lot of cars hit potholes, costing money to repair them and delaying shipments: it would be best to spend the money now and fix the problem. Someone says that the governor won’t “strengthen the economy,” just get it back to where it was when the road was first made. And they have a point: building a road for the first time is clearly an investment which will general multiples, but repairing the same road? That’s not so obvious, even if repairing the road is necessary. Sure, repairing the road might relatively “increase productivity,” for the collapse of the road reduced productivity from 10 to 8, per se, and now we are climbing back from 8 to 10 with repairs. But overall growth has not ultimately increased, because we once had productivity at 10 before the road needed repairs, and all we did was restore productivity to 10. Climbing up to 11 would be “new growth,” but getting to 11 requires doing more than simply “repairing” the road: we must “improve” it. How do we do that? Well, perhaps we change the layout of the paint to allow smoother mergers off the main highway; perhaps we change the traffic flow—there’s are lots of possibilities. But what more “clearly’ increases productivity is somehow applying a new technology to the highway, so that when we repair it that’s not all we’re doing: we’re repairing and upgrading it. So that’s what a politician comes along and promises, but not before offering to finance a new highway of the same technological caliber.
The new town we’ve established currently has one highway to it, and a political thinks it will benefit from a second. It’s not an “upgraded highway” with new technological flourishes, but it is a “new highway,” and the politician argues that this second highway will “increase traffic,” which means more people will come by the new town, make purchases at the shops, and so on. “It will be good for growth,” the politician argues, but the town is skeptical. “We have all the highway we need,” someone says. “An extra highway will be a waste of money.” The politician assures the town that though it doesn’t “look like” we need two highways because the one highway we have services all the cars that want to come through, if people knew there was a second highway, there would be more cars, because people wouldn’t worry about getting stuck in traffic. “A second highway will change how people behave,” the politician claims. “We’ll get way more business.” Someone in the town jokes that they should just ban heavy equipment: that will create jobs alright. People laugh, but the politician gets the point: not all “job creation” and “growth” is equal. The politician is adamant the new highway will make a difference, but for the first time he hears murmuring about “paying for the debt.” This ruins the politician’s day, and he starts talking instead about “repairing the roads we have already.” More citizens sympathize with this view, but it’s not all roses: some people say, “the roads are fine.” At first, it was easy to convince the new town to get behind investments, but now the world had change. “The long-hanging fruits” were eaten up, and “government legitimacy” was suffering for it.
But that’s when the politician has a great idea: the roads won’t just be repaired and the potholes filled, but the roads will also be updated with “heat sensor technology” that will keep them from icing over in the winter. “This is clearly an upgrade! It will boost productivity,” the politician tells the citizens, but though some citizens like the idea, it doesn’t go over as smoothly as the politician hoped. “That will cost millions,” someone says. “Is it really worth the money? I mean, it’s nice we won’t have to worry about ice, but that seems like a lot of money for a small benefit.” The politician doesn’t think it’s a small benefit at all: sure, maybe to you, but multiply that by thousands of people for decades, and the increase to productivity would prove extraordinary. “Maybe,” a citizen says, but it’s clear to the politician that people aren’t as excited about the idea as he had hoped. For so many years, the politician could suggest new wells or bridges, and everyone jumped on board. What happened? The politician doesn’t know, but he realizes it’s critical that the economy continue to grow somehow and someway. Did the people have any better ideas?
The politician does eventually convince the town to agree to the highway equipped with heating technology, and a lot of people write in during the winter on how great the technology is, but other people are less enthusiastic. Still, the town grows and prospers. There are new debates on if the town should get into debt to buy everyone a car, which fails, because “there are buses” and “buying a car is something people should take responsibility for themselves.” The politician says he’s not going to buy everyone a hammock, that a car is something entirely different and “the initiative will easily pay for itself,” but there are a lot of people now who have managed to buy a car on their own, and after all the work they did to make that possible, they’re not eager to let everyone else get a car for free. Similar debate ensues when “universal healthcare” is brought up, along with free college education: the town has been around for years now, and a lot of people have managed to pay for college and healthcare themselves without any “government help.” Why can’t others manage it themselves? Increasingly, the politician finds it difficult to convince the town to agree on State “investments.” The politician tells the people that it will help the economy, that it doesn’t make sense to intentionally hinder possible growth, but the town tells the politician that it doesn’t need “handouts.” “Everything I’m proposing is a kind of infrastructure spending,” the politician argues. “It’s no different from the highway, and it’s arguably a kind of technology: it’s college education ‘upgrades’ our minds, as healthcare ‘upgrades’ our health.” The town is not convinced, but the politician manages to provide everyone with “universal healthcare” anyway. A lot of people quit their jobs. “Why work if the government is just going to prove everything?” someone asks. The politician is adamant that “providing healthcare” isn’t the same as “providing everything” at all, but people think the politician is lying. “He’s power hungry,” someone says, which hurts the politician’s feelings. But he won’t be deterred: he knows there is a “demand event horizon” that he must make sure the economy doesn’t fall below, and he would assure the State kept playing its part, even if the citizens didn’t understand. That said, the politician didn’t understand why his job had gotten so much harder over the years. He vaguely remembers Keynes saying something about the troubles that emerged when ‘a monetary policy […] [struck] public opinion as being experimental in character,’ and the politician understood that some technologies weren’t “obviously” beneficial, but why was “universal healthcare” so bad?B Why was the “investment multiplier” getting so much harder for the State to implement with time?
And so, the politician does the best he can as the years weigh on him.
Originally, when the roads were built, the politician and State didn’t have to worry about suffering a “legitimacy crisis” (to allude to Habermas) in the eyes of its people, for anyone could see that the road made a positive difference. Sure, maybe some people didn’t use the roads very much and weren’t big on traveling, but now they could buy fig jams they liked at the store, and that was thanks to the increased ease of transportation. Also, it was self-evident that travel was much smoother and easier, raising productivity. But with time, and as the possible technologies become more complex and specialized, it stopped being so easily for the citizens to tell that the investments of the State increased value and productivity. There were doubts, and so politically it become more difficult for the government to mobilize support for new investments. And some politicians even started to oppose the new infrastructure spending, giving voice to the concerns of some of the people. To resist this growing discontent, other politicians started claiming we need “new roads” and “to repair bridges,” believing these investments were more “self-evidently valuable” and that they would be easier to get the citizenship to support. But it didn’t work: how did repairing old roads “increase” productivity versus just get it back to normal levels? Maybe if the old bridge was repaired and updated with new technology (say if the road harnessed the power of the moving wheels to create technology), that would increase productivity, but the new politicians don’t have that technology to offer. Things simply go downhill...
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Even if focused on “investment multipliers” versus “money multipliers,” notice in the previous section with time and complexity how much more difficult it became to tell if government spending increased productivity, simply returned productivity back to original levels, or wasted money? Did we notice how it became debate if the State was in fact “investing money” (which is to say that what constituted “investment” was not always self-evident)? Now, I’m sure we could go back and make a case for everything the government wanted to spend money on, and perhaps we could even go back to the beginning and question if a town needed to be built in the first place. I understand that, but the point is that the longer civilization lasts and the more it progresses, the more debatable it becomes if a given investment will in fact be worth it. Eventually, it’s so unclear if a given investment will create wealth or not, that it can feel like a guess, and it also starts being the case that a given investment becomes a “trade-off,” which is to say it will benefit some people and not others. When the town and civilization started in general, it was much easier to feel confident that building a road would increase productivity “on net,” and that road was something everyone could use. The potential downsides for building a road were very slim (unless nobody used it, which was safe to assume wouldn’t be the case), but once the town started considering solar panels, possible downsides became much more apparent. What if it was cloudy? What if the government stopped subsidizing the solar panels? It was obvious that solar panels were a “new technology” and that financing them was an investment, but did this new technology “create value?” That wasn’t so clear, and not only was it harder for the State to get the town to support the measure, the town itself couldn’t be so confident that it was financing investments which would increase value. Disagreement emerged, and it became harder to mobilize the citizenship behind the projects (and to inspire them to be more productive with the investments). As complexity increases, it would seem more “space” is needed for people to decide for themselves if a given technology, investment, etc. would increase their productivity: for one family, the internet might open economic doors, while for another family the internet just proves to be a source of addiction. With complexity arose diversity and particularity, suggesting why the problem of scale can be so difficult and why we cannot assume “increased scale” is “increased investment.”
New bridges and highways may cause car wrecks and deaths, yes, but it’s much easier to suppose that, overall, bridges and highways are good for the majority of people (even people in wrecks benefitted before the wrecks) (please note it’s also impossible to construct an “individual highway,” to be used by one person). But the internet is different, for the possible productive benefits could vary radically between households. To determine which households benefit from the internet more than end up hurt by it, the State would have to gather an incredible amount of “particular knowledge,” which we learned earlier from Hayek is impossible and risks totalitarianism. Yes, the State can make an “informed guess” based on “general knowledge” that average citizens will benefit from the internet more than be hurt by it, but what about solar panels or cellphones? What about cellphones without internet versus cellphones with internet? Quickly, the question becomes very complex and nuanced, and the likelihood the State efficiently makes decisions about these particular technologies and how they benefit particular families wanes. Families will need to make decisions for themselves, but that means FDR Economics will cease to be effective. And what if families make poor decisions? Well, we would fall below the DEH—hence why making sure that families have “Artifexian training” in creating and intrinsic motivation is central, as will be explained.
As mentioned in the main paper, for the State, investing in a highway required more so just “general knowledge,” but the more advanced technologies become, the more based on “particular knowledge” they tend to be (and so customized and particular), and with this the effectiveness of FDR Economics might wane under a Hayekian critique (though please note, not necessarily). This is devastating, I think, because that means we are risk of falling below the DEH if demand dries up, and the State won’t be in a position to help in an advanced, technological society. What hope do we have then? Well, we’d generally need individuals to be able to tell in their own lives what technologies “add value” and which don’t, and that means we need average people to be more discerning about (their own) “intrinsic value.” Furthermore, we’d need people to be more creative to solve problems for their own lives that other people don’t suffer, and to create new technologies that help their particular problems (seeing as the State will be “too far away” to tell). Thus, we need a robust Artifex, a topic we will expand on shortly.
All of this is to make the point that the ease, effectiveness, and support for FDR Economics and Keynesianism in general becomes increasingly difficult with time. Once all the “low-hanging fruit” is taken, the probability that FDR will be able to keep creating demand, increase investment, and cause “investment multipliers” goes down. Probably though, since it worked for a time, there will be “empirical evidence” that it did work, and so economists and politicians may keep “pushing ahead” with FDR Economics, believing that eventually the politicians will restimulate the economy. And maybe they will, but as interest rates can impact the psychology of the citizens negatively, so a citizenship may also suffer negative psychology if it believes that the State is wasting its money and making unwise investments, increasing the likelihood that State investments don’t work out. If the citizenship feels like its tax money is wasted, it might stop working as hard, as a citizenship might do the same if it sees interest rates rising, which sends a signal that the economy is deteriorating. Like low interest rates, State investment that is self-evidently valuable could send a positive signal to the citizenship and help inspire the citizenship to be productive, but State investment that isn’t clearly valuable could send a negative signal that the State doesn’t know what it’s going and grasping at straws. Perhaps FDR Economics, when it works, really works, because it both causes an “investment multiplier” and inspires the citizenship with confidence in government and the future, which consequently inspires the citizenship to work harder and invest more, all while increasing global unity. Unfortunately though, that would suggest conversely that when FDR Economics doesn’t work, it really doesn’t work.
To emphasize the point, please note that during Keynes day, a very high percent of what we today may call “basic infrastructure” was not built yet, so it was far easier for the State to instigate “investment multipliers” (and to get the public on board with them). Keynes did not live in a day of high specialization, but our world is one where the need for specialization is increasingly radically. With time, it’s harder for the State to tell what it should invest in and what it shouldn’t (and to get the public to agree with the wisdom behind the spending). As monetary policy that seems “experimental” risks losing public support, so it goes with national debt and State spending. This being the case, the probability the State can help us avoid a DEH is relative to “how clear it is that State investment adds value” (to the people and to the State itself), and this is relative to the presence or absence of “basic infrastructure” and rising complexity and specialization of technology. If it is the case that technology “naturally improves” with time (say because technology results from “trial and error” and there is necessarily more “trial and error” through history by virtue of more time passing), then it is the case that the effectiveness of FDR Economics likely decreases the longer a nation lasts. Now, there is something to be said about technologies that “simplify” previous inventions and make it “easier to tell” which technologies add value and which don’t, so I don’t mean to say that this “curve” I’m describing is a straight line or something like that; rather, my hope is only to suggest that the effectiveness of FDR Economics may depend on the year. If FDR Economics failed today, it might be tempting to argue that they “always fail,” as if they work it might be tempting to say they “always work”—my point is that we can’t be quick to draw these conclusions. But what we can say is that, regardless the circumstance, a growing Artifex is a “net positive” for economic development and growth (as we will explore). Thus, that is what we should prioritize—but can we? Do people have what it takes to be Artifexian, to be creative?
It’s one thing to identify that a car is an upgrade from a horse and buggy, but another thing to identify that a car which runs on alternative energy is an upgrade from a car that runs on gas, and an entirely different thing to determine that electric vehicles add more value than hydrogen ones. Where complexity, nuance, and subjective option play a role, the less likely the State will be able to save us from falling below the DEH. Under these circumstances, we will need to rely on the Artifex, but as Capitalism develops (thanks primarily to technology advancement), it might erode our capacity to be creative (as described in “The Tragedy of Us” by O.G. Rose, though this is a case I keep going back and forth on). Capitalism is ironic, and the State’s capacity to protect us from the irony of Capitalism likely wanes with time.
As hopefully has been made clear, “investment multipliers” become harder for the State to carry out with time. It’s not so clear what should be invested in, and furthermore it becomes harder to get the people to believe the State is making good investments. When people believe in the State, productivity likely increases, for “State competence” sends a signal to the market like low interest rates according to Keynes. When faith in the State lowers, that could hurt the economy, and unfortunately FDR Economics likely losses the confidence of the people with time, hurting its effectiveness. As this occurs, the ability of the State to keep us from falling below the DEH weakens until it can do little if anything at all.
To summarize, though Hayek obliterates Central Planning, I do not think that Hayek disproves the possibility of the State to incentivize investment, as it is not the case that Hayek deconstructs all possible benefits of infrastructure spending and grant giving. That said, I fear that as technology advances and becomes more complex, the “low-hanging fruit” in which the State can invest in (with confidence that it is investing in something that actually creates value) eventually runs out, and as that happens, the ability of the State to create demand weakens and fades (FDR Economics might lessen as technology advances). A Hayekian critique then becomes appropriate: technology simply becomes too complex for the State to efficiently and accurately evaluate which technologies are worth using and to what extent without regular and personal involvement with the technology.
Hayek doesn’t disprove FDR under any and all cases, but FDR and Keynesianism can ultimately prove “not up to the task” once technology becomes too complex and advanced. “The low-hanging fruit” eventually become the equivalent of repairing “broken windows,” which though can have a “contingent” and “particular” benefit to those suffering “the broken window,” there will probably not be a net-gain. Unfortunately, if “repairing broken windows” is all the State finds itself capable of doing (because all it can handle are “low-hanging fruits” and less advanced technologies with “self-evident value”), it is likely the State will do everything in its power to talk “as if” it’s not merely “repairing broken windows” (and that’s when the propaganda may begin). Furthermore, since we are all naturally oriented toward “low causality”-thinking, and since there will easily be evidence that “repairing broken windows” worked in the bast, it will be easy for the State to keep instigating this effort when it has long ceased being an investment and instead perhaps become inflationary.
ACould Artificial Intelligence solve this problem? Perhaps, but only if it could gather all the “particular information” which composes “particular situations,” and that doesn’t seem possible without a radical “surveillance apparatus.” For Hayek, trying to solve “the problem of particular knowledge” leads to horrific totalitarianism—I don’t see how AI avoids that critique.
BKeynes, John Maynard. The General Theory of Employment, Interest, and Money. Orlando, FL: First Harvest/Harcourt, Inc., 1964: 203.
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