Saule Omarova and Friedrich Hayek
Three-quarters of a century ago, Friedrich Hayek warned that the West was on “the road to serfdom.” President Biden’s nomination of Ms. Saule Omarova as Comptroller of the Currency is another illustration that the peril has not receded.
A graduate of Moscow State University in 1989 on the Lenin Personal Academic Scholarship, Omarova has not apparently understood that the state cannot run the economy without tightly—and in fact, savagely—controlling individual lives. In the 2oth century, Communism gave what we would think was a definitive illustration. Other sorts of totalitarianism came close: at the forefront was National Socialism, which was both nationalist and socialist as its name confirmed. Hayek saw all that, as you can see in my review of The Road to Serfdom (University of Chicago Press, 1944) in the Fall issue of Regulation.
The Wall Street Journal devoted an editorial to Omarova (“Comptroller of the Economy,” September 29, 2021). Now a law professor at Cornell University (Hayek has many things to say about the concept of “law” she must adhere to), she has argued for powerful central agencies, including a “National Investment Authority” and, to determine where in heaven the “public interest” is, a “Public Interest Council” of “highly paid” academics with broad subpoena power.
A few quotes from the Wall Street Journal editorial, which is well worth reading at length:
“Until I came to the US, I couldn’t imagine that things like gender pay gap still existed in today’s world. Say what you will about old USSR, there was no gender pay gap there. Market doesn’t always ‘know best,’” she tweeted in 2019. After Twitter users criticized her ignorance, she added a caveat: “I never claimed women and men were treated absolutely equally in every facet of Soviet life. But people’s salaries were set (by the state) in a gender-blind manner. And all women got very generous maternity benefits. Both things are still a pipe dream in our society!” …
In two papers, she has advocated expanding the Federal Reserve’s mandate to include the price levels of “systemically important financial assets” as well as worker wages. As they like to say at the modern university, from each according to her ability to each according to her needs. …
In a recent paper “The People’s Ledger,” she proposed that the Federal Reserve take over consumer bank deposits, “effectively ‘end banking,’ as we know it,” and become “the ultimate public platform for generating, modulating, and allocating financial resources in a modern economy.”
What ideologues like Omarova don’t understand is, at the basis, the following: individuals have different preferences and values (not to mention different circumstances), and only the power of the KGB can force them into the same matrix. And read about the necessity for a socialist state to control remunerations in my Regulation review.
How can a Cornell professor be so ignorant or naïve? How can she be as intellectually lacking as Trump was on the other side of the statist continuum? (Caveat: I haven’t read the Omarova articles quoted by the Wall Street Journal.) Why do we observe this rise of ignorance in the political class? There again, Hayek foresaw that. To quote my Regulation review:
Perhaps the direst prediction of The Road to Serfdom and the one that seems the closest to current concerns comes in the chapter (fittingly) titled “The End of Truth.” A totalitarian government must make people believe its propaganda about its values and goals, as well as the wisdom of the chosen means to those ends. Bringing people to approve the means involves peddling causal relationships whether they are true or not.
The propaganda of totalitarian governments is thus “destructive of all the foundations of all morals,” which lie in “the sense of and respect for truth.” Both in the Soviet Union and Nazi Germany, the ruling party was presented as the source of all truth. This generates a “spirit of complete cynicism as regards truth” and “the disappearance of the spirit of independent inquiry and of the belief in the power of rational conviction.” It is true that, in the West, government propaganda and censorship have not grown to that point. In America, on the contrary, First Amendment protections were strengthened in the last three quarters of the 20th century. However, even here, governments and political parties have contributed to the debasement of the notion of the truth. The latest U.S. political developments reflect this.
Whether the rulers of a limited state are knowledgeable or ignorant, wise or idiotic, might not matter much because the extent of the damage they could do would be limited. It’s a different matter under Leviathan.
Oct 4 2021 at 12:16pm
Why do we observe this rise of ignorance in the political class?
She is not ignorant, she is a committed leftist ideologue. Academics like her been around for decades and, indeed, were more numerous before 1989. A more important question is how have Democrats skewed so far left that people like Omarova are even remotely acceptable nominees!?
How can she be as intellectual lacking as Trump was on the other side of the statist continuum?
Really? Do we need to throw in an ad-hoc, obligatory shot at Trump every damn time we criticize the left? I’m no Trump supporter (or voter) and his trade policies (which the Biden admin has not corrected) were awful, but even given that, his economic policies — as ill informed as he undoubtedly is — were 1000X better than what we’d get if Omarova had her way.
Oct 5 2021 at 11:39am
MarkW: If you reread Hayek’s chapter, you should see that Trump is a paragon of the end of truth. Thinking about it (and thanks for making me realize it more clearly), it may be that Omarova is less lacking than Trump on that score. She might just be making intellectual errors while, for Trump, there can be no such thing as an intellectual error.
Oct 5 2021 at 3:58pm
I just gave the chapter a quick re-scan (it’s been a long time) and I have to say that it sounds pretty much nothing like Trump to me. This for example:
According to the Webbs the Journal for Marxist-Leninist Natural Sciences has the following slogans: “We stand for Party in Mathematics. We stand for the purity of Marxist-Leninist theory in surgery.” The situation seems to be very similar in Germany. The Journal of the National-Socialist Association of Mathematicians is full of “party in mathematics”
It would be pretty easy to substitute current leftist thought in the above — for example, it’s not even mildly far-fetched to imagine “We stand for diversity, equity, and inclusion in Mathematics” or “We stand for anti-racism in surgery”. But what earth would you put in for Trump? Trump has no overarching ideology of political theories. The idea of Trump writing (or even reading!) any kind of manifesto is laughable — he is far too lazy and uninterested. Trump’s a non-ideological populist — as such, I don’t see that he fits at all into Hayek’s schema in the chapter.
Oct 6 2021 at 2:39pm
MarkW: You are right that Trump has no ideology. He thinks that truth is nothing but whatever will put (or keep) him in power. He has no moral or rational criterion. Think about his (and his minions’) arguing solemnly that automobile protectionism is necessary for national security, that the Italian currency is manipulated (see my “The Pursuit of Nuttiness“), or that he won the 2020 election with a “nice landslide,” and so forth. He takes pride in his lies and expects his followers to confirm them. Worse than Mr. Jourdain, he does nihilism without being aware of it. If that sort of thing is not the end of truth, what is?
Oct 4 2021 at 1:54pm
Her remarks on gender pay gaps are impressively ignorant. Does she think American corporations have separate male and female pay scales? Wages and salaries at private employers are usually set rather algorithmically in ways that also preclude the possibility of actual wage discrimination. Even most informed feminists nowadays acknowledge that it’s not really so much a ‘wage gap’ and instead claim that cultural norms affect women’s work choices or bargaining ability. It’s depressing that popular discourse on gender income disparities still seems stuck 30 years behind the actual intellectual debate. I guess that’s less troubling than the Soviet Union nostalgia though. Reminiscent of the ‘at least the trains ran on time’ apologia for fascism.
Oct 4 2021 at 5:33pm
Even Mussolini couldn’t make Italian trains run on time. And German trains run on time with or without fascism.
Oct 5 2021 at 5:37am
You haven’t tried riding German trains lately, have you?
Sadly, if there ever was a time they ran on time, it’s long past. I can testify since about 1990
Oct 5 2021 at 8:37am
My analysis was based on hearsay and experience with Swiss trains in 1991. Sorry to any Germans for assuming competence.
Oct 4 2021 at 2:51pm
“spirit of complete cynicism as regards truth”
That is a great quote.
Oct 4 2021 at 3:29pm
The whole chapter in The Road to Serfdom is worth reading and looks (God forbid) prophetic.
Oct 4 2021 at 4:18pm
Also, ““Public Interest Council” of “highly paid” academics with broad subpoena power”
Oct 4 2021 at 4:15pm
When I first read about the nomination, I thought it was a joke.
Oct 4 2021 at 5:40pm
Frank: Perhaps we can still hope that they will be laughed out of personkind.
Oct 4 2021 at 5:49pm
“Both in the Soviet Union and Nazi Germany, the ruling party was presented as the source of all truth.”
Nowadays, instead of pledging total fidelity to the Communist Party or Nazi Party as the source of all truth, some have taken to pledging fidelity to “The Science”. Indeed, they even proclaim a Party of Science, i.e., a political party that is presumed to hold a monopoly on truth.
“It is true that, in the West, government propaganda and censorship have not grown to that point. In America, on the contrary, First Amendment protections were strengthened in the last three quarters of the 20th century.”
The *Courts* have strengthened First Amendment protections. Culturally, however, a growing segment has taken to declaring any dissent from the teachings of the Party of Science to be “misinformation” in a quest to suppress the “spirit of independent inquiry.”
Oct 5 2021 at 9:32am
Actually, this is very far from being “new”. At the end of the XIX century there was very significant movement in this direction led, who else? by Economics scholars.
Leonard’s “Illiberal Reformers” offers a very compelling and “entertaining” (so to speak) account of this development:
“[Hadley’s] second presidential [of the recently founded AEA] in 1899 made the epistemic case for economics in the service of the state. Economics, Hadley claimed, functioned as the agents of the common good, “representatives of nothing less than the whole truth”.
These “Illiberal Reformers” were, actually, the driving force behind the creation of the government agencies. A need that, it seems, is not completely fulfilled 122 year later (so, very likely it will never be). After all, from Illiberal Reformers again:
“How much scientific expertise, Louis Menand writes, was required “to repeat, in every situation, ‘let the market decide’“?”.
Apparently much more than Menand anticipated.
Same old, same old.
Oct 5 2021 at 10:49am
“Why do we observe this rise of ignorance in the political class?”
I understand this is a rhetorical question, you know too well Public Choice Theory. They are not “ignorance” they respond to the incentives they have. Pretty rationally I have to said and, back to Hayek, with the incentives they have you can expect the worst getting on top.
“How can a Cornell professor be so ignorant or naïve? How can she be as intellectual lacking as Trump was on the other side of the statist continuum?”
That’s a tougher one. But it can be observed everywhere. Any “Academic Choice Theory”, explaining the rational decision for this tendency among economic scholars?
Oct 5 2021 at 12:26pm
Jose: What we need to explain, though, is the rise in the rate of growth of ignorance (and its glorification) more than its level. From another perspective: early 20th-century progressives as well as their populist predecessors believed in reason and truth.
Oct 5 2021 at 1:39pm
That’s a very interesting perspective. I guess that the “ignorance” we are looking at here, has to do with the belief among voters, that a benevolent central planner can organize the economy (the Society in general) in a “better” way.
Even the Japanese “liberal” (in the non-USA meaning) seems to be going this way (together with Britain Tories).
This kind of “ignorance” resonate with voters and allows politicians to win elections.
Once politicians on one side start winning elections using this ignorance in their own benefit you can expect “the other side” using incremental amounts of “ignorance” to the same end. In evolutionary terms, I think you can say that “ignorance” is a winning political trait and “radiates”.
The new equilibrium is at the end of a “race to the bottom”, the only limit being to break the “suspension of disbelief” that the voters are prone to during this period of “increasing political ignorance”. If history is a guide, the suspension of the masses disbelief can last for very long, allowing a spectacular race to the bottom among the political competing parties.
No self-respecting politician combat “ignorance” while “ignorance” is still a mean to win elections. They have very little will for political suicide. Reality has to be undeniable. Nowadays we have a lot of places to hide “reality” away (great prosperity, the FED, national debt …)
Oct 5 2021 at 11:04am
Jose: Leonard’s book is indeed very instructive. I strongly recommend it: see “Progressivism’s Tainted Label,” my review in Regulation.
Oct 5 2021 at 11:39am
Thank you, Pierre! I will.
Any interesting reading in “Academic Choice Theory” (just made up the concept) that you are aware off? Looking for a better understanding on Saez, Zucman, Warren, Omarova, Krugman, Piketty and so many others, set of incentives.
Oct 5 2021 at 12:22pm
Jose: That’s an interesting question. What comes to mind is Hayek’s “The Intellectuals and Socialism” and Stigler’s “The Intellectual and the Marketplace.” Closer to public choice proper, Buchanan’s attack on the philosopher-king certainly included intellectuals and Omarova’s highly-paid academics; see Art Camden’s piece “James Buchanan’s Normative Vision Fifteen Years Later.”
Oct 4 2021 at 11:11pm
Ms. Omarova will be facing a difficult confirmation process. President Biden might want to consider lining up Rossana Cambron, an even more qualified prospect to further his agenda.
Oct 5 2021 at 11:43am
Monte: And perhaps Biden knows that and just gave a vain nomination as a bone to the more totalitarian wing of his party. This strategy would not redeem politics as the true will of the people.
Oct 5 2021 at 5:05pm
In all honesty, we can’t hold President Biden responsible for anyone or anything he takes a position on. Like King Theodin, he simply nods in affirmation to his Wormtongues, and is rewarded in return with a fawning media.
Oct 5 2021 at 7:41am
I don’t remember whose quotes is this, but it seems to be true:
“Every generation there is a group of visionaries convinced that the problem with planned economies is that they were not planned by themselves”
Maybe “this generation group of visionaries” is reaching the government agencies.
Oct 5 2021 at 9:21pm
I have just finished “Seeing Like a State”, which includes a detailed account of how the Soviets caused so much misery and death in the effort to remake their society and economy. Unfathomable.
Oct 6 2021 at 2:01pm
His chapter on “high modernism” (Le Corbusier, etc.) is also quite impressive.
Oct 6 2021 at 2:16pm
Hayek warns, the culmination of full blown socialism, species of genus collectivism, culminated in the murderous totalitarian regimes of Nazism, Fascism and Communism. Those who fail to heed his warning do so at their own peril.
Oct 6 2021 at 2:35pm
Pierre: I recently finished The Road to Serfdom for the third time. I’ve also read your excellent review. Hayek’s language is dense and rich. Sometimes his syntax is challenging and strict focus is necessary when reading and re-reading sentence by compound sentence. His writing in some cases is more akin to the chain rule (dy/dx =dy/du*du/dx) as first, one reads the general outside concept and is completed with inside specificity.
Oct 6 2021 at 2:41pm
David: Good critique of Hayek’s style! People who know German say that he writes English like it were German.
Juan Manuel Perez Porrua Perez
Oct 7 2021 at 10:10am
What Omarova has said could mutatis mutandis be made to sound very reasonable, i.e. not at all as a Communist revolution, but as policy goals for a mixed economy.
Is there really anything wrong with 1) men and women not being treated absolutely equally in every aspect of American life; 2) people’s salaries being set (by private entities regulated by law) in a gender-blind way; 3) and women (someone should tell Ms. Omarova that men can be homemakers as well) receiving very generous maternity benefits? The only reason this is a pipe dream is that a considerable number of people believe treating men and women equally in the marketplace is destructive of all the foundations of morals inherited from medieval christianity (are those “morals” really worth preserving? other than they provide sexual and economic rents to us men?)
As for the rest, I agree it’s absurd. “Nationalizing deposit banking” is really a scheme to provide a captive source of funds for the government and, in the context of the US, a way to continue the kind of “subsidy by credit” system that gave us the 2008 financial crisis. This sort of thing was tried in Mexico, with disastrous (if predictable) results: 1) the government (to no one’s surprise) turned out to be a very poor (and politically motivated) investor 2) the nationalized banks held on to huge portfolios of past-due loans 3) eventually the government had to sell its banks at inflated prices, which private investors paid for on credit (and in USD no less) 4) the government had to do a bank bailout in the end anyway. None of this is necessary to get the “pipe dream”.
Oct 10 2021 at 11:08am
Juan: Let me just quickly address what seems to be the most defendable criticism in your second paragraph:
If you are speaking of formal equality (equality of rights, not of results), the answer to your rhetorical question is of course No. If you are speaking of material equality (equality of results or material equality), the answer is obviously Yes, except if you do love the Soviet Union or Sparta. The major reasons can be found in a few strands of arguments:
The argument for formal equality: John Stuart Mill, The Subjection of Women.
How material equality in one dimension contradicts material equality in other dimensions or how material equality is absurd: see Anthony de Jasay, Social Justice and the Indian Rope Trick (see also my review of that book).
How trying to force material equality can only lead to tyranny: among many other sources, see F.A. Hayek, The Road to Serfdom, including on the topic state’s determination of remunerations, which is your second point (and my review of that book); and Hayek’s The Mirage of Social Justice.
How free exchange between free individuals leads to the division of labor: Gary Becker, A Treatise on the Family (a more technical piece of reading). Also ask yourself: Why wasn’t Barack Obama the homemaker when he was president? (I suspect he still isn’t.)
Juan Manuel Perez Porrua Perez
Oct 10 2021 at 1:15pm
First of all, I would like to thank you for your response. This are important issues and frank but civil discussion is essential.
I am talking about formal equality or equality of rights. Sometimes (by no means always) different rules applied to different classes of people respectively are necessary to induce the same behavior in both. I don’t think this is at all controversial or outlandish from a liberal (Left Liberal or Ordoliberal) perspective.
Thinking about issues of parenthood and gender the economic dynamic that Becker describes can become a vicious circle that perpetuates gendered roles. On the one hand women do possess an advantage both by biology and by education in household production, which is compensated for in labor markets by paying women lower salaries. But even after birth, motherhood is hardly inevitable. A woman facing a labor market that is less economically advantageous to her than marrying or in some other way specializing in homemaking (household labor) may well decide to withdraw from the labor market if she participates in it or choose not to accumulate the necessary human capital in order to be able to. This is neither Marx or Firestone, this is general equilibrium.
Juan Manuel Perez Porrua Perez
Oct 10 2021 at 1:29pm
Listen, this is pure for comic relief: Catch 22, sub. A.
Oct 25 2021 at 11:51pm
Juan: You write:
This is only uncontroversial if one believes that it is the role of the state to social-engineer individuals, that is, to induce uniform behavior (except in clear cases of preventing murder and theft). Referring to your first parenthesis, who is going to decide when and against whom discrimination is compulsory to uniformize behavior (which is actually material equality)?
As for the defense of abortion you suggest, why not infanticide too? Wouldn’t it be more effective in “inducing the behavior” that authority prefers?
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