The California Supply Crisis Was Entirely Predictable: Just Ask Hayek

What do the theories of Friedrich Hayek have to do with our current supply crisis, with container ships piling up on the coast of California?

 

Well, let’s see.

 

Hayek, an Austrian economist, is best known for his book, The Road to Serfdom, in which he expresses his deep concern about the spread of socialism and the resultant threat to economic independence and freedom in general.

 

It is the work of Hayek, after he took a position at the University of Chicago, that sparked the movement known as the “Chicago school” of economics. Names associated with the movement include Milton Friedman and George Stigler.

 

In short, Hayek and the “Chicago school” argue no central planning is adequate in anticipating and distributing economic resources in a society. No individual despot or group of central planners have enough knowledge to act prudently and with foresight. It will, instead, always result in inefficiencies, supply and demand distortions, and lowered economic growth.

 

In addition, because central planners, by definition, must take control away from individuals, it reduces the people to a form of “serfdom.” The people in a socialist system are coerced to comply.

 

We do not yet have a socialist political system in this country, though California may be as close as we’ve come with its governmental overreach in economic, employment, educational and social matters.

 

A student of Friedman’s at Chicago is the indefatigable economist and writer Thomas Sowell. One of his insights is that economic transactions are never a clear win-or-lose proposition, but, rather, it is a matter of tradeoffs.

 

When contemplating an economic or social policy change, one must understand the tradeoff and envision its consequences, what may be gained as well as what may be lost. This approach includes thinking about possible unintended consequences, some of which may turn out a pleasant surprise while others turn out to be utterly devastating.

 

In several of his books, Sowell gives trenchant critiques of social planners he calls the “Unconstrained” or the “Anointed.”

 

These are the ones, politicians of the Left mostly, who want to provide ultimate solutions to our social problems. With utopian visions outpacing their intellectual understanding, they enact social policies in an effort to right some perceived wrong in society.

 

Poor people? Well, let’s just legislate the “Great Society” measures in a war on poverty. Lyndon Johnson tried it. And how did that work out? Greater poverty, families – particularly black families – destroyed, and trillions of dollars down the drain.

 

But that’s the vision of the “Anointed,” who are unshackled from reality and from real world constraints. It is their intent to do good that is foremost in their minds, to bring about “Cosmic Justice” with little regard for the full range of the consequences of their actions. Instead, they are smug in their self-congratulation and hubris. In fact, it is more virtue-signaling than it is Virtue.

 

They remind one of a line from the German poet, Friedrich Hölderlin: “What has always made the state a hell on earth has been precisely that man has tried to make it heaven.”

 

What has this to do with container ships off the coast of California? Well, in 2019 the California state legislature passed Assembly Bill 5 (AB-5) which, in effect, outlawed independent contractors. It became law January 1, 2020.

 

To give it its best spin, legislators sought to protect independent contractors and allow them employer-paid health insurance, disability insurance, pensions, a minimum wage and other employer and state benefits.

 

Aimed at Uber and Lyft drivers, for example, it corrects a system in which the drivers are paid after each trip but the passenger (i.e., the employer) does not pay health benefits. Same for other workers in a gig economy like groundskeepers, maids, cosmeticians, and childcare workers. So, isn’t it a good thing to enhance their wages and benefits?

 

But lo and behold, some folks like being independent contractors. They like that they decide their own hours, what days they work, setting their own wage, whether to stay at home for their child’s birthday. They like not having to do the bidding of some employer who may, or may not, be a tyrant constantly harassing them. They love the independence of being their own boss.

 

A less positive spin on AB-5 is to note that many interest groups, including labor unions and professional organizations (e.g., Taxi drivers), lobbied legislators to pass the law. By doing so they could gain control of independent truckers and other professionals, forcing them to become dues-paying members, and then use those dues to contribute to generally leftist politicians in California so they’ll continue to do their bidding in the legislative process.

 

And thus the cycle keeps on turning. And, of course, lawyers (most legislators are lawyers) and doctors and other monied powerbrokers are exempted from the law.

According to the California Truckers Association, there are more than 70,000 independent contractor truckers in the state. So, when you hear on the news that container ships cannot be unloaded because of a lack of truck drivers, know that the problem is not a lack of truck drivers but a California law that prohibits independent truck drivers from doing the work.

 

Thus, the genesis of a whopper of an unintended consequence, despite the best of intentions.

 

Fortunately, there exists among the people enough desire for freedom and liberty that there still are independent contractors. If the legislators of California had their way, every worker would be an employee of a larger entity which, in turn, could be controlled by the government through administrative state regulations.

 

Thus, the “planners” in the California legislature have come up with a law that, in fact, results in economic inefficiencies, supply and demand distortions, and lowered economic growth, just as Hayek warned us about.

 

This boondoggle just may replace what heretofore was my “go to” example of government planning leading to a devastating unintended consequence.

 

In the late 1980s Congress decided to stick it to the rich to help balance the budget and provide more benefits for the poor. They did so by instituting a luxury tax on various items, including yachts.

 

As a result, the rich quit buying yachts, or if they did, they bought them in Europe. The takings of the luxury tax by the U.S. Treasury were meager at best, and yacht building – as well as jewelers, furriers, and private plane manufacturers – were crushed.

Instead of balancing the budget and helping the poor, the tax destroyed an industry and sent thousands of boat-building workers to the unemployment line. Instead of helping the poor they added to its numbers.

 

Edmund Burke has written: “[W]hat is liberty without wisdom and without virtue? It is the greatest of all possible evils; for it is folly, vice, and madness, without tuition [i.e., education, virtue] or restraint. Those who know what virtuous liberty is, cannot bear to see it disgraced by incapable heads, on account of their having high-sounding words in their mouths.”

 

The Founding Fathers had it right in their insistence that government be de-centralized so as to create as many competing interest groups as feasible and thus avoid a tyranny of the majority.

 

James Madison warned in Federalist 51 that too much homogeneity, too much herd thinking, in the political structure tends toward oppression. Unfortunately, with Democrat super majorities throughout the political structure in California, just such a tyranny appears to be at work.

 

There is an alternative philosophy to this kind of autocratic rule of the majority. Instead of a government sponsored, one size fits all approach to social problems which has no knowledge of just how different circumstances are in different communities – not to mention professions – why not let individuals deal with social issues on a local level.

 

And what could be more local than an independent contractor.

 

Working from the bottom up, folks learn how to address problems within the context of their own community’s traditions and values. Think Edmund Burke here. And as the problems they confront grow larger they can draw on their own experience of what actually works in the real world to address these larger problems. But always knowing there are tradeoffs. Always knowing one cannot know enough to eliminate all problems and unintended consequences. Always humble in the knowledge that they could be wrong.

 

Such humility would be a welcome thing among our current political leaders.

 

By Ron Nutter

 

Ron Nutter is a retired college professor of Philosophy and Religion living in a cabin on a mountain in Western North Carolina with his retired physician wife, and he still reads voraciously.

 

Photo is a screengrab from CBS 2, Los Angeles

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8 thoughts on “The California Supply Crisis Was Entirely Predictable: Just Ask Hayek

  1. You hit the key point at the end. It’s all about the hubris. And note, there is a moral dimension to their failure of wisdom. What could be more evil than playing God with other people’s lives?

    I would urge you to write an article (or book) focusing on the lack of humility issue as critical. After all, the first step on the path to wisdom is the recognition of our own ignorance. I don’t expect that to be something AOC or Bernie do any time soon. They sprint away from wisdom at warp speed.

  2. Outstanding essay, Dr. Nutter. Informative, rational, and well thought out. Let’s hope some Democrats read it.

    1. This country is being run by Marxists. If you believe otherwise then you are living in denial. They have infiltrated and now dominate in Media, Academia, and Public School Systems. Joe McCarthy was right about everything he believed, that communists were heavily infiltrating the media and academia at the time and sought to turn the US communist. We can see today how political insanity is running rampant throughout America and our culture is being distorted so badly it can only be called mass insanity. When the left smears and attacks you, you know your right!

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