Special Report

Recalling Hayek on Responsibility

The great bailout of 2008-09 is reaffirming our modern tendency to evade accountability for our own actions.

By 1.7.09

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About a half century ago Friedrich Hayek, in The Constitution of Liberty, wrote that a free society depends more than any other on people being held responsible for their actions. In a free society individuals act according to their own plan -- making their own decision about what they are going to produce, how much they will consume of items, whether to get married, or how many children to have.

There are two primary reasons that individuals who are free to make these choices must be held responsible for their action. The first is that being responsible will affect individual behavior in a positive fashion. If you are rewarded for making efficient use of resources and suffer the consequences of making bad choices, you are more likely to behave in a way that creates efficiencies and benefits society. If you don't suffer the ill effects of wasting resources or making bad decisions, then you are more likely to behave in ways that result in a loss to society.

Second, if you are not responsible for your action, whoever is responsible will limit your freedom. If I am paying for my son's car insurance, and am responsible for any damage he causes with his driving, I am going to limit when and where he can drive, and otherwise set conditions that he would rather not comply with. If the government is responsible for flood damage to your home, it will limit where you can build.

Unfortunately, Hayek's words have been "little noted nor long remembered." The response to the housing and financial crisis has not been to suggest that people should be responsible for their own behavior. In today's America it would seem heartless to say that the person who has just lost his house to foreclosure made the wrong choice when signing a mortgage that required payments that were unrealistic. Instead we wish to blame the "predatory lenders." No politician would say that the 56 year old whose 401K had melted down had underestimated the risk of holding such a large percentage of his investments in stocks. Instead every candidate for office declared that it was "corporate greed" that caused the stock market meltdown. Individual investors are not to be held responsible for their own investing strategy.

Once we give up responsibility for our actions we will have given up the freedom that is essential for a market economy, and a market economy is the only one that provides wealth for the masses. A simple analysis of the Index of Economic Freedom and per capita income across nations will confirm the intuition that liberty and wealth are inseparable, for liberty entails the ability to experiment while responsibility means rewarding the actions of those who create value for consumers while punishing those who use resources in a way that results in inefficiencies.

The great bailout of 2008-09 is reaffirming the tendency in modern America to shirk individual responsibility and moving us further to an interventionist state. Financial institutions that did not accept responsibility for overinvesting in mortgage-backed securities will be burdened by further government regulation, since taxpayers are now responsible for the actions of bank management. The same will be true of the auto companies. Taxpayers will now take responsibility for the actions of their management and unions. The natural result is the call by Steve Fraser in Salon for the creation of "a representative body of workers, consumers, environmentalists, suppliers and other interested parties to supervise the industry's reorganization and retooling to produce, just as the president-elect says he wants, new green means of transportation -- and not just cars."

The central planning that Hayek and Ludwig von Mises warned would lead to economic stagnation will further intrude into the U.S. economy as long as we attempt to eliminate individual responsibility. More importantly we will lose that very freedom that the nation was founded upon. Rather than look to government to take responsibility for our actions, we must accept the outcomes that occur when we make mistakes. This does not mean we should not care about those who suffer losses. True compassion and freedom requires that individuals offer their support to those who have made errors that result in their personal economic misfortune. But Hayek's statement that a fear of responsibility entails a fear of freedom should be at the forefront of any discussion of government attempt to absolve companies and individuals of the consequences of unsuccessful actions.

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About the Author

Gary Wolfram is William Simon Professor of Economics and Public Policy at Hillsdale College and former chief of staff to Congressman Nick Smith.