Tuesday, February 24, 2009


David Brooks:
The political history of the 20th century is the history of social-engineering projects executed by well-intentioned people that began well and ended badly. There were big errors like communism, but also lesser ones, like a Vietnam War designed by the best and the brightest, urban renewal efforts that decimated neighborhoods, welfare policies that had the unintended effect of weakening families and development programs that left a string of white elephant projects across the world.

...President Obama has concentrated enormous power on a few aides in the West Wing of the White House. These aides are unrolling a rapid string of plans: to create three million jobs, to redesign the health care system, to save the auto industry, to revive the housing industry, to reinvent the energy sector, to revitalize the banks, to reform the schools — and to do it all while cutting the deficit in half.
These are good points in what is a pretty uneven column. There are two key lessons that must be appreciated here:
  • Good intentions do not automatically produce good results
  • The collective is smarter than the individual
The first point is rather obvious and well explained in the first paragraph. Very rarely, if ever, do government planners consciously design a plan that they think will screw up the country. Rather, what usually occurs is that they are blinded by their own arrogance. They believe that, armed with the perfect plan, they can solve any problem.

On its face this may actually be plausible. After all, many of the people that work in government are incredibly gifted and well educated individuals. The problem, however, is that no matter how smart they are there is simply no way that their individual intelligence is greater than the collective intelligence of the citizenry. To think that you are smarter than the thousands of people that operate in whatever area you are trying to regulate is to engage in what Hayek referred to as the fatal conceit:
Socialists are wrong because they disregard the fact that modern civilization naturally evolved and was not planned. Additionally, since modern civilization and all of its customs and traditions naturally led to the current order and are needed for its continuance, any fundamental change to the system that tries to control it is doomed to fail since it would be impossible or unsustainable in modern civilization. Price signals are the only means of enabling each economic decision maker to communicate tacit knowledge or dispersed knowledge to each other, in order to solve the economic calculation problem.
Basically, the marketplace -- which is where the free exchange of ideas and information takes place -- is a much better tool for addressing problems than government, which is inevitably less informed.

This seems pretty abstract so let's just look at how this may play out in real life. Brooks notes that one area the Obama Administration is looking to address is the auto sector. Let's assume that whatever government officials in charge of arriving at a solution here are pretty smart. However, is it plausible that they are as smart as the collective knowledge of the people that actually operate in the industry? Do they know better how to design the cars than the engineers? Do they know better what cars out to be produced than the consumers who vote with their dollars? Do they know better what the companies are worth than the investors who place their money into them?

We also see this in the housing sector. How can the government possibly know what is better for the housing sector than the marketplace? The Obama Administration is trying to arrest the drop in housing prices, but prices are nothing more than a signal. It is an indication that we need less housing and our resources are better used elsewhere. To interfere with this is to interfere with the free exchange of information and promote investments in areas that don't need them.

This is not to say that public policy can't be employed to promote the collective good. It can. But those policies must flow from a perspective that promotes freedom and choice, not restrictions and regulations. When you promote freedom and choice you harness the knowledge of millions of people.

Take schools for example. Everyone agrees that education needs to be improved in this country, and everyone has a different idea of how to do it. Some people think that the solution lies in ideas such as smaller classroom sizes, more computers, longer school hours, etc. And maybe they are right. But rather than have bureaucrats and politicians study this problem and come up with solutions, why don't we simply expand freedom and choice?

By letting parents pick the schools their children attend, we let the parents vote on which methods work best. We can harness their collective knowledge about their children and the schools to promote better educational outcomes.

Indeed, in many instances the path to better outcomes simply lies in getting government out of the way. Deregulation of the trucking and airline industries gave us more choice, better quality and cheaper prices. Getting people off welfare helped them more than the checks from the government.

What concerns me about the Obama Administration's approach is that it operates from a much different perspective. They believe that solutions are to be found in better rules and restrictions rather than the expansion of choice and freedom. It is inherently arrogant and premised on knowing more than the people they are trying to control. History teaches us that such initiatives typically do not end well.

No comments: