Over at the American Institute for Economic Research, the great trade economist Don Boudreaux wrote a terrific article on the complexity of the market and the futility of attempting to plan it (links removed):
Such “men [and women] of system” – being either ignorant or contemptuous of the market’s invisible hand – arrogantly presume that that which they see and can describe using words and numbers is a sufficiently large proportion of economic reality to enable them to guide the government to intervene in ways that will result in the happy outcomes that float in their minds as lovely imaginings.
Such arrogance is fatal.
This reality is inescapable: if we want an economy that makes readily and steadily available to the masses such goods and services as every American today takes for granted, an indescribably complex, extensive, and globe-spanning division of labor guided by market prices is necessary. The details that enable this economy to work are too many and too invisible to be conveyed to a central agency charged with overriding and improving upon the market’s processes.
To the extent, then, that Messrs. Cass, et al., get their wish for industrial policy, they will curse the rest of us with an economy operated according to a childishly simple set of commands. This economy, insofar as it is ‘governed’ by industrial policy, will be reduced to the puny dimensions and limitations of the human mind. We will all, as a result, be made poorer and, also, not incidentally, less free. It’s that simple.
In order to believe that the economy can be rationally planned by a central authority–even one with access to mountains of data–one must inescapably commit the fallacy of composition: yes, individuals engage in successful economic planning, and yes, such planning is rational at the individual level. But there are simply too many moving parts, too much fragmented, dispersed, ephemeral knowledge, for the plans of hundreds of millions of individuals to be amalgamated into manageable packets of information that central planners can use to create actionable policy capable of improving or replacing the emergent market process.
I often find myself wrongly perceived as the heartless naysayer because I’m dismissive of policies with desirable first-stage outcomes (Medicare For All, equal wage laws, etc). However, given the insight that the market is both unplanned and unplannable, I can see that such policies almost always result in unintended consequences that leave the ostensible beneficiaries in worse condition than when they started.
Unfortunately, taking the realistic view is rarely popular. But because I want everyone to understand the emergent nature of markets, here are some essential readings by Leonard E. Read (“I, Pencil”) and Friedrich A. Hayek (“The Use of Knowledge in Society,” “The Pretence of Knowledge”), and a video by Russ Roberts that re-addresses the ideas in Read’s essay for today’s layman:
By the way, do read the essay I excerpted from Boudreaux. Like virtually everything I’ve ever read by him, it is absolutely worth your time.
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