Posted by
Andrews on Friday, February 27, 2009 4:38:04 PM
As I have taken to mentioning that Obama is a technocrat, and just noticed that Charles Krauthammer (who has sadly been rather hit and miss lately on all matter Obama) has also
mentioned the same term, I figure it is time to point out once again that "scientific", "technocratic" solutions simply cannot succeed in economic matters. This has all been covered before in my posts "
The Limits of Technocracy", "
The Limits of Econometrics", and, most recently, "
The Limits of "Scientific" Management", but I feel the need to address it once more, as people still seem to believe it is possible.
First, let me point out that this is not like the weather (possibly). Our ability to predict or optimize economic matter sis not because of our limited technology, our imperfect understanding, or any other technical reason. We may one day understand the weather well enough, have adequate models, and sufficient computing power to accurately predict future weather, global temperature trends and the rest. I tend to think it is a sufficiently complex system that we will find even that impossible, but the weather
IS a mechanistic system, so theoretically we should be able to predict it. On the other hand, economics rests on a foundation of human volition, so, unless you adopted an extreme behaviorist position, there is simply no way to optimize economics.
Second, we have to agree to the purpose of economic activity. It is not to
maximize jobs, or create "wealth", or any of the other goals some have suggested. Jobs, for example, are a means not an end, otherwise we would all work for no pay when we couldn't find a job. We work to have money to spend, we do not spend in order
to give us a reason to work. Likewise, wealth is not a goal, but a means to an end. Except for a handful of numismatists, wealth per se is meaningless. If it were inherently valuable, we could print all we want and be utterly happy. Instead, we complain as money buys fewer goods per unit of money, which suggests "wealth" is just a means to an end as well.
No, the single purpose of economic activity for the individual is to provide fulfillment of wants, or, more generally, to make individuals happier. We work to earn money to purchase what we want. We accumulate wealth to buy things we want. We save wealth to provide fulfillment in the future, or to provide satisfaction for our family or others. On a collective level, the purpose of the entire economic system is to allow individuals to interact to achieve the maximum satisfaction possible. Some will achieve more, some less, but overall everyone benefits form cooperation, achieving more happiness than they would working on their own.
And that is where government involvement breaks down.
The free market has a pretty good gauge of collective desires in the price system. It sometimes may not accurately reflect desires, but if that is the case there will either be a shortage or a glut which will cause prices to quickly change to reflect aggregate desires. Once the government gets involved, it distorts or, once it is involved enough, destroys the price mechanism. Once that is gone, there is no way to know what is desired. This results in misallocated resources. From the notorious Soviet overproduction of unneeded goods while massive lines waited for others, to the absurdities of the "bridge to nowhere", the government inevitably cannot judge well what is most urgently needed, and so ends up misallocating what resources it controls.
Of course, I could go into this in greater detail, and I did in the posts I cited earlier, but for now, I think this is the crux. Without a price system, it is impossible to know what is wanted. Without that knowledge, people will be less satisfied, and thus collectively we will all be worse off. Which means, unless your goal is to create less overall satisfaction, government involvement, or worse, management, of the economy is a bad idea.