“I Want Plans by the Many, Not by the Few”

by Don Boudreaux on May 8, 2011

in Books, Complexity & Emergence, Hayek, Hubris and humility, Other People's Money

Here’s a second response to Fukuyama’s review of Hayek’s Constitution of Liberty:

Reviewing F.A. Hayek’s The Constitution of Liberty: The Definitive Edition, Francis Fukuyama writes that “there is a deep contradiction in Hayek’s thought.  His great insight is that individual human beings muddle along, making progress by planning, experimenting, trying, failing and trying again.  They never have as much clarity about the future as they think they do.  But Hayek somehow knows with great certainty that when governments, as opposed to individuals, engage in a similar process of innovation and discovery, they will fail” (“Friedrich A. Hayek, Big-Government Skeptic,” May 8).

Hayek was guilty of no such contradiction.  Mr. Fukuyama wrongly convicts Hayek on this count by mistaking government planning and “muddling along” as being “a similar process of innovation and discovery” that occurs so successfully in the private markets that Hayek championed.  The two processes aren’t remotely similar.

Plans in private markets are decentralized; government plans are centralized.  Private-market planners risk their own money; government planners risk other-people’s money.  Plans in private markets face constant competition from rival private plans; government plans are monopolies which face no such competition.  This competition prevents plans in private markets from growing in scope to outstrip the knowledge and capacities of persons who make and carry them out.  No such competitive check constrains the scope of government plans.  Finally, plans in private markets – unlike government-made plans – often cross-pollinate with each other to inspire the creation and discovery of entirely new possibilities that would remain unknown without such decentralized planning within competitive markets.  Government ‘plans’ almost inevitably suppress such possibilities of cross-pollination, creation, and discovery.

Sincerely,
Donald J. Boudreaux

Or, more eloquently, as Hayek raps to Keynes in “Fight of the Century“:

I don’t want to do nothing, there’s plenty to do
The question I ponder is who plans for whom?
Do I plan for myself or leave it to you?
I want plans by the many, not by the few.

Finally, my friend Tibor Machan nicely challenges Fukuyama’s pronouncements about Hayek’s system of ethics.

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{ 42 comments }

Doug Moreau May 8, 2011 at 2:30 pm

Even without your last, and brilliant, response, Fukuyama’s premise is flawed. He distinguishes between “governments” and “individuals” as if they are a separate organic entities. In fact, government decisions are made by the same human beings whose flaws he critiques, with another layer or series of layers within which they, if his premise of human failure is correct, are bound make additional mistakes. He disproves his own argument without having the objectivity to realize it. Hayek can know with great certainty that central planning will fail because it is done by more of the same flawed humans with less motivation to succeed than those who possess their own expertise and incentive. Perhaps Fukuyama is auditioning to be a “Bureaucrat Czar”.

Retardo May 8, 2011 at 2:36 pm

Most importantly:

Most plans FAIL. People aren’t good at planning. MOST plans FAIL. ALL people are bad at planning. ALL PEOPLE are BAD at planning.

With a multiplicity of private plans, this is a problem only for a few people directly involved, and it’s almost never fatal for anybody. There’s always a backup down the street — in fact, that’s why private plans usually fail: The customers all switched to the guy down the street. The good ones rise to the top; the bad ones run out of money.

It’s a genetic algorithm.

With government plans, when they fail, and they do fail even more often (because the incentives are always perverse), there is no backup and everybody suffers.

If Fukuyama can’t grasp that, he is functionally a moron.

Sam Grove May 8, 2011 at 3:09 pm

And often when they fail, the conclusion is that not enough money was spent because they believe that spending money (with good intentions) is all that matters in achieving success

Seth May 9, 2011 at 11:31 am

Exactly. Most plans fail. In the private market, failed plans go away. In the public market, failed plans that appear to be driven by good intentions (and have vested special interests) can get bigger.

That is the insight that changed my mind on the effectiveness of government and I have never heard a compelling argument against it.

The arguments against are usually: ‘some gov’t plans go away’ or ‘some gov’t plans succeed after getting bigger’ or ‘some gov’t plans succeed’, none of which actually counter the argument.

Methinks1776 May 9, 2011 at 12:19 pm

Seth, I don’t think that plans must have the veneer of good intentions to stick around, ensuring that government projects are always negative expectancy.

Apolloswabbie May 9, 2011 at 2:01 pm

Great point and one not made often enough due to the human propensity for conceit.

Joshua May 9, 2011 at 4:12 pm

Chinas planning is leading to exceptional growth. Perhaps markets are the optimal way, especially for those countries with the most advanced economies, but certainly not the only way.

It can be argued also that despite many american’s ideology favoring free markets, in reality there is a large portion of the economy that is state directed or sponsored including the military industrial complex, NASA and university research (the internet). Further, it is a counterfactual to say that the existence of state funded education or health workers, police, infrastucture builders or municipal workers, etc. are a drain on the economy or that somehow America would be doing even better if the maximum number of social functions were perfomed by markets.

One persons consumption is another persons income, and that is why redistribution is a net benefit to GPD. Of course politics isn’t about overall societal well being, it is about individuals well being.

Emil May 9, 2011 at 4:31 pm

1) state funding does not exist. The state does not have any money of its own, it only redistributes that of its citizens.

2) China began growing when it started planning less not when it began planning more

3) redistribution is not about consumption, it is about redistribution

Seth May 9, 2011 at 4:55 pm

“Of course politics isn’t about overall societal well being, it is about individuals well being.”

The individuals being the politicians and their cronies.

gregworrel May 8, 2011 at 3:06 pm

An individual planning for himself is far more likely to get the results he seeks than if his neighbor,or worse, some legislator or bureaucrat, plans for him. Both the knowledge and incentives are wrong when someone else does your planning for you.

When millions of people are planning, some portion of them are likely going to do the right thing, even if by sheer luck. They then provide examples for others to follow. In the case of businesses, some will discover the lowest cost way to satisfy a need while others fail and start over, with the positive examples leading the way.

There certainly is no contradiction to say that government plans are likely to fail while individuals planning for themselves produce better results.

Of course much of central planning is not about helping individuals achieve the results they seek, but instead attempts to insert the goals of the central planners. Which is another reason why they usually fail to produce the intended results.

Joseph K May 8, 2011 at 3:37 pm

I was just looking at the review, which I hadn’t read all the way through last time, and I can’t believe how he makes such statements like this: “Voters in the United States and Europe took seriously the arguments about the dangers of big government and reversed course after the 1980s. Indeed, the pendulum swung so far backward that financial markets were left dangerously unregulated prior to the financial crisis.” Dangerously unregulated? Really? Definitely not by Hayek’s standards. Of course he doesn’t cite actual examples, probably because he knows just about nothing about it. There have been examples of deregulation, but they’re very limited, for example, loosening rules on S&Ls, eliminating bans on interstate banking and repealing Gramm-Leach-Bliley. People like Fukuyama always speak in vague terms about “deregulation” but seldom talk specifics or ever note that financial regulation has overall been growing, a lot.

vidyohs May 8, 2011 at 9:38 pm

Sir Don,
This is the kind of post that keeps me coming back to the Cafe as the best blog on the internet.

Vikram May 9, 2011 at 12:14 am

I will second that.

Rudy May 8, 2011 at 10:17 pm

I will second that motion!!

Vikram May 9, 2011 at 12:14 am

:-)

indianajim May 8, 2011 at 10:34 pm

If Fukuyama continues with this line of “scholarship” we can look forward to his endorsement of naive/vulgar Keynesianisms in the near future.

kyle8 May 8, 2011 at 10:39 pm

To be fair I would say that there are cases in which Government can act just like the private sector and Muddle through to a conclusion by trial and error.

One example of this would be warfare, another would be big projects like for instance the Space program.

However, those would be special considerations, in most cases Government adopts a plan, and tries to work it’s plan, whether that be Welfare, or urban housing, or public health care, or minimum wage. etc.

And it works that plan regardless of whether it is causing more harm than good. Because the “best and the Brightest” decree it, and they are smart, they went to the best universities, and they could never be wrong.

JTM May 9, 2011 at 9:24 am

War and space explorations differ from most other government exercises in that the objectives of the former are clear cut. When a battle is lost or a booster rocket blows up, the needed response to obtain the objective is clear. In those instances, series of incremental improvements can more often be expected. The same can’t be said about objectives such as “improving living standards.”

dithadder May 8, 2011 at 11:56 pm

Plans in private markets are centralized in individuals; government plans are centralized in capital cities. Private-market planners risk their own money; government planners risk their own government’s money. Plans in private markets face constant competition from rival private plans; government plans face constant competition from rival governments’ plans.

rpl May 9, 2011 at 7:51 am

Nice try, but unfortunately wrong on all counts:

It is not possible for multiple plans to be “centralized” in many individuals. “Centralized,” by definition means that there is only one.

Risking one’s own money is not remotely the same as risking the government’s money. In the former case, the person authorizing the risk bears the loss if things turn out poorly; in the latter case someone else does.

There is no meaningful competition between plans of “rival” governments. Only one government is authorized to operate in a particular geographical region, so there is no competition there, and there is virtually no competition for citizens because governments impose restrictions on migration.

dithadder May 9, 2011 at 9:39 am

Good points.

Decision-making in the free market is centralized all the time. So I’m not sure that decentralization is inherently superior.

I’d say that risking the government’s money is somewhat similar to risking one’s own. In theory, and I think it works out practically, albeit highly imperfectly, mismanagement of government money will get a politician fired by the electorate, or a bureaucrat fired by a politician.

To paraphrase Robert Heinlein, you try to explain to a Carthaginian that Rome wasn’t authorized to operate in North Africa. Or more recently, surely health care in Canada has pressured us to socialize health care in America (and surely we’ve pressured Canada to liberalize health care).

Methinks1776 May 9, 2011 at 10:51 am

There’s no such thing as “risking the government’s money”. The government doesn’t have money. Everything the government has it takes from you.

Forcing a third party to take risks is absolutely nothing like choosing to risk your own capital. How do you not understand that?

Mismanagement of YOUR money by government never gets anyone fired. Ever notice the number of incumbents? Even if they do, on occasion, get kicked out of office, the failed plan never does. And if you think mismanagement of funds ever gets a bureaucrat fired, I suggest you don’t know anything at all about bureaucracies.

I recommend you wake up and take a dip in reality.

dithadder May 9, 2011 at 11:27 am

Rightly or wrongly, after I pay my taxes, it’s not my money anymore. And last November a lot of politicians got fired for mismanagement. I hear what you’re saying that despite last November spending is still high, but I was cheered by the direction if not the magnitude of the change in spending achieved by Boehner’s Congress (I must admit that I’m personally charmed by Boehner’s “Hell No!”‘s and his crying episodes).

I just think that to regard, say, Apple as organic and naturally right and the government as something that’s been foisted upon us by the Space Thinker is not helpful.

Methinks1776 May 9, 2011 at 12:17 pm

Well, then. How about we pass a 100% tax rate and none of your money will be yours anymore? Seems easy enough.

Last November a bunch of politicians were fired. Yet, Obamacare is still with us as is out of control spending. I think my point has been made (notwithstanding the clueless, bawling Boehner).

I have no idea where you got the inane space thinker idea, so I don’t feel compelled to address this drivel.

dithadder May 9, 2011 at 2:05 pm

I think you’re being a little bit unfair to expect that one midterm election could fix such a longstanding fiscal problem. Again, I’ve been pleased with the results so far, but I think it’s going to take 3 or 4 elections to get a proper fiscal rationalization underway.

I think I agree with you when I think that our current political system is flawed, and fatally so. Then again, my body is fatally flawed. It won’t last forever. I wonder what you would replace it with? My pet utopian idea is to let people market their suffrage to the highest bidder.

kyle8 May 9, 2011 at 4:51 pm

now that is an interesting Idea, selling your vote. (not that this does not allready happen).

I have another idea? Why not a lottery? You just take all of the adult citizens who pass a certain threshold of educational level and if their name is drawn they are drafted into congress. No way to get out of it, they have to do their duty for one term.

dithadder May 9, 2011 at 7:31 pm

Heh heh I’m a little leery of your educational threshold, not being a college graduate myself.

Maybe we have the necessary infrastructure for Dan Simmons’s All Thing? http://webcache.googleusercontent.com/search?q=cache:77TPKtPWIjUJ:en.wikipedia.org/wiki/The_Fall_of_Hyperion+all-thing+dan+simmons&cd=3&hl=en&ct=clnk&gl=us&source=www.google.com

Methinks1776 May 9, 2011 at 8:04 pm

So, your solution is slavery, Kyle? Uh. OK.

How about markets. You know….voluntary exchanges between free people? Seems somehow more civilized.

Vikram May 9, 2011 at 12:16 am

Crystal clear. This is the best ever, Prof. Don.

David May 9, 2011 at 5:58 am

Kyle8 you’re not wrong, your point is made, horrifyingly so.

How bout instead of calling those “special cases” let’s call them “gargantuan cases” because that’s what they are, incredibly huge expenditures the common man can’t imagine in his budget.

With such gargantuan endeavors come gargantuan errors and equal price tags. The trillion dollars a year wasted on war in the USA could be used much better elsewhere, the cost overruns and hidden costs are appropriately astronomical.

I am less critical of NASA but I shouldn’t be. Maybe if it takes the forced slavery of 300 million people to build that pyramid then it’s true that the technology is not cheap enough yet to be viable?

Sad to say but if the private market can’t take up space exploration then it’s not efficient enough to be economically viable, and as much as i love it we should end it until the technology evolves enough to make it a worthwhile endeavor.

kyle8 May 9, 2011 at 4:47 pm

How am I wrong? I never said that anything the government does was not expensive, least of all War. All I said was that in those few cases Government could adapt and improve when it had to.

And it does not do so in cases of social programs, because those programs are set up with a different set of expectations and are not results oriented.

Don May 9, 2011 at 2:28 pm

The inherent problem with government planning is that the government will not allow bad plans to fail. The zombie lives on forever. Private plans follow a form of economic natural selection. The strongest survive. When bad business models are implemented the company dies (or is supposed to), but when a government implements a bad plan, what do you get? More plans.

Emil May 9, 2011 at 3:06 pm

Actually, I think the real problem is about competition. When government does something you have 1 (ONE) plan. When the private sector does something you have N plans

Joshua May 9, 2011 at 4:17 pm

How many people plan to build a toll free highway? An army? A spaceship? An elementary school in the ghetto? A nuclear power plant? Some things just aren’t practical for individuals or even firms to bother with.

Emil May 9, 2011 at 4:25 pm

1) Why do we need toll free highways? It’s not like they are for free because they are toll free… (May I remind you that many of the railways in the US were built by private companies?)

2) it would seem better if there were less armies and not more. Having said that, private armies are not really an unknown phenomenon

3) I think there are several ongoing private initiatives to build space ships as we speak

4) I have read several stories about private schools in ghettos

5) they main thing stopping private companies from building nuclear power plants is regulation. We can claim that this is a good or a bad thing but it is a but too much too claim that the fact that private companies are not allowed to build nuclear power plants means that they don’t want too build them

Don Boudreaux May 9, 2011 at 4:31 pm

Joshua: I recommend to you Bruce Benson’s 1990 book The Enterprise of Law:
http://www.amazon.com/Enterprise-Law-Justice-Without-State/dp/0936488301/ref=sr_1_1?ie=UTF8&s=books&qid=1304972961&sr=1-1

The reality of free markets is always more creative than the imaginations of even the most imaginative individual.

Joshua May 9, 2011 at 4:55 pm

Thanks, I think I’ll download that for free

Don Boudreaux May 9, 2011 at 4:28 pm

Why should highways be toll-free? Plenty of individuals in the past have build tolled highways. And what makes you think that no one would build an elementary school in a ghetto if government didn’t heavily subsidize government elementary schools there? As for nuclear-power plants, there’s no reason in the world such would not be built privately if the projected value of such a plant were greater than its costs. Ditto for spaceships?

As for armies, perhaps you’re correct – but perhaps in a world with much-smaller government more decentralized methods of protection from aggression would be used (such as, for example, the fact that even today in the U.S. the vast majority of policemen are employed privately and not by municipalities, states, or Uncle Sam).

carlsoane May 9, 2011 at 4:40 pm

Consider your examples. Most of them have sustainability problems and/or you’ve failed to credit private alternatives appropriately.

Toll free highways: by subsidizing highway construction we’ve created massive sprawl problems.

Army: I agree that the government should run the military, but it’s worth noting that we are suffering classic imperial overstretch at the moment because we are abusing this subsidized resource.

Spaceship: NASA is having huge cost overruns and is falling behind the technology curve. And, we are seeing the rise of private sector alternatives.

Nuclear Power Plants: The debate should be on the underlying requirement which is to provide energy, and not on a particular implementation. The private sector is fully capable of providing energy.

Elementary Schools in the Ghetto: Our inner city schools are in dire shape. There is plenty of evidence of private and parochial school systems functioning in the ghettos of the US and other countries. I believe we should provide finance for poor children’s primary and secondary education, but that doesn’t mean the government has to run the schools.

carlsoane May 9, 2011 at 4:45 pm

Looks like Don responded before I refreshed my browser. I could have saved myself some time.

Apolloswabbie May 9, 2011 at 4:33 pm

The left, the statists, currently frame the dialogue. The dialogue centers around “what should be done”, or “what should we do” or some other statement that implies goodness comes from government action. The only possible dialogue is “what government action should be taken to produce more goodness.”

Framed that way, the debate skips over entirely the matter of liberty, which is virtually always in opposition to government action. The fact that government’s purpose is the defense of liberty is nearly ignored. I can’t think of a single politician who got elected, or could get elected, for saying, “I if elected, will work tirelessly, day and night, to defend your individual liberty.”

It is because liberty has been eliminated from the debate, and “what govt action will be taken” is the only matter under discussion for all practical purposes, that we have discussion of grand central planning scemes, which are taken seriously by educated people. We all know on some level that government never really gets it right, and we don’t even expect it to. People hardly bat an eye when we talk about 10-40% fraud in medicare, but then say with great satisfaction that it is under-regulated, greedy capitalists who “ruined the economy.” The cognitive dissonance is immense.

A government doing nothing in addition to or excess of defending the individual rights of citizens is the starting point. No justification should ever have to be made for a government NOT doing any particular thing. The only justification that should ever have to be mounted is by the Keynesians and their ilk who say they think they know how to accomplish something good through the coercive monopoly of the state.

IOW – as much as I relish the continued and effortless pounding of the Keynesians, shooting fish in a barrel as it were, the fact that we even debate the relative merits of Keynesian economic philosphy is proof of the fact that the more significant debate was already lost, that being “what is the role of government and how may a government be strong enough to accomplish that role but limited such that it cannot do harm.”

N. Joseph Potts May 10, 2011 at 7:57 pm

This binary discussion of plans “failing” or “succeeding” misleads the argument. Some plans work “better” and other plans work “worse.” And they do these things in different ways, for different people, at different times. It’s ALMOST futile even to discuss plans working “better” or “worse” except in some Benthamite scheme that tots up “utility” for different people and aggregates it somehow.

The issue is better addressed on an a priori basis: who has the INCENTIVES over time to produce results more pleasing to those investing (or paying taxes)?

THAT is a slam-dunk answer, and was even before James Buchanan and Gordon Tully so elegantly formulated it in Public Choice theory.

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