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Quotation of the Day…

… is from page 92 of my late Nobel-laureate colleague Jim Buchanan’s 1996 article “Economic Freedom and Federalism: Prospects for the New Century,” as this article is reprinted in James M. Buchanan, Federalism, Liberty, and Law (2001), which is volume 18 of the Collected Works of James M. Buchanan:

[T]he centrally planned economy failed because it did not, and cannot, utilise either the knowledge of opportunities or the incentive structures that emerge more or less naturally in markets.

DBx: Yesterday I was interviewed by Juliette Sellgren for her forthcoming podcast series, Juliette’s Uncommon Knowledge. Juliette is a high-school junior with uncommonly good sense about the economy. The first question she asked me is what’s the one thing that kids her age should know that they don’t. I replied: “How incredibly complex and productive is the world we live in.” (I don’t recall my exact words, but they were something along these lines.)

This complexity goes unnoticed, ironically, because it is so all-encompassing, and because market economies work with such amazing smoothness and reliability. (Note that I do not here say – and I do not mean to imply – that markets are perfect, by whatever criteria you might use to assess their performance.)

Flip the switch and there’s light. Indeed, it’s increasingly commonplace literally just to issue a mere voice command in order to summon light! (“Let there be light!” – and there is.) Or even better – as is true for my offices at George Mason University – is that mere motion turns on the lights. I walk into my office and light happens.

Or this: press a few buttons on a computer connected in real time to billions of sites around the globe and, at a cost of less than an ordinary American’s hourly wage, arrange for the market to deliver within 48 hours to your doorstep a new pair of jeans. For a few extra bucks you can have the jeans delivered to you in no more than half that time.

And the jeans: who made them? Answer: no one. No one.

The jeans delivered to your front door literally are the product of the creativity and effort of tens of millions – more likely, hundreds of millions – of individuals spread across the face of the earth. The cotton farmer; the unknown innovator who developed the specific kind of thread used to stitch together the pieces of cotton fabric; the chemist whose efforts are an important input into creating blue dye; each of the actuaries who enable each of the many insurers of all the different enterprises – from farmer to delivery service – to operate profitably; the oil-field workers who toil to drill for oil that is refined into the gasoline that powers the delivery truck; the jeans’ designer; the software engineers whose efforts assist the jeans’ designer, and the other software engineers whose efforts helped to make the navigation system for the delivery truck; the developer of the machine that coated the delivery truck with paint that protects the vehicle from rust; the many employees of the unheralded company that makes the button for the jeans; the many employees for the other unheralded company that makes the zipper for the jeans; the many employees of yet another unheralded company that makes the metal or composite-material matter that form the zipper’s teeth; the … you get the idea.

The notion that any human mind, or committee of human geniuses, can gather all the detailed knowledge and information that the market uses every moment in the process of making available a ‘simple’ pair of jeans is beyond preposterous. I know no word to fully capture how absurd such a notion is. And so the conceit that a human mind or committee of human geniuses can plan and operate an entire economy – or can surgically intervene in ways that are productive into this stupendously complex globe-spanning market process of human cooperation and competition – would be utterly laughable were this conceit not so dangerous to human prosperity.

Words – often so beautiful and alway indispensable to our humanity – are sometimes deeply misleading. “The U.S. economy” – “the Kentucky economy” – “the aluminum industry” – “middle-income workers” – “the annual volume of Peru’s imports” – “U.S. exporters” – “average real wages” – “the interest rate” – “the price of bacon” – “middle managers” – “the health-care sector” – “the distribution of income in France.” Each of these terms, and many others akin to them, have some real and useful meaning when considered carefully. But they too-often mislead, for at least two reasons:

First, word and terms such as these create the illusion that these phenomena are things defined by nature rather than by human convention and purposes.

Second, words and terms such as these hide the enormous swirling complexity that gives rise to the measurable surface manifestations.

These two false impressions create the fatal conceit that human beings can consciously intervene in ways that are likely to improve matters – to move reality closer to some imagined state of perfection. Bernie Bros and Thomas Piketty want a more equal ‘distribution’ of income: no problem, use the state to take money from some people and give it to others. Simple. Mission accomplished. No or few unintended negative consequences.

Oren Cass and other nationalist conservatives want to slow the rate at which economic change – especially that which is fueled directly by international trade – causes job churn: no problem, use the state to slow this change. Simple. Mission accomplished. No or few unintended negative consequences.

“Progressives” want a greater abundance and more widespread availability of high-quality health-care: no problem, hire a few elite-school economists to draw up a scheme for using government power to overhaul “the” health-care sector and, voilà, high-quality health-care is more abundant and available.

Neocons perceive that the political and economic conditions of some foreign countries are not ideal – or at least not ideal for Americans: no problem, send in U.S. “advisors,” “aid,” and, if necessary, troops. We – our best and our brightest and our bravest – will fix the problem! There will be no or few unintended negative consequences. (And if you insist otherwise, well, that reveals you to be unpatriotic as well as ignorant of America’s glorious history.)

How naive are such conceits borne of the failure to grasp the enormous complexity of social and economic realities.


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