Quotation of the Day…

by Don Boudreaux on September 5, 2020

in Competition, Complexity & Emergence, Prices, Seen and Unseen, Subsidies, Trade

… is from pages 38-39 of Kristian Niemietz’s important 2019 book, Socialism: The Failed Idea That Never Dies:

Planned economies have no way of replicating this knowledge-collecting and knowledge-disseminating function of market prices. They therefore deprive themselves of vast amounts of information, which must lead to worse economic decisions. This is not just a problem for fully planned economies, where prices are set by a planning board. It is also true in an economy where the private sector accounts for the bulk of economic activity, but where the government tampers with market prices.

DBx: The more totalitarian the regime, the more extensive is its control of the flow of knowledge – of the ability of the people under its jackboot to generate, test, and share knowledge with each other and with the outside world. The most obvious way governments control the flow of information is through censorship of the media and of speech. But another equally unethical and destructive means that governments use to control the creation and spread of knowledge is to obstruct commerce among adults spending and investing their own money.

Interventions such as tariffs, price ceilings, and wage floors block mutually beneficial exchanges that would otherwise occur. Subsidies do the same, but more indirectly: The gains to the parties of subsidized exchanges are lower than the losses of the persons whose resources are seized and then used to subsidize those exchanges. (We can be sure of this reality because, if it weren’t true, coercion would be unnecessary to get the resources in question into the hands of the parties to the subsidized exchanges.) With fewer resources at their disposal, the parties who are compelled to pay for the subsidies can no longer make some mutually beneficial exchanges that they would have otherwise made.

The larger point is that all such interventions make society more ignorant. All such interventions prevent the creation and sharing of knowledge. It’s true, again, that full-on socialist regimes, compared to less-interventionist ones, impose more extensive and draconian controls on the media and speech. And it’s true also that full-on socialist regimes impose more extensive and draconian controls on knowledge-generating commercial exchanges. But it’s untrue that government-orchestrated destruction of knowledge happens only with full-on totalitarianism or socialism.

Few people outside of those who embrace cancel culture would disagree that mild restrictions on the media and speech prevent some useful knowledge from being created and shared. It is no defense of such mild restrictions that they aren’t as draconian or as destructive as are the restrictions imposed by more-interventionist regimes. No serious person argues that restrictions on speech and the press have ill effects only when such restrictions are total.

Yet many people argue that restrictions on commerce have no ill effects until and unless such restrictions are complete. This argument is mistaken. While the amount of knowledge destroyed by tariffs is less than was the amount of knowledge destroyed by Soviet socialism, tariffs nevertheless destroy some knowledge. While the amount of knowledge destroyed by subsidies is less than is the amount of knowledge destroyed by the brutal economic restrictions now in place in Venezuela, subsidies nevertheless destroy some knowledge.

Obstructing commerce – either directly, as through tariffs or minimum-wage diktats, or indirectly, as through subsidies – destroys some knowledge. Obstructing commerce makes society more ignorant and, thus, more subject to avoidable error.


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