Quotation of the Day…

by Don Boudreaux on December 18, 2022

in Complexity & Emergence, Other People's Money

… is from page 195 of economist Lionel Robbins’s excellent and still-relevant 1937 book, Economic Planning and International Order (original emphasis):

Our judgment of the success of any organization therefore must be based, not on its capacity at any moment to achieve the “ideal”, but upon its capacity continually to tend in that direction.

DBx: One of the finest yet most-underappreciated features of the free market is its ability to discover and correct errors.

Errors are unavoidable. Resources are used wastefully here and suboptimally there. Some people in some capacities are poorly informed. Particular workers are underpaid while others are overpaid. Today this employer has ‘excessive’ bargaining power, as does that seller of widgets. But nearly all of these errors are profit opportunities. Alert and creative entrepreneurs earn profits if and when they successfully ‘correct’ market errors. Underpaid workers, for example, are like $100 bills lying on the sidewalk. Ditto for consumers buying overpriced outputs.

Because market participants spend their own money, they confront powerful incentives not to err and, no less importantly, both to be on the alert for their errors and to correct their errors ASAP. The market punishes strongly the throwing of good money after bad. The market also, because it typically features simultaneous ‘experiments’ – that is, different firms simultaneously trying their hands at satisfying the same consumer demands or ‘solving’ the same ‘problems’ – readily exposes those particular activities that work best.

Matters differ categorically for government actions. Politicians and bureaucrats spend other people’s money, and they do so often in contexts in which no one else can compete simultaneously. Errors aren’t readily or obviously exposed, and even when some hint of error is given, the politician’s and bureaucrat’s incentive is never to admit error. Instead, this incentive is either to deny error or, if such denial is plainly foolish, to cast blame on others or to assert that success will surely come if more money is thrown at the problem.

As Arnold Kling often counsels, “Markets fail. Use markets.”

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