This is a worthy article that powerfully reminds readers that looking
for a clear decision point from market driven data is impossible an d
naturally risky. Worse, we can organize and classify all that data
to produce trends that are briefly real. Yet that same trend swiftly
brings about a dynamic response from other decision makers.
Thus naturally analysis of the data produces counter trends that
mitigate the analysis and we are forced back to tossing coins.
What needs to be understood though, is that alterations in the
foundational structures will produce alteration in the outcomes. By
this I mean choices in money supply, capital access, interest rates,
taxes and the list goes on. Better it also includes setting a
minimum wage distribution system and similar distribution schemes.
In short, if you wish to achieve a better outcome, it can not be done
safely by simple fiat but it can be done by adjustment of key
parameters to disturb the market in a favored direction.
Thus providing a viable credit system for student loans in the early
sixties produced a huge expansion of the middle class and income tax
revenues. It also produced a funding model for those schools that
have seen costs been promoted upward ever since. It may no longer be
viable.
Inconceivable
Complexity
AUGUST 29, 2012
by DONALD BOUDREAUX
We’ve all seen old
photos and film clips of people trying to fly like birds. Each of
these aspiring aviators has wing-like things strapped to his arms.
But no amount of flapping, however furious, ever gets him airborne
like the birds he’s trying to imitate.
The man dressed in
wings observes a flying bird and then analogizes his own limbs and
muscle movements to what he supposes, from his observations, are
those of the bird. But the human is misled into thinking that because
he’s intelligent and has some body parts that are more or less
analogous to a bird’s body parts, he can easily enough mimic the
bird’s body and movements and thereby achieve flight.
Of course this man is
deeply mistaken. Despite our smarts, we humans can observe only a
tiny fraction of the details that enable birds to fly. We can with
our naked eyes observe only the most obvious, large, “macro”
details (“bird flaps limbs that extend from bird’s upper torso”;
“bird’s flapping limbs are made of lightweight, flexible,
overlapping things that we call ‘feathers’ ”). But the amount
of detail that we don’t—that we cannot—observe through simple
observation is overwhelming. The bird’s musculature; its
cardiovascular system; the weight, positioning, and minuscule
maneuverings of its tail—these and countless other relevant details
aren’t observed.
We see only an animal
extending itself horizontally, flapping its limbs, and then, voila!,
it is safely and gracefully airborne!
Modern science and
technology, of course, have taught us why we cannot simply strap on
wings and fly like birds. We now understand just how numerous, and
unobservable to the naked eye, are the details that enable birds to
soar. The exact positioning and strength of a bird’s wing and tail
muscles; the bird’s blood pressure; its sensory receptors that
alert it to changes in wind direction—science reveals to us (some
of) these myriad details and teaches us that they are indispensable
to that bird’s ability to fly.
And science makes
clear just how essential nearly all of these details are. Alter a
detail here and the bird’s flight becomes less graceful; alter a
detail there and the bird is no more able to fly than is a goat.
Awe and Admiration
The common reaction to
scientific revelations of the enormous complexity of the flight of a
seemingly simple sparrow is to admire nature’s handiwork. Such
fine-tuned intricacies—yet all the creation of natural selection!
And our admiration
properly prevents us from supposing that that our newfound scientific
knowledge of birds gives us power to fly by flapping our wing-dressed
arms. (To fly we rely on quite different principles, most commonly
fixed-wing aviation.) Awe-struck by nature’s handiwork, we
correctly realize that even some really smart Leonardo or Einstein
could not possibly match, and much less outperform, “mindless”
natural selection at creating a real flying bird.
Unfortunately, the
same wisdom that guides our understanding of biology all too often
abandons us when we contemplate the economy.
Attempts to
centrally plan economies, or even to intervene in major ways into
market economies, are very much like humans’ attempts to fly by
dressing like birds and flapping fake wings: utterly futile, and
potentially calamitous, because the most that can be observed of any
successful economy are a handful of large details (assembly lines,
retail outlets, money). Consciously calling into existence steel
factories, wheat farms, supermarkets, currency, and other apparently
obvious keys to economic success, and then trying to get these things
all to work together to achieve economic takeoff, is akin to a man
strapping sheets of fake feathers to his arms and legs and trying to
fly. The effort simply won’t work, even if it appears to the
untrained eye as if it should.
This
reality isn’t altered by modern science.
Indescribable
Complexity
A market economy is
indescribably vast and complex—its success depends on so many
intricate, changing details all somehow being made to work smoothly
together that the “facts” that are essential to its thriving
cannot be catalogued with anywhere near the completeness that can be
achieved by a 21st-century scientist studying and cataloging the
“facts” that enable sparrows to fly. A sparrow is complex
compared, say, to a limestone rock. Compared to the modern market
economy, however, a sparrow is extremely simple.
A surge in the supply
of steel in Detroit for the month of October 2012—an uptick in
consumer demand for a specific color of car and a downtick in demand
for another color—the possibility of using a new financial
instrument to spread investment risks more widely—unexpected
difficulties in hiring workers who possess a certain set of skills—an
innovation that lowers the costs of advertising—an electrical
failure that threatens to shut down for several days a section of a
factory—a trucking company that discovers it underestimated the
fuel costs of delivering 1,000 new automobiles to dealerships
throughout New England. . . . Dealing with details such as
these—details that Hayek called “the particular
circumstances of time and place”—is not incidental to the success
of a modern economy; it is of the essence.
Awareness of these
facts, and of knowledge of workable options of how to respond to
them, are key to the growth and continued success of any market
economy. These facts are dealt with successfully only in market
economies and only to the extent that individuals on the spot are
free to respond to these facts as they, individually, see fit.
Yet no observer or
planner or regulator can see and catalog all these highly specific
facts. The facts—each of which must be dealt with—are far too
numerous at any moment for an observing scientist to catalog even
if that moment were to be frozen for decades. Greatly intensifying
this complexity is the reality that these facts are forever changing.
A moment from now many of these facts will be different from what
they are at this moment.
Nevertheless, too many
people, including politicians, continue to believe that because they
can observe a handful of bulky facts about the economy, they can
thereby know enough to intervene into that economy in ways that will
improve its operation. That belief, though, is hubris. It’s very
much like believing that you’ll fly if you simply strap on a pair
of wings and commence to flapping madly.
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