Below is the lantern Espen bought me at LL Bean. You crank it up and it produces light. I already had a crank up flashlight that I have been using for more than a year. These are great innovations. You don’t need to think of batteries or plugs, probably as close as you can come to that free lunch.
Anybody who tells you that he understands the economy in all its complexity is lying. It is not possible for one person or any group of persons to understand. The data is not available and even if it was there is no way to integrate it. Beyond those two formidable problems, the economy is constantly changing, so you will always be a couple steps behinds. These are some of the reasons why central economic planning has never worked. And the economic planners have even another hurdle: their plans and action will change the assumptions and facts.
Central planning is grabs the popular imagination because people haven’t thought through the factors and we just find it hard to accept that something so important to our lives is fundamentally unknowable, unplanned and chaotic. What I just said is another basis of misunderstanding because it is only true within a flawed set of assumptions. The economy cannot be comprehensively planned by anyone whose job it is to be a planner, but it is certainly not unplanned.
We have in place a wonderfully effective method of aggregating distributed knowledge and allowing for dispersed decision making. Our market system works better than any alternative to give most people the capacity to make choices about their lives. It produces the best results in the long term, but nothing is perfect all the time.
It seems a contradiction that the free market requires government intervention in the form of rule of law, regulation and periodic kicks in the ass. I learned this in Eastern Europe. When I went there after the collapse of communism, I thought that all that was required was to get rid of the oppressive state structures. The fall of communism provided a kind of laboratory, where we learned that removing the state interference was necessary but not sufficient. Governments and civil society have to build the sinews of the market economy.
The difference between a life saving medicine and a deadly poison is in the dosage and the application. The same goes for government intervention. We need to keep this in mind with all these bailouts. The lifesaving therapy, applied too broadly, becomes a deadly poison. It is also good to keep in mind that what worked yesterday may not work today or tomorrow and that this does not need to signify failure, abuse or incompetence. I ate a big meal yesterday, yet I think I will need to eat again today. I didn’t fail to eat properly yesterday; it is just an ongoing solution.
There exist truths that are unknowable by us in an absolute sense, but they are not unknowable in a practical sense. They may also be unknowable to any one or any group of us but they are not unknowable by all of us aggregated into societies and markets. When large groups of people make estimates independently, the aggregated estimate is usually better than the individual estimates of even the best and the brightest among them. That is why democracies and markets work. Governments can tap these reservoirs of human information, imagination and innovation but cannot control them. The seeming contradiction is that it only works as long as you don’t try to make it work.
Government management of the economy is a chimera. Having the government take decisive action is very appealing and we sometimes need the intervention, but knowing when to stop, combined with the wisdom to know that perfection is impossible and that we cannot get everything we want, is the key to long term prosperity.