Free markets achieve amazing results by assimilating vast amounts of dispersed information while requiring no masterminds.
A 1962 publication, Clichés of Socialism, listed as its number one cliché, “The more complex the society, the more government control we need.” We’ve heard this cliché in other forms too: “this is a complicated problem, requiring a well-thought-out solution,” or “there are no simple answers.”
It’s amazing how accepted this flawed principle has become. Time and again government fails us, tries to do things by grand design, demonstrates its inability to solve simple problems, and creates unnecessary misery. See the generations of failure in Johnson’s “War on Poverty,” or notice the never-ending conundrum of regulating financial markets to prevent the next “big collapse.” Yet, millions get stuck in government created poverty traps, and financial markets repeatedly collapse.
It’s not that the government or its agents have bad intentions, rather that they lack the knowledge and the ability to assimilate information and devise grand plans to accomplish simple tasks in a complex world. Unfortunately, they don’t lack the hubris to think they are the solution, and that’s dangerous.
Economist F.A. Hayek wrote, “To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.”
But free markets have a fantastic history of accomplishing the grand, without the grand design. Markets by their nature transmit information, encourage cooperation, and achieve the complex by rewarding initiative and innovation.
Look up the article I, Pencil, by Leonard Read. How does the market help a pencil get made? This seemingly simple device, a pencil, is the product of thousands, nay millions, of economic actors pursuing their self-interests, trading resources and labor, and coordinating processes in a complex, yet autonomous orchestration.
Consider this: Not a single person knows how to make a pencil, and those that make pencils don’t even want them. Not even the CEOs of Ticonderoga or Dixon (pencil companies) possess the complex and vast knowledge required to harvest wood, process wood, mine graphite, smelt metals, produce rubber, mix glue, and the many other things necessary to make a simple pencil.
The workers don’t want the pencils they produce. They want cars, food, TVs, and other things. But they produce pencils nonetheless, simply to achieve their own aims.
All this production and effort is coordinated through markets and efficient pricing signals, causing people to adjust plans, economize here, take an opportunity there. It gets done. Markets work this pencil miracle billions of times a year. Human action through markets is almost always superior to government design.
I cringe to think how in the world government could accomplish the coordination necessary to make pencils—and for pennies a pencil as they are now. Grand human design can’t even do the seemingly simple very well. We might never see another pencil if left entirely to the Feds with an “Affordable Pencil Act.”
Sadly, the government doesn’t limit itself to things as simple as pencils. It tries to tackle grand “problems” such as unequal pay, Internet fairness, nursing shortages and so on. Things free markets solve relatively easily. (For example, a pay gap automatically creates the incentive for firms to hire the underpriced workers. Competition for those workers immediately puts upward pressure on their wages. The only thing stopping the corrective adjustments would be something impeding the market, like regulations.)
Viewed as serious problems, it’s easy to see why the government thinks such issues deserve serious attention. It is a fatal conceit to expect expert solutions from bureaucrats when even a simple problem (pencil production) would be a conundrum. Government is not short on “solutions,” but it is short on humility. We need exactly the opposite.
Ron is a professor of economics at BYU-Idaho and an Idaho state representative (LD.34). He specializes in applied microeconomics, public economics, quantitative methods, the economics of education, poverty economics, and public choice. He has been teaching for nearly 30 years, beginning at the University of Connecticut, Ohio University-Eastern, and the last 19 years at BYU-Idaho.