All Commentary
Friday, April 26, 2013

Economics, Not Engineering

Let’s say we lived in the kind of world in which the government could eliminate some well-recognized social problem, say violent crime, by simply passing a law. Although you may like that particular outcome, the question is, would you want to live in such a world?
While some might say “no” if it means giving up a cherished human right, what I have in mind is not to ponder a trade-off between rights and outcomes. Instead, I’m thinking about a deeper question. That is, before we can begin to sensibly discuss any trade-off between rights and outcomes, we need some assurance that such a trade-off is even possible. As my esteemed colleague Steve Horwitz has put it: Every “ought” implies an “is.”

Complexity and Unintended Consequences

Put simply, if it were possible to eliminate any perceived social problem just by passing a law, it would have to be in a world in which individual freedom were effectively absent.
A real-world economy is very, very complex. It’s so complex that there’s more agreement about how the vast physical universe works than on how the much smaller social cosmos here on earth works. Yet under the right causes and conditions social order emerges—what Adam Smith called a “harmony of interests.” Paris gets fed. What makes it so complex is that in a relatively free society like ours tens of millions of people make and follow their own plans, which depend for their success on the independent decisions of countless, nameless others. 
Paris gets fed not because people wake up every day saying, “Yes, today I will do my part to feed the people of Paris!” No, each of us wakes up and says something like, “Well, here are personal the challenges I face today and here is how I intend to deal with them.” Nevertheless, when the rules of the game are right (e.g., private property and free association), Paris—and every other place where markets exist—gets fed as an unintended consequence of just those sorts of individual actions. Market prices and social networks help it all hang together. Such an astonishing outcome is, as F. A. Hayek noted, “the result of human action but not of human design.” A free society consists of a lot of positive “unintended consequences” forming orderly (though perhaps far from perfect) patterns over time.
At the same time the very complexity of the social world means that attempts to deliberately interfere with its operation tend to generate negative consequences. And the bigger the interference the bigger the negative consequences tend to be. Laws that simply banned the sale of recreational drugs would, as any competent economist could tell you, just create black markets, reduce the safety of the drugs, encourage violence, and much more. Those who propose new government interventions—whether in mandating health care or prohibiting marijuana—typically ignore basic economics, so they generate lots of negative unintended consequences.

Simpler but Better?

But again, what would it say about the nature of the social world if it were indeed possible to achieve systemic outcomes—such as eradicating violent crime—just by passing a comprehensive law? Well, for that to be the case the world would have to be a far, far simpler place than it is now. In particular, it would mean no one could make and follow her own plans because that would upset the intentions of the government authorities. It would mean that the citizens of such a state would have to, voluntarily or involuntarily, severely narrow their options in order to minimize the possibility that the law will not achieve its intended goal. 
In other words, eliminating the unpredictable would mean eliminating the very things that make society different from a giant machine.
Of course, the social cosmos is wonderful not because complexity itself is so wonderful (although it sometimes is). Complexity and unpredictability are the results of the interplay of all those countless strangers, following plans that are for the most part of their own invention, coordinated by the price system and other unplanned social institutions. Their knowledge and incentives aren’t perfect and the result isn’t perfect either, but private property and free association keep disorder within manageable bounds.
Moreover, without that complexity and unpredictability there would be no discovery and no surprise. How boring! True, there would be no regret either, but that, too, has its role to play in the personal growth of even ordinary people. Complexity is the source of drama, both the tragic and the comedic kind. And we would miss it if we didn’t have it.

Machine Politics

Because we live in a world of orderly complexity and not simplicity, the President cannot “fix” or “direct” the economy. Yet, every four years most of the electorate, including some very smart people, operate under that assumption. They assume that the economy is a machine, perhaps a very big and complicated machine, but still just a machine that only needs a nudge, shove, or overhaul by a person who is smart enough and whose intentions are pure. But, as I think Hayek once said, “the social sciences are not reducible to the study of human intention.”
Unfortunately, supporters of the free market sometimes make the same mistake when they assume that when people are freed to pursue their self-interest that the result will not merely be a “harmony of interests” but that the harmony will take a specific form, whether a Judeo-Christian or a Randian promised land or whatever. It’s as if a gardener believes simply watering and cultivating his garden will produce precisely the bouquet she intends.
But the loveliest gardens possess an unexpected beauty, an intricate combination of texture, arrangement, and color that surpasses, often by contradicting, the vision of those who tend it. A garden is not a machine, and neither is a free society.

  • Sanford Ikeda is a Professor and the Coordinator of the Economics Program at Purchase College of the State University of New York and a Visiting Scholar and Research Associate at New York University. He is a member of the FEE Faculty Network.