When famous dead economists rap, round two

April 28, 2011

Keynes and Hayek are back, this time rappin’ before a congressional committee about top-down vs. free-market economics. As you might expect, it becomes a knockdown, drag-out brawl.

And yeah, the fight was rigged:

I want a rematch!

LINKS: Here’s part one.

via Dan Mitchell

(Crossposted at Sister Toldjah)


Henry Waxman and the knowledge problem

April 5, 2010

Let’s get past the obvious, first: Congressman Henry Waxman (D-CA) is a statist thug. He’s upset that corporations have begun reporting the very real costs they’ll incur under ObamaCare, even though they’re required to do so by law, so he’s scheduled show trials hearings at which to chastise them. After all, health-care reform was supposed to bring only good to America, wasn’t it?

Trouble is, as Glenn Reynolds points out, would-be statists like Waxman always run up against a brick wall: there’s too much information for them to process efficiently in order to run a command economy, so they regularly face surprises like the corporate announcements. Call it the knowledge problem:

Economist Friedrich Hayek explained in 1945 why centrally controlled “command economies” were doomed to waste, inefficiency, and collapse: Insufficient knowledge. He won a Nobel Prize. But it turns out he was righter than he knew.

In his “The Use of Knowledge In Society,” Hayek explained that information about supply and demand, scarcity and abundance, wants and needs exists in no single place in any economy. The economy is simply too large and complicated for such information to be gathered together.

Any economic planner who attempts to do so will wind up hopelessly uninformed and behind the times, reacting to economic changes in a clumsy, too-late fashion and then being forced to react again to fix the problems that the previous mistakes created, leading to new problems, and so on.

Market mechanisms, like pricing, do a better job than planners because they incorporate what everyone knows indirectly through signals like price, without central planning.

Thus, no matter how deceptively simple and appealing command economy programs are, they are sure to trip up their operators, because the operators can’t possibly be smart enough to make them work.

In this case, Waxman and his progressive-statist allies didn’t realize that imposing vast new regulations would trip other regulations that forced the revelation of information harmful to their political position – and perhaps their political careers. As Reynolds points out, there’s a silver lining in this: as Waxman, Pelosi, and Obama keep trying to create a command economy, they’ll step on more and more of these mines because they can never have all the information they need. These will serve as regular reminders to the people that government that’s too big simply can’t do the job and should be shrunk down to size.

The dark cloud behind that silver lining, however, is that getting there is likely to be painful.

FURTHERMORE: Dan Riehl discusses the mainstream media’s role in abetting the Waxmans of the world:

When news broke of ATT and others promptly announcing write downs after ObamaCare passed, only the Wall Street Journal shed much light on what was really taking place. And they only did that several graphs down. Most mass media outlets simply let the narrative stand that, government passed a law to help the little guy, now big business Republicans have hit back by citing earnings woes, yadda, yadda. Whether due to rushing, bias, or simple incompetence, as the story played out across America, the mainstream media did less to inform the country, than they did to inflame it, while feeding into whatever one’s preconceived notions might have already been.

It’s going to be hard to expose the knowledge problem unless the major media, on which most of the public depends, starts doing its job and stops being a facilitator.

LINKS: More at Hot Air.