What’s wrong with economics — 4 (Big choices)
Economists believe that, with proper scientific understanding and analysis, they can make policy recommendations to governments that will improve the stability, efficiency, and operation of economic life. But in believing that, they have already made a crucial assumption: that big solutions work better than lots of small solutions; that decisions made centrally can be more rational, and can produce better results, than those made at the local or individual level.
In fact, local decisions can be very rational and local decision-making can be far more efficient than central decision-making. In a ‘polycentric’ economic decision process, information about market conditions is collected, processed, and acted upon locally. Dispersed and granular information can go into the analytical mix; it does not have to be compiled into statistics that average out all the important detail, which must then be somehow transmitted up to a centre to be crunched, and and pronounced upon by distant officials who neither understand the particulars nor necessarily feel great interest in producing a swift reaction to them.
The problem is not one of simply having enough computing power. The larger the information sample, the less definition it has; and that is particularly true when the relevant information comprises things that cannot be summarised in statistics. Local shopkeepers, for example, may know from long experience all their customers’ likes, aversions, and foibles, and how best to deal with each. How could they possibly transmit that information from inside their minds onto the spreadsheet of a central planner?
And even then, the further that any information has to travel from its origin, the longer it takes to be acted upon; and often, by the time it is acted upon, it is already out of date. A throng of people leaving a large party, for example, is a ready target for local taxi drivers; would a central authority even know the party was happening, never mind be able to judge how many taxis would be required? And by the time it had summoned the required fleet, the throng would already be long dispersed.
Most things in life do not work. For every species that has survived, a thousand that did not; and for every successful business, a thousand bankruptcies. Such odds are manageable when decisions are made locally, by those concerned. The failure of one small business that made the wrong choices is sad, but of small consequence. The failure of a national policy determination (e.g. on wages, prices or interest rates) can become a national disaster.
A further problem is that the economy is not an organisation with a single objective. It is merely an arrangement of different individuals with multiple, different, often competing and incompatible objectives. Each of those individuals has to forge compromises with the others whose aims are different. With millions of individuals interacting like this, not even the cleverest economist could know each one’s aims and how, in all future circumstances, they will reach compromise with all the others. And anyway, there is no possibility of scientific analysis of, and prescription for, the common good, when human beings disagree about what that good is.
Eamonn Butler