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Tuesday, July 20, 2010

A technocrat doubts the future of technocracy

David Brooks sounds uncharacteristically immoderate:
When historians look back on this period, they will see it as another progressive era. It is not a liberal era — when government intervenes to seize wealth and power and distribute it to the have-nots. It’s not a conservative era, when the governing class concedes that the world is too complicated to be managed from the center. It’s a progressive era, based on the faith in government experts and their ability to use social science analysis to manage complex systems.

This progressive era is being promulgated without much popular support. It’s being led by a large class of educated professionals, who have been trained to do technocratic analysis, who believe that more analysis and rule-writing is the solution to social breakdowns, and who have constructed ever-expanding networks of offices, schools and contracts....

This progressive era amounts to a high-stakes test. If the country remains safe and the health care and financial reforms work, then we will have witnessed a life-altering event. We’ll have received powerful evidence that central regulations can successfully organize fast-moving information-age societies. If the reforms fail — if they kick off devastating unintended consequences or saddle the country with a maze of sclerotic regulations — then the popular backlash will be ferocious.
The so-called "reforms" will fail. The entire Progressive Era dating back to Woodrow Wilson is in the process of coming to an end and there is absolutely no doubt about it. We can be assured they fail, beyond any shadow of a doubt, because centralized planning always fails in the end. The more complicated the latest iterative attempt to repair the incipient failure is, the faster the next failure arrives. The Misean concept of central information deprivation - not to be confused with F.A. von Hayek's later refinement - first foresaw and explained this certain failure not long after the Progressive era began, in a monograph entitled Economic Calculation In The Socialist Commonwealth, published in 1920.

And yet, 90 years later, the technocrats still believe that this time, they'll somehow be able to get it right. They won't. The elites are still caught up in their fantasy that 2+2 can equal 5 if they can only come up with just the right bureaucratic incantation. But they never, ever will. What the technocrats keep failing to understand is that no amount of technological assistance in information gathering can resolve the problem, because in replacing the supply and demand mechanism of the market, the central planners have removed the very engine that produces the necessary information.

Let me explain. A computer can theoretically keep track of how many people wear tennis shoes, their usage patterns, and when those shoes are likely to wear out and require replacement. But what it cannot track or simulate for even a single individual is the marginal utility of a pair of new shoes to that individual in comparison with all of the various competitive options, which, it should be kept in mind, are not limited to footware. Nor can it even begin to calculate the way in which all of the possibilities and preferences of all of the individuals in the economy will interact, thus preventing it from being able to tell the planners how many pairs of tennis shoes or how much electricity must be produced next year.

As I wrote in RGD, the Story of the Pencil only tells half the story. It is a supply-side story that ignores the more important demand-side one, which is the story of the myriad assignments of subjective value assigned to a pencil made by the tens of millions of potential pencil-buyers who could have bought pencils but elected not to buy them at the available price. Until a computer can correctly calculate the statistical probability of events that never happened, technology cannot even begin to help central planners solve the economic calculation problem.

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