The Social Machine, Hayek and Politicians

Don Boudreaux at Cafe Hayek points us to the following gem of a quote by Kevin Williamson:

The people who have an explicit legal obligation to work not on our behalf but on behalf of their shareholders do a pretty good job of giving us what we want; the people who vow to work on our behalf do not. That is a paradox only if you do not think about it too much, and not thinking about it too much is the business that politicians are in.

If capitalism – which is to say, human ingenuity set free to follow its own natural course – is a kind of social machine, then politicians are something like children who take apart complex machines without understanding what they do or how to put them back together. (At their worst, they are simply saboteurs.) When they rail against capitalism, automation, trade, and the like, they resemble nothing so much as those hominids at the beginning of 2001: A Space Odyssey, shrieking hysterically at something that is simply beyond their comprehension.

The thought of F. A. Hayek, who, incidentally, died 25 years ago today, shines through this quote. Hayek’s key insight was the concept of Spontaneous Order. The market system was not designed, it emerged and evolved.  When people traded, prices emerged. And prices contain all the information needed for the system to work.

This delicate social machine is different from an ordinary mechanical one, but you can still throw sand in the gears, which appears to be something politicians can’t stop doing.

The question is: what can be done about that? And this question leads us from Hayek to the topics of Polycentric Law and Competitive Governance, which happen to be main foci of this blog and will be examined in much more detail in future posts.

Trump vs Friedman or: Democracy isn’t learning

Apparently Trump is actually preparing measures to restrict free trade.
There is universal agreement among economists that restricting free trade is harmful. Since Adam Smith economists have kept pointing out that free trade is beneficial and politicians have kept putting up trade barriers.

All the nonsense Trump is spouting on the topic of international trade has been debunked by one generation of economists after another. Here is, for example, Milton Friedman:

In other words, the system of democracy is not learning but keeps repeating the same mistakes again and again.

 

The Economics of Politics

Economic growth is based on technological progress. Without technological progress there would be no rise in living standards over time.

One might think living standards would stay at a stable level, if technological progress came to a halt. A given level of technology corresponds to a certain capacity to produce goods and services. If technology neither advanced nor regressed, wouldn’t then living standards stay at the same level over time ?

No, they would not – because of politics. If the negative effect of politics on the economy were no longer offset by technological progress, living standards would decline.

To understand the pernicious effect of politics you can either read Mancur Olson’s The Logic of Collective Action or watch this 2-minute explanation by Patri Friedman: