Progressives can’t get past their knowledge problem 

Economist Friedrich von 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 more correct than he knew.

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.

This became apparent when various large businesses responded to the enactment of Obamacare by taking accounting steps to reflect tax changes brought about by the new health care legislation. The additional costs created by Obamacare, conveniently enough, weren’t going to strike until later, after the November elections.

But both generally accepted accounting principles and Securities and Exchange Commission regulations require companies to account for these changes as soon as they learn about them.

This was bad publicity for Obamacare, and seems to have come as an unpleasant shock to House Energy and Commerce Committee Chairman Rep. Henry Waxman, D-Los Angeles, who immediately scheduled congressional hearings for April 21, demanding that the CEOs of AT&T, John Deere, and Caterpillar, among others, come and explain themselves.

Waxman and his colleagues in Congress can’t possibly understand the health care market well enough to fix it. But what’s more striking is that Waxman’s outraged reaction revealed that they don’t even understand their own area of responsibility — regulation — well enough to predict the impact of changes in legislation.

In drafting the Obamacare bill, they tried to time things for maximum political advantage, only to be tripped up by the complexities of the regulatory environment they had already created.

The United States Code — containing federal statutory law — is more than 50,000 pages long and comprises 40 volumes. The Code of Federal Regulations, which indexes administrative rules, is 161,117 pages long and comprises 226 volumes.

This means, of course, that when Congress changes the law, it not only can’t be aware of all the real-world complications it’s producing, it can’t even understand the legal and regulatory implications of what it’s doing.

There’s good news and bad news in that. The bad news is obvious: We’re governed not just by people who do screw up constantly, but by people who can’t help but screw up constantly. So long as the government is this large and overweening, no amount of effort at securing smarter people or “better” rules will do any good: Incompetence is built into the system.

The good news is less obvious, but just as important: While we rightly fear a too-powerful government, this regulatory knowledge problem will ensure plenty of public stumbles and embarrassments, helping to remind people that those who seek to rule us really don’t know what they’re doing.

If that doesn’t encourage skepticism toward big government, it’s hard to imagine what will.

Examiner contributor Glenn Harlan Reynolds, a law professor at the University of Tennessee, hosts InstaVision at PJTV.com and blogs at InstaPundit.com.

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