Politicians don't know what we want.

Submitted by davidzet on Wed, 2008-06-18 07:28.

The dems are famously noted for advocating big government, but republicans have overtaken them in paternalistic overreach. Anyone interested in government should read Hayek, and this is what I put into my blog today [Please comment there]:

Let me elaborate on Hayek, who is famous for knowledge problem and spontaneous order.

My idea of the knowledge problem (I am no Hayek scholar) is: I know what I know but not what you (or many others) know. For me to organize society (i.e., as a government) to some "optimal" level, I need to know what you know, but that information is hard for you to convey to me credibly ("yes, I need money for my babies") and hard for me to assemble/reconcile ("baby subsidy here versus there"). Hayek said that planned economies would collapse under the weight of the knowledge problem, and he expressed his ideas in one of the most important papers ever published in economics (many economists would agree), The Use of Knowledge in Society.

After expressing the knowledge problem, Hayek gave a solution: Prices act as a means of coordinating behavior such that no central authority need know or direct action. Thus, a market system will deliver a "spontaneous order" wherein the bread is in the shop when you want it and your salary will reflect the value of your skills and knowledge to everyone around you. (Adam Smith pointed out this result in the 18th century.) Contrast this order with "government order" that people often find frustrating.

Hayek gave us an excellent description of how the world works and how to improve it through more decentralization, markets, price signals, etc. That's why I recommend markets (under private or public management) to "solve" many water problems.

Bottom Line: Hayek tells us to be humble about what we know, to trust in the decisions of others, and facilitate the negotiation and cooperation of many through voluntary mechanisms. What's not to like?

Hayek...

#6465 On Thu, 2008 06 19 06:21 ka1igu1a said,

Historically, it should be noted that Hayek initially lost the Socialist Calculation debates. Losing those debates prompted him to come up with his "prices=information " theory to counteract the socialist claims that a Walrasian Auctioneer could efficiently determine market equilibrium even within a neo-classical framework.

Empirical reality has proven Hayek to be correct. However, it should be pointed out that modern game theorists have determined that "competition among agents" merely serves to extract price information optimally as opposed to the notion that competition itself efficiently optimizes resource allocation.