That Which Cannot be Taught

While the upcoming election has people discussing policy, and economic policy in particular, we rarely ask the question of whether we need economic policy in general. I’m being facetious here, however, the reach of economic policy that we employ and are attempting to enact in the future must be questioned. Rather than questioning any specific policy, this article will be levying some general concerns that should be considered for all economic policy that reduces the range of free choices given to businesses. Hayek in the use of knowledge and society gave some concerns that stymy the idea that targeted, controlling economic policy is a generally effective support to national industry. No matter what the aim or specific policy, Hayek contends that the difficulty of disseminating knowledge makes it necessary to leave the job of goal-setting and decision making to the individual or the firm.

Proponents of centrally planned economic policy in particular emphasize the power of scientific and statistical knowledge in creating efficient outcomes. This emphasis causes them to rely on experts for organization rather than the individuals who are actually involved in sorting out the problems in front of them. The main problem with the scientific approach is that it is motivated by envy of the natural sciences, and it uses aggregate statistics improperly. The natural sciences have many cause and effect relationships that allow reproducible phenomena to be observed. Reproducibility is quite limited in an economic context. Humans create a series of biased yet unpredictable actions that are informed by expectations of the actions of others. No policy can be reasonably assumed to produce the intended effect consistently in any specific circumstance. Additionally, the statistical methods used to measure aggregate economic growth and health are used to inform decisions for individual firms. Because of the exceedingly different situations faced by each firm, interventions intended to help the economy in general can sink individual businesses. Of course, businesses can sink themselves, but it causes more confusion than good to motivate business decisions on both individual success and national statistical measures of success. The desire to increase GDP may be used to increase the size of a business that drastically needs to cut costs.

Hayek also discusses why the knowledge needed for decision-making means it should rarely be outsourced beyond the individuals who are directly concerned. While the technical expertise of government agencies certainly gives them an analytical edge to most small businesses, Hayek writes that they can never fully understand the situation of an individual well enough to make the right decision. He emphasizes the importance of tacit knowledge. Tacit knowledge is information only accessible to the “man of the spot,” and takes into account experience, intuition, and unique circumstantial data. This sort of knowledge can be seen in the way that a salesman can often tell instantly whether someone is interested, and if so, which pitch to attempt. Tacit knowledge is uncollectable and almost harmful when applied to situations other than the one it was initially created in. The fact that this information is necessary to making good business decisions means that government planners must find a way to gather the un-gatherable or make suboptimal decisions. 

This knowledge does not mean that interventionist economic policy is never good, but it does mean that it always comes with a cost. The very fact that we have a government means we have a certain level of interference we are willing to tolerate. Some amount of government interference can be extremely beneficial, as it protects us from the far more damaging interference of violent individuals. The keeping of public order has massive benefits, and the growth in individual prosperity of the last few hundred years was only possible because of countries with predictable and relatively just regulations. The highest aim for a government entity is to exist predictably and quietly. The desire to act, spurred on by both interventionist theory and ambition, has ballooned governments in most developed countries to where they are integral players in every realm of human endeavor. Big corporations are able to secure non competitive advantages merely by their ability to lobby effectively. 

The only way that a government can truly create a fair business environment is by avoiding interference. Any policy action necessarily hurts some and benefits others. This imbalance shows how central planning would merely increase the problem. If small interferences reshape the economy in favor of lobbying firms and industries, it is easy to see that even stronger interference would double down on the inherent unfairness. Command economies, where every single economic choice is made by a government bureau, are an example of the incredible blindness that over-regulation can cause. The requirements that certain numbers of certain goods were created meant that those goods were extremely compromised in quality and relevance to people’s needs. Thousands of pairs of shoes were made in the same size to cut down on costs in Soviet Russia. Whoever you vote for, pray that someone explains to them the many problems that come with controlling that which one cannot understand