by Positivist Delusions [ed. note: this article was originally published on March 5 2013 – Bill Bonner was on his way to his ranch in Argentina, so here is a classic from the archives] We’re still thinking about how so many smart people came to believe things that aren’t true. Krugman, Stiglitz, Friedman, Summers, Bernanke, Yellen – all seem to have a simpleton’s view of how the world works. A bunch of famous people with a simpleton view of how the world works…who not only seriously think the economy can and should be “planned”, but arrogantly believe they are the ones who should do it. It’s a bit like the crazy guy who doesn’t know he’s crazy. They believe they can manipulate the future and make it better. Not just for themselves… but also for everyone else. Where did such a silly idea come from? After the Renaissance, Aristotelian logic came to dominate Western thought. It was essentially a forerunner of positivism – which is supposedly based on objective conditions and scientific reasoning. “Give me the facts,” says the positivist, confidently. “Let me apply my rational brain to them. I will come up with a solution!” Beyond the Herald’s Cry This is fine, if you are building the Eiffel Tower or organizing the next church supper. But positivism falls apart when it is applied to schemes that go beyond the reach of the “herald’s cry.
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Positivist Delusions
[ed. note: this article was originally published on March 5 2013 – Bill Bonner was on his way to his ranch in Argentina, so here is a classic from the archives]
We’re still thinking about how so many smart people came to believe things that aren’t true. Krugman, Stiglitz, Friedman, Summers, Bernanke, Yellen – all seem to have a simpleton’s view of how the world works.
A bunch of famous people with a simpleton view of how the world works…who not only seriously think the economy can and should be “planned”, but arrogantly believe they are the ones who should do it. It’s a bit like the crazy guy who doesn’t know he’s crazy.
They believe they can manipulate the future and make it better. Not just for themselves… but also for everyone else. Where did such a silly idea come from?
After the Renaissance, Aristotelian logic came to dominate Western thought. It was essentially a forerunner of positivism – which is supposedly based on objective conditions and scientific reasoning.
“Give me the facts,” says the positivist, confidently.
“Let me apply my rational brain to them. I will come up with a solution!”
Beyond the Herald’s Cry
This is fine, if you are building the Eiffel Tower or organizing the next church supper. But positivism falls apart when it is applied to schemes that go beyond the reach of the “herald’s cry.”
That’s what Aristotle said: Only a small community would work. Because only in a small community would all the people share more or less the same information and interests.
In a large community, you can’t know things in the same direct, personal way. You have no idea who made your sausage or what they put in it. You have to rely on “facts” that are no longer verifiable by direct observation or personal acquaintance. So it’s hard for people to work together in the same way.
In a large community, central planners’ “facts” are nothing more than statistical mush, wishful thinking, and theoretical claptrap – like WMD, GDP, the unemployment rate, and the Übermensch.
Large-scale planning fails because the facts upon which it is built are always unreliable and often completely bogus. It fails also because people don’t really want it.
Hidden Agenda
In a small community, the planners and the people they are planning for are close enough to share the same goals. But in a large community, the planners are a small minority. And in a large community, the planners usually have their own agenda… often a hidden one.
They call for stricter law enforcement… while getting campaign contributions from the prison industry. They seek a cure for cancer… and depend on the pharmaceutical industry for job offers. They promote a united Europe… and hope to be its head man.
Large-scale planning provides almost countless opportunities for corruption. But it’s not the dirty dealing that dooms it. It is that the planners don’t know (or care) what people really want… and don’t have the means or the information necessary to achieve it anyway.
Photo via mises.org
Friedrich Hayek did extensive work on the nature and distribution of knowledge as a follow-up to his decade-long debate with socialist economists. The latter were never able to refute the arguments that showed that central economic planning is literally impossible. And yet, here we are, with central planners at the helm everywhere in the world. The explanation is not that they somehow convinced themselves of their own BS (although some of them sure did) – the explanation is that there is a hidden agenda.
As Nobel Prize-winning economist Friedrich von Hayek observed, the “public information” used by central planners is empty… and most often misleading. But the problem is much more basic than the quality of the information or the corruption involved.
When we think of what people “want,” we are not talking about their conscious, stated desires. We are speaking of what they might be able to get… if allowed to do so… given the facts on the ground.
People in Hell may want ice cream; they won’t get it. But people will do the best they can with what they have to work with. Large-scale central planners can’t help them. Partly because they don’t know what the conditions in the man’s private Hell really are. And partly because they don’t have any ice cream.
You might better describe this process of getting as much of what you want as possible as the progress wrought by evolution, where trials and errors result in “the best we can do.” Not perfect. Not the end of history. Just another step toward a future that is unknowable.
The Fatal Conceit
The fatal conceit – the erroneous belief that is it actually possible to plan an entire economy.
Large-scale central planners fail because they believe three things that aren’t true.
First…that they understand the current conditions (wants, desires, hopes, capabilities, resources) of the community they are planning for.
Second…that they know what the community’s future ought to be.
Third…that they are capable of creating the future they want.
None of those things is more than mere illusion. Together, they constitute what Hayek described as the “fatal conceit that man is able to shape the world around him according to his wishes.”
Central planners cannot know current conditions because that would require an infinite amount of information. It would require, as British philosopher Samuel Bailey wrote in 1840, “minute knowledge of a thousand particulars which will be learnt by nobody but he who has an interest in knowing them.”
The planners have nothing like that. Instead, they have a body of public knowledge, which, as we have seen, is nothing more than popular theories, claptrap, and statistical guesswork.
As to the second point – that the central planners are blessed with some gift that tells them what the future should be for complete strangers – we pass over it without argument.
Waiting for the Future
Of course, each man always does his best, at his own level, to shape his world in a way that pleases him. One will want a fat wife…and likely get one. One will want a fortune…and maybe get it, if he is lucky and diligent. One will want to spend his time playing golf…that too, may be within his means.
Each will try. Each will win, lose, or draw, depending upon the circumstances. And the future will happen. But the central planner steps in to try to impose his version of the future. This is a huge mistake.
Image credit: Hanna / Barbera
Have you ever asked yourself why we still don’t have the Jetson’s flying cars? The most likely answer is that progress has been set back by more than a century by the imposition of central economic planning. The amount of capital that has been wasted and consumed because of it is simply staggering. It is quite amazing that with perhaps one third or less of the population actually generating real wealth under extremely hampered conditions today, there is still a remarkable rate of progress overall. It is testament to the power of the market economy. Imagine where we could be if it were unfettered.
Where evolution is taking us, no one knows. But the large-scale central planner thinks he knows where it ought to go… and he doesn’t mind giving it a shove, disrupting the plans of millions of people in the process.
And as soon as the smallest bits of time and resources are shanghaied for the central planner’s ends rather than those of individual planners, the rate of evolutionary progress slows.
The trials that would have otherwise taken place are postponed or canceled. The errors that might have been revealed and corrected are not discovered. The future has to wait…
Extravagant Schemes
But the real danger is this: People are easy to deceive, especially when they only have access to “public information.” Out of range of the herald’s voice, they have no more idea of what is going on than the planners.
They are encouraged to believe that the collective plans are beneficial. Often, they go along with the gag – for decades – even as the evidence of their daily lives contradicts its premises and undermines its promises.
Several of the world’s most ruthless central planners and mass murderers: Hitler, Pol Pot, Stalin, Mao Zedong, Lenin, Kim Il-Sung
Even worse: To encourage compliance, ruthless planners – think Lenin, Hitler, Stalin, Mao, Pol Pot, Kim Jong-il – begin purges, cleansings, regulations, famines, deportations, disappearances, tortures, drone attacks, and mass murders.
But their plans are wrecked anyway. Because not only do they retard the future, they also don’t lead to the outcome the planners expect.
Breaking a Few Eggs
Typically, the designers argue that the people must make sacrifices but that it will all come right in the end. As Lenin said, “You can’t make an omelet without breaking some eggs.”
People go along with breaking a few eggs (particularly if they belong to someone else) for a while. Ultimately, the problem is the omelet: It never makes it to the table. No “workers’ paradise” ever happens. The War on Drugs (or Poverty…or Crime…or Terror…or Cancer) ends in a defeat, not a victory. Unemployment does not go down.
And if any of these grand programs “succeeds,” it does so at a cost that is far out of balance with the reward. Why do these plans fail? Because that’s not the way the world works.
Life on Earth is not so rational that it lends itself to simpleminded, heavy-handed intervention of the naïve social engineer. Bridges are designed. So are houses. And particle accelerators. Economies are not.
Are there actually things the planners are good at? Unfortunately, yes… Photo credit: Department of Defense
It is also true that humans can design and achieve a certain kind of future. If the planners at the Pentagon, for example, decided that a nuclear war would be a good thing, they could bring it about. The effects would be huge. And hugely effective.
But this is the only kind of alternative future that planners are capable of delivering – one that pulverizes the delicate fabric of evolved civilized life.
Image captions by PT
The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.