REQUIEM FOR THE WELFARE ECONOMICS PARADIGM.

It is a maintained hypothesis at Cold Spring Shops that complex adaptive systems tend to do what they d*mn well please.  With the Packers back in training camp and the big box stores stocking up the school supplies (and when did a list of recommended items running two or three sheets of foolscap become a thing?) the time is right for a refresher on the limitations of the Welfare Economics Paradigm.  Perhaps that's even more salient this year, with a presidential election offering two different approaches to governing, and with the powers of the Wise Experts more subject to legal review.

Two recent posts at Cafe Hayek structure this year's refresher.  First, he lays out the challenge of taming complexity in a straightforward way.

How will government officials empowered to decrease the scarcity of some goods, services, and opportunities – and, hence, to increase the scarcity of some other goods, services, and opportunities – know that the value of that which they create exceeds the value of that which they destroy? What is the information- or knowledge-generating process or mechanism that provides to industrial-policy officials signals that are more reliable than are the prices and other market signals that the interventions of these officials distort or suppress altogether?

Ask such questions and expect no answers beyond ones that boil down to “Trust us. Our scheme is destined to produce results that are superior to those produced by markets. We know what to do. For proof, compare the excellence of what we promise to achieve to the reality, as described by us, that we promise to replace. This reality clearly isn’t ideal and must be corrected. Furthermore, our motives are pure, and our understanding of human nature and society is richer, deeper, and more expansive than is that of the naively materialistic and reductionists neoliberals and market fundamentalists. Trust us.”

Yes, the language is polemical, fitting for an election season.  And yet, it is on point.  What is drawn up so elegantly on the workshop room blackboard cannot be implemented in practice.  A more recent post notes the ways in which jamming the complexity exacerbates the problem the Wise Experts hope to solve.

The case for free markets – and against nearly all interventions desired by today’s populists – is that markets are less imperfect than governments. Most market imperfections are profit opportunities that in time attract entrepreneurs to experiment with ways to improve matters. Some experiments work, many fail. Unlike government officials, private market actors spend only their own money and have no power to coerce. Markets, therefore, identify and correct mistakes more quickly than do governments, are less prone to be captured by interest groups, and are more driven to strike trade-offs in ways that are mutually advantageous rather than in ways that compel some individuals to pay for the gains of other individuals.

Furthermore, governments are in a better position to continue the stupid because they have the ability to collect, at the point of a gun, additional money to throw at a problem after the initial money so thrown doesn't work, and there's somebody stingy to blame.

That works until the real debt ceiling kicks in.  Buckle in.