Tag: Hayek

Random Economics Question

Easily my favorite thing about blogger Megan McArdle (the former Jane Galt) is her willingness to deal with economics questions in conversational terms, without often resorting to mathematics or theory.  Often, it makes her look bad to the casual reader, but I generally find it to be extraordinarily daring.  Politics is a realm where the ultimate sin is to say anything, true or false, in a manner which can be taken as offensive (paging Rep. Stark!). 

Today, Ms. McArdle made a post about charity in response to a comment which Ezra Klein highlighted on his blog.

Interestingly, this is exactly the argument that was offered for why socialism would be better than capitalism. I don’t find it ridiculous; indeed, in 1935, I’m sure I’d have found it incredibly compelling. It took a genius like Friedrich Hayek (and ultimately, the collapse of the Soviet Union) to show why giant national solutions rarely outperform a competitive market.

The problem, it turns out, is that the central planners with the big picture have to design one-size-fits all programs that by their nature have more error built in because they don’t have good local information. Also, when the planners make mistakes, as they inevitably will, those mistakes are bigger. They are also harder to detect because again, the planners have a much poorer grade of information about what is happening on the ground than local players do. And because there’s no competition, there is no one to grade your performance against, and also, much less incentive to fix mistakes–particularly since those mistakes tend to generate constituencies devoted to protecting them. (See subsidies, farm.)

(You should follow the link to see the comment from Klein’s blog and the full response from McArdle)