Markets vs. Government
It's the science
As I mentioned, I've been reading George Gilder's Knowledge and Power. He published it ten years ago, and I bought it, but never read it.
You could call the book an update on his 1980s Wealth and Poverty that inspired the Reagan revolution.
You thought that Adam Smith was the last word on economics? Or the marginal revolution of 1870? Or the Austrian economics of Mises and Hayek? Fuggedaboutit. The modern thing, The Science, is Shannon's law on information and entropy as it applies to human creative endeavor.
If you don't understand Claude Shannon — who was one of the boffins that won WWII — you know nothing. But then nobody understands Shannon.
Shannon's Law, as applied to human endeavor, tells us that it is individual humans trying out new ideas that work that are the basis of our staggering economic prosperity. And new ideas that don’t work just disappear into the noise.
Shannon's Law tells us that the reason socialism and corporatism and government programs don’t work is because the whole point of them is to stop inventive creativity.
Socialism. No ideas except as approved by the intellectuals in charge.
Corporatism. No new business allowed to compete with existing mega-corporations.
Government. No ideas except as approved by the bureaucrats.
Look, it’s obvious to me that this tendency, to stay with The Thing approved by the rulers, the knowers, is a big thing in human affairs. It applies in spades with religion, where orthodoxy literally means “correct opinion,” and opposed to heresy. But La Wik says that heresy comes from the ancient Greek, haíresis (αἵρεσις), meaning “choice,” or “thing chosen.” I guess that heresy has come to mean “wrong choice, peasant.”
Therefore we can say that the whole market system with its “choice” is the practice of heresy. Which is why rulers and professors and administrators hate it. What do you mean, choice, you peasant!
However, I am bound to say that the strong human prejudice against heresy and choice and being “different” obviously must have a survival benefit. I suspect it has to do with deviating from established procedures in hunting, horticulture, and agriculture and starving to death.
The question is whether life today is different from the olden time, so that the necessity of keeping with the program is not as important any more.
Let us apply this to my Four Laws.
Socialism cannot work because it cannot compute prices (Mises).
The administrative state cannot work because the Man in Washington does not have the bandwidth to run the economy (Hayek).
Regulation does not work because “regulatory capture” (Stigler).
Government programs cannot work because you can never reform them (Chantrill).
You can see that each of the laws is an application of Shannon’s Law that Gilder calls “surprisal.” If you cannot have surprise, then you cannot have change and you cannot have improvement. Do you see how each of the laws is a comment on the human instinct to shut down surprise?
Prices: in the stock market, the movement of prices every day is a surprise.
Administration: the whole point is utter predictability; no surprises.
Regulation: no surprises here, not unless you have permission from the regulators.
Programs: the whole point of government programs is complete predictability, so people can live their lives without surprise.
This demand for predictability, I think, is important. I know that personally — especially at my age of 76 — I really don’t like surprises. And yet I know that tolerance for change, for surprise, is an essential attribute of a person ready to live in the world. You could say that I have taught myself to be tolerant of surprise.
But why is it that “surprise” has been such a no-no down the ages, and why, as shown by the popular support for constraints on the market, are humans so opposed to “surprise?”
It’s a big question. But I think the bigger question is whether it is OK to force other people to protect you from surprise. See it is one thing to buy and insurance policy to protect from surprise. It is another thing to pass a government program to protect yourself from surprise but force other people to protect you.