Not long ago I was listening to one of Russ Roberts’s archived “EconTalk” podcasts with the great Thomas Sowell (and if you don’t listen to EconTalk you’re missing one of the top podcast artists of our time—subscribe for free here), and was completely stunned by something Sowell said. When he was assigned Friedrich Hayek’s seminal essay “The Use of Knowledge in Society” as a graduate student, he didn’t get it. Sowell found it too abstract and dense. Russ Roberts, another fine Chicago-school economist, said he had the same reaction to it the first time he read it, and, moreover, that Vernon Smith (a Nobel Prize winner) also found the essay opaque at first reading.
I was staggered by this, as I’ve always found that essay to be lucid and intuitively compelling. I typically find a way to have students read it in every class I teach if I can possibly find an excuse. A special panel of eminent economists included Hayek’s essay in a list of the 20 most significant and influential articles published in the 100-year history of the American Economic Review, the premier journal in the field. But if really smart and sound people like Sowell, Roberts, and Smith find the essay initially dense, then perhaps I need to rethink how to convey the logic of markets, because it may be more difficult than I thought.
Fresh evidence of the broader problem comes from the latest edition of The New Republic, which carries an article entitled—I kid you not—“What If Stalin Had Computers?” The nub of the article is that if only Stalin had had today’s computing power, he could have made the Soviet command economy work. Just what the world needs: ways to make Stalinism more effective. But apparently The New Republic is back to its old pro-Stalinism of the late 1940s. Good to know.
The article is mostly a longish review essay of a new book, Paul Mason’s Postcapitalism: A Guide to Our Future, which appears to be trying to capitalize (heh) on the wave of enthusiasm for Thomas Piketty’s Capital in the 21st Century. (By the way, in case you’re wondering, this Mason fellow is a reporter for Britain’s Channel 4.) And here comes the central idea:
The book really comes into its own when Mason addresses the possibilities of contemporary planning. He does not go as far as to endorse “cyber Stalinism” but at the very least poses its thesis: What if the problem with the Soviet Union was that it was too early? What if our computer processing power and behavioral data are developed enough now that central planning could outperform the market when it comes to the distribution of goods and services?
So we’re back to the old line that “The Soviets just need more time to make Communism work!” Hayek developed the phrase “the fatal conceit” to describe the view that government planners, sufficiently armed with enough data and power, could outperform the marketplace and deliver superior economic performance. Hillary Clinton clearly believes she knows better than investors how long capital should be invested with her recent proposal to tax capital gains at different rates depending on the time horizon. (But hey—she turned $1,000 into $100,000 through trading cattle futures, so she’s obviously an economic genius.)
I recall reading one of the last interviews Hayek ever gave shortly before his death in 1992 in Forbes (sadly I can’t seem to find it now), where he was asked whether the information revolution and supercomputing didn’t change things, and make possible more effective centralized economic planning. Hayek said no—no matter how big and fast computers get, and how complete the data gathering, no centralized process can ever hope to match the uncoordinated actions of the constantly changing marketplace. Go re-read “The Use of Knowledge in Society” slowly and repeatedly until you get it.
At the end of the day, of course, the socialist impulse is not really rooted in reason or epistemology, but in envy and the desire for authoritarian control. That’s why we’ll never be rid of these people, no matter how many Venezeulas and Cubas you pile up.