Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Regulators Never Understand What they are Regulating

Politics / Market Regulation Sep 28, 2014 - 12:18 PM GMT

By: MISES

Politics

Gary Galles writes: People are generally aware of the positive power of compound interest when deferring consumption in favor of productive investments. But more important when it comes to public policy is the destructive power of compound ignorance.


According to John Rector, “Compound ignorance is the type of ignorance in which we are not aware that we are not aware.” It arises when “we don’t realize what we don’t know.” In government, however, such “unknown unknowns” often lead to untrammeled confidence among politicians, despite the certainty of error. Compound ignorance is put on display every time a “progressive” wants to turn still more individual decisions over to political processes and government bureaucrats. Blithely unaware of the immense blind spots of what they don’t know for productive social cooperation, they believe they are taking decisions from the uninformed and giving them to experts. But they have it backwards. Such expansions of government dictation actually move choices from the relevant experts, with appropriate incentives to act on that expertise, to those far less informed and facing far worse incentives.

The social costs of compound ignorance grows with government’s reach. And its many recent expansions, along with the many failures (e.g., healthcare.gov) and crises (from the VA to the IRS) that have accompanied it, illustrate that it has been taken to a new level.

Such scandals reflect the compound ignorance that separates political promises from what it takes to actually deliver on them.

The current version of that shell game typically starts with a presidential commitment, delivered with solemnity to convey “I really mean it.” But all responsibility for backing the words up (from “you can keep your doctor” to promises of cost savings to assertions that they will be the most open administration ever) is immediately swept from his teleprompter into the lap of some cabinet secretary or administrator. Then, when the promises turn out to be empty or unattainable, his delegated expert starts taking heat. There is a period of expressing confidence in their competence (which amounts to confidence that by picking the right administrator, circles can be squared), combined with efforts to focus attention elsewhere. But then political heat picks up. When it becomes worrisome, the administration expresses anger at the failure (which implies surprise) and determination to fix it. That is then demonstrated by bringing in a new fixer to replace their predecessor, transformed into the scapegoat. The president is thereby kept from ever having to put forward how he would do what he promises, firewalled from political blame, even when the multiple scandals allegedly discovered by watching the news demonstrate a compound ignorance that guarantees failure to know enough to deliver.

Obamacare’s enactment offered a good example of unwarranted confidence in the face of massive unknown unknowns. While Nancy Pelosi’s assertion that “we have to pass the bill so that you can find out what is in it” was widely lampooned (including a poster of her with the caption, “Ignorance: It’s not just bliss anymore. It’s policy”), the fact that Congress was forced to vote on what was not even available for reading creates an even higher order of ignorance — they could not even know what they were “deliberating” on, much less the degree to which it would be hamstrung by compound ignorance.

Such compounded compound ignorance offers a warning to every American to consider more carefully how frequently government “expertise” can actually make them better off by taking their resources and substituting its determinations for theirs. That is the crucial issue, as every other government act requires harming some, which is an odd way to advance anything that, with a straight face, could be called the general welfare. Unfortunately, in every area in which our desires and willing tradeoffs differ substantially, by far the most common case, such shifts inherently take decisions away from the only ones who know the details about their goals, desires, skills, alternatives, and other circumstances to make them the relevant experts.

Voluntary market arrangements incorporate the highly varied, yet overlapping, knowledge of all participants, each expert in their array of circumstances of time and place, even when the vast majority knows virtually nothing at all about them. Such specialization in knowledge and tasks that most are ignorant of, coordinated by markets is, in fact, the primary source of advancing civilization. It allows effective social cooperation even in the face of compound ignorance and constant change.

In contrast, when government fiat overrides that process, compound stupidity replaces coordinated knowledge. Inherently insufficient experts who don’t know enough to say “I don’t know enough” then demonstrate that they have been raised to a level beyond their incompetence. Government does ever more of what it cannot do well, but can do very badly. And since, as Friedrich Hayek noted, “The more civilized we become, the more relatively ignorant must each individual be of the facts on which the working of civilization depends,” the price society pays is beyond comprehension.

Gary M. Galles is a professor of economics at Pepperdine University. Send him mail. See Gary Galles's article archives.

You can subscribe to future articles by Gary Galles via this RSS feed.

© 2014 Copyright Gary Galles - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in