Fast Moving Bad News Builds Prosperity
18th August 2015
Glenn Harlan Reynolds (The Instapundit) points out what markets are good — and not good — for.
Nassim Nicholas Taleb recently tweeted: “The free-market system lets you notice the flaws and hides its benefits. All other systems hide the flaws and show the benefits.”
This drew a response: “The most valuable property of the price mechanism is as a reliable mechanism for delivering bad news.” These two statements explain a lot about why socialist systems fail pretty much everywhere but get pretty good press, while capitalism has delivered truly astounding results but is constantly besieged by detractors.
That’s it, in nutshell.
At the same time, markets deliver the bad news whether you want to hear it or not, but delivering the bad news is not a sign of failure, it is a characteristic of systems that work. When you stub your toe, the neurons in between your foot and your head don’t try to figure out ways not to send the news to your brain. If they did, you’d trip a lot more often. Likewise, in a market, bad decisions show up pretty rapidly: Build a car that nobody wants, and you’re stuck with a bunch of expensive unsold cars; invest in new technologies that don’t work, and you lose a lot of money and have nothing to show for it. These painful consequences mean that people are pretty careful in their investments, at least so long as they’re investing their own money.
Bureaucrats in government do the opposite, trying to keep their bosses from discovering their mistakes.
Which is why it’s pretty much always a mistake to put government employees in charge of anything.
Markets make people better off, but they don’t provide sufficient opportunities for politicians to extract bribes and intellectuals to feel better about themselves. This explains why they’re unpopular with politicians and intellectuals. The real question is why anyone else listens to the self-interested claims of politicians and intellectuals. Maybe because the subject of what works and what doesn’t in economics is mostly written by journalists?