Everything Is Obvious_ _Once You Know the Answer - Duncan J. Watts [91]
Fair enough. In many circumstances, it may well be true that realistically all one can do is pick the course of action that seems to have the greatest likelihood of success and commit to it. But the combination of power and necessity can also lead planners to have more faith in their instincts than they ought to, often with disastrous consequences. As I mentioned in Chapter 1, the late nineteenth and early twentieth centuries were characterized by pervasive optimism among engineers, architects, scientists, and government technocrats that the problems of society could be solved just like problems in science and engineering. Yet as the political scientist James Scott has written, this optimism was based on a misguided belief that the intuition of planners was as precise and reliable as mankind’s accumulated scientific expertise.
According to Scott, the central flaw in this “high modernist” philosophy was that it underemphasized the importance of local, context-dependent knowledge in favor of rigid mental models of cause and effect. As Scott put it, applying generic rules to a complex world was “an invitation to practical failure, social disillusionment, or most likely both.” The solution, Scott argued, is that plans should be designed to exploit “a wide array of practical skills and acquired intelligence in responding to a constantly changing natural and human environment.” This kind of knowledge, moreover, is hard to reduce to generally applicable principles precisely because “the environments in which it is exercised are so complex and non-repeatable that formal procedures of rational decision making are impossible to apply.” In other words, the knowledge on which plans should be based is necessarily local to the concrete situation in which it is to be applied.25
Scott’s argument in favor of local knowledge was in fact presaged many years earlier in a famous paper titled “The Use of Knowledge in Society” by the economist Friedrich Hayek, who argued that planning was fundamentally a matter of aggregating knowledge. Knowing what resources to allocate, and where, required knowing who needed how much of what relative to everyone else. Hayek also argued, however, that aggregating all this knowledge across a broad economy made up of hundreds of millions of people is impossible for any single central planner no matter how smart or well intentioned. Yet it is precisely the aggregation of all this information that markets achieve every day, without any oversight or direction. If, for example, someone, somewhere invents a new use for iron that allows him to make more profitable use of it than anyone else, that person will also be willing to pay more for the iron than anyone else will. And because aggregate demand has now gone up, then all else being equal, so will its price. The people who have less productive uses will therefore buy less iron, while the people who have more productive uses will buy more of it. Nobody needs to know why the price went up, or who it is that suddenly wants more iron—in fact, no one needs to know anything about the process at all. Rather, it is the “invisible hand” of the market that automatically allocates the limited amount of iron in the world to whomever can make the best use of it.
Hayek’s paper is often held up by free market advocates as an argument that government-designed solutions are always worse than market-based ones, and no doubt there are cases where this conclusion is correct. For example, “cap and trade” policies to reduce carbon emissions explicitly invoke Hayek’s reasoning. Rather than the government instructing businesses on how to reduce their carbon emissions—as would be the case with typical government regulation—it should simply place a cost on carbon by “capping” the total amount that can be emitted by the economy as a whole, and then leave it up to individual businesses to figure