Why the "best and brightest" cannot plan the economy
You are our Ruler. An entrepreneur tells you he wants to create something he calls a "skating rink." Young and old will strap blades to their feet and speed through an oval arena, weaving patterns as moods strike them.
You'd probably say, "We need regulation—skating stoplights, speed limits, turn signals—and a rink director to police the skaters. You can't expect skaters to navigate the rink on their own."
And yet they do. They spontaneously create their own order.
At last month's State of the Union, President Obama said America needs more passenger trains. How does he know? For years, politicians promised that more of us will want to commute by train, but it doesn't happen. People like their cars. Some subsidized trains cost so much per commuter that it would be cheaper to buy them taxi rides.
The grand schemes of the politicians fail and fail again.
By contrast, the private sector, despite harassment from government, gives us better stuff for less money—without central planning. It's called a spontaneous order.
Lawrence Reed, of the Foundation for Economic Education, explains it this way:
"Spontaneous order is what happens when you leave people alone—when entrepreneurs … see the desires of people … and then provide for them.
"They respond to market signals, to prices. Prices tell them what's needed and how urgently and where. And it's infinitely better and more productive than relying on a handful of elites in some distant bureaucracy."
This idea is not intuitive. Good things will happen if we leave people alone? Some of us are stupid—Obama and his advisers are smart. It's intuitive to think they should make decisions for the wider group.
"No," Reed responded. "In a market society, the bits of information that are needed to make things work—to result in the production of things that people want—are interspersed throughout the economy. What brings them together are forces of supply and demand, of changing prices."
Prices are information.
The personal-computer revolution is a great example of spontaneous order.
"No politician, no bureaucrat, no central planner, no academic sat behind a desk before that happened, before Silicon Valley emerged and planned it," Reed added. "It happened because of private entrepreneurs responding to market opportunities. And one of the great virtues of that is if they don't get it right, they lose their shirts. The market sends a signal to do something else. When politicians get it wrong, you and I pay the price.
"We have this engrained habit of thinking that if somebody plans it, if somebody lays down the law and writes the rules, order will follow," he continued. "And the absence of those things will somehow lead to chaos. But what you often get when you try to enforce mandates and restrictions from a distant bureaucracy is planned chaos, as the great economist Ludwig on Mises once said. We have to rely more upon what emerges spontaneously because it represents individuals' personal tastes and choices, not those of distant politicians."
Another way to understand spontaneous order is to think about the simple pencil. Leonard Read, who established the Foundation for Economic Education, wrote an essay titled, "I, Pencil," which began, "(N)o single person on the face of this earth knows how to make (a pencil)."
That sounds absurd—but think about it. No one person can make a pencil. Vast numbers of people participate in making the materials that become a pencil: the wood, the brass, the graphite, the rubber for the eraser, the paint, and so on. Then go back another step, to the people who make the saws and machinery that are used to make the materials that go into a pencil. And before that, people mine iron to make the steel that makes the machines that make the materials that go into a pencil. It's all without central direction, without these people even knowing they are all working ultimately to make pencils. Thousands of people mining, melting, cutting, assembling, packing, selling, shipping—and yet you can buy pencils for a few pennies each.
That's spontaneous order, and it's replicated with every product we buy, no matter how complex.
The mind boggles.
John Stossel is host of Stossel on the Fox Business Network. He's the author of Give Me a Break and of Myth, Lies, and Downright Stupidity. To find out more about John Stossel, visit his site at www.johnstossel.com.
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