Quote of the Day

My view is that innovation by trial-and-error is the most valuable economic process, and government intervention tends to be inimical to such innovation. Even when the market is producing unsatisfactory outcomes, my view is that eventually innovators will come along with better ideas. In that way, the market’s errors tend to be self-correcting. Government’s errors tend to perpetuate and to deepen.

Arnold Kling

14 thoughts on “Quote of the Day”

  1. Ayn Rand would certainly agree. I guess I do too. Government tends to accumulate layers of bureaucracy that, whether they get expected results or not, are remarkably difficult to divest. That does not even take into consideration excellence, which Government bureaucracy is pretty much incapable of attaining.

  2. Old age has convinced me Mr. Kling is correct.

    More than that, Government never corrects the root problem, only the symptom. Eventually the market does. But when the market has fixed the original problem, government continues to treat the symptom because that is now property of an interest group.

  3. The inherent experimental nature of the free-market is its greatest strength. Every new product or business is an experiment and most of those experiments fail but the nature of the free-market limits the damage caused by the failures. Like the acorns, thousand fall from each tree but only a few grow into mighty oaks but it is those successful few that make the forest.

    Government can’t experiment effectively because…

    … you know what I think I will just do a post on this idea.

  4. Shannon, get on that, will you? ;-)

    Here’s a biological analogy: the unhindered flow of ideas and capital in free-market democracies best approximates the brownian interplay of dissolved molecules required for our water-based, prokaryotic cellular metabolism.

    Man has a tendency to want to control, manipulate, and seek ever more status within our artificial social machines. The market is paranormal to this tendency, just as the Krebs Cycle is paranormal to the molecules it processes. It requires Man to let go of his “control-freak” urges, and give-in to a tide larger and stronger than any of his fleeting constructs.

    Private ownership, and the devolution of government to the localities (decentralization) both subordinate Man’s fallible mechanisms to a grander, competitive market, and insulate the nation’s well-being from their Weberian bureaucratic faults. Both act like a “blood thinner,” preventing the choking man-made “clots” from clogging our nation’s arteries.

    We don’t give up this pull easily.

    A solid education in Market Economics and the hard sciences is the best antidote to the archaic attraction of man-made “status-goups.” Let’s get economics into our nation’s high schools’ curricula, next to geometry and cell biology.

    Thanks Johnathan, and I’ll look forward to your post on this topic, Shannon.

  5. But Jonathan, I expect the government to provide for my every need from cradle to grave. I don’t know about you, but I’ve already been planning what I want to spend my social security checks on. Get with the program man…

  6. A very good reason to oppose federal standardization of the techniques of education. If each state controls its own standards and practices the country will be better off since, I assume, other states will gradually emulate the successful state(s) methods. If a top-down approach is taken things will become bureaucratic and innovation is more unlikely.

  7. Note that the same phenomenon applies, to an extent, within corporations. For example: the way GM *used* to be organized was in product divisions, each with its own marketing, engineering, and manufacturing and each run by a true General Manager. Hence (at least in principle) a product division could “experiment” in ways that could lead to success or failure. Now, GM is much more centralized, both at the manufacturing and engineering levels. Although this may reduce costs, it arguably reduces the likelihood of experimentation…and, thereby, increases the risk for the enterprise as a whole.

  8. I do agree that this is true when your talking about widgets or burritos or web browsers. Like it’s totally okay if the coffee place joint on the corner is slow because eventually they’ll either have to pick up the speed or a speedier place will open and put them out of business.

    But I have to really disagree in other areas. In my view businesses can make huge horrible mistakes that affect people severely and/or for generations… like some of the pollution caused by mining companies or the Bhopal disaster. These errors are not “self-correcting” and actually perpertuate and deepen until government steps in.

    At least our government has a mechanism for correction. This is one of the many reasons I like democracy so much!

  9. Govt tends not to correct its mistakes as quickly (if it corrects them at all) as fast as private industry does. Bhopal cost Union Carbide a lot of money and is therefore most unlikely to happen again. Meanwhile the Tennessee Valley Authority, which is a running economic and environmental disaster, keeps going year after year and can’t be killed politically. Think of all the bad business ideas ideas introduced during the 1990s, and the companies that promoted them — many of which no longer exist. How many poorly conceived govt programs hatched during the same period have been canceled? A small percentage of private companies founded in the early-20th Century still exist. Almost all US govt agencies founded then still exist, even if the “problems” they were created to deal with no longer exist.

    A business with a bad idea or that behaves irresponsibly will eventually run out of money. A govt with a bad or irresponsible idea tends to perpetuate it indefinitely.

  10. The Chernobyl example is good because it was sponsored by a really bad, evil government that wasn’t democratic in any way shape or form. But it’s true, even the US democratic government can do and has done really bad Chernobyl-like things, especially when it’s having less than democratic moments. The US government has certainly made some bad environmental messes.

    In many messes the business may not be around to pay up and clean up (like many mining companies in the west.) Just as Jonathan said “A business with a bad idea or that behaves irresponsibly will eventually run out of money.” Even if they are still arond they usually don’t fix their mistakes until they’re forced to by lawsuits or other government means (like Bhopal, tobacco, etc.) I just don’t see business having a means of correcting itself in this area, businesses aren’t too accountable here in the US and they certainly aren’t democratic. But our government is (hopefully) democratic.

    But don’t get me wrong. I think business rocks at giving us some cool products. I love my iPod Shuffle. I love the Chipotle burrito I just ate. I love my warm waterprooof boots that I wear October-April here in Minnesota. Government couldn’t do this stuff nearly as well. I think the system that business exists within in the US needs some tweaking.

  11. Hobby-horse alert:
    Note that the article goes back to Schumpeter. Why do economists insist on assuming perfect competition, widespread information, and commodity pricing? Everyone involved in making money, rather than studying its habits, tries to gain an advantage over competitors, profit from proprietary knowledge, and differentiate their offerings to avoid commodity pricing. We are all trying to create miniature monopolies, and technological innovation, product improvement, and efficiency in production and distribution is how we try to do it. No surprise that these are the things that drive productivity growth. To hell with equilibrium! Winning is better.

  12. “You have to wear waterproof boots in Minnesota from October-April??? Sacre bleu!”

    Well actually the waterproof aspect isn’t that important from Dec-March since everything is very frozen. No slush, and the snow doesn’t even really make you wet since snow is much more of a solid than a liquid when it’s -5 degrees. The key thing is really the warmth my boots provide, as you can feel the cold coming up through the soles of sneakers or other normal shoes.

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