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Thread: Planning the End of Planning: Disintervention and the Knowledge Problem

  1. #1

    Planning the End of Planning: Disintervention and the Knowledge Problem



    Kyle O’Donnell is a third year PhD student in the Department of Economics at George Mason University and a Mercatus Center PhD Fellow. Kyle was selected as a Koch Summer Fellow in 2010. He earned a BA in History and Economics from Purchase College, State University of New York. Kyle’s research focuses on drug prohibition and the knowledge problem.


    http://mercatus.org/kyle-odonnell


    Planning the End of Planning:
    Disintervention and the Knowledge Problem

    Kyle O'Donnell - Purchase College, SUNY


    ABSTRACT:

    State intervention inevitably fails due to the inherent flaws as highlighted by
    Austrian political economy. Interventionism distorts prices, disrupts the competitive discovery process, and is socially harmful. Disintervention is posed as a solution, yet typical disintervention is often a centrally planned solution to the problems inherent to central planning. In many ways intervention and disintervention share key similarities and key flaws. Whereas the typical Austrian critique is a largely one way story, this essay will examine more closely the problem of disinterventionism by applying much of the same framework used to critique various forms of interventionism. In the end I paint the picture that (centrally planned) disinterventionism suffers in many of the same ways as its interventionist sibling.

    http://www2.gcc.edu/dept/econ/ASSC/P...20-%20ASSC.pdf






    all emphasis, [bracketed text], and hyperlinks hereafter are mine
    see pdf for author's notes and works cited




    END THE FED!
    Last edited by presence; 03-24-2016 at 08:41 PM.

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

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  3. #2
    Since the beginning of the 20th century,

    Austrian school economists have thoroughly critiqued interventionism as a socially harmful, inherently unstable, and paradoxical policy regime that distorts prices, disrupts the entrepreneurial discovery process, destroys economic vitality, and misallocates resources

    (Mises 1940, 1949; Rothbard 1962; Lavoie 1982; Kirzner 1985; Ikeda 1997).

    By its very nature,
    interventionism tends to fail to achieve its goals, and actually results in outcomes that even the interventionist planners themselves find worse than the original problem they were trying to remedy.1 This sets political authorities towards ever increasing interventionism in all sectors of the catallaxy in an effort to stifle negative outcomes from spreading (Mises 1940; Lavoie 1982). Interventionist measures tend to accumulate overtime due to this ratcheting effect while their effects are compounded, distorted, or even concealed by cascading interventions. The choice between continued interventionism and the unhampered market will be continually presented to the public choosers.

    This very analysis provides for the possibility that the public choosers may indeed decide to embark upon a road of disintervention and move back towards the unhampered market. Yet the typical critique is largely one-sided, focusing primarily on the process of increasing intervention, and then stopping when the direction is reversed. It seems that a thorough going analysis and critique of the disinterventionist process has been largely ignored. This essay then attempts to highlight and whittle away this disparity by using the very same Austrian school framework for critiquing interventionism - notably market process theory and the dynamics of interventionism -

    to understand disintervention as but another policy tool


    in the planner's kit for shaping and designing the economy. What emerges then is a clearer full spectrum picture of political manipulation's effects on the catallaxy, and not just its highly visible ones.

    Interventionism tends to be based on poor economic understanding - particularly a disregard for the knowledge problem and the lack of a price system for rational economic calculation - effecting outcomes worse than those originally intended for correction.2 Disintervention is often posed as the solution to the interventionist paradox, yet typical disintervention is often a centrally planned solution to a problem caused by central planning and its flaws. Notably, interventionists are restricted by their limited knowledge and lack the proper incentives for effectively coordinating - not only economic resources - but their own interventions as well. Thus most importantly, as I argue, (dis)interventionism - unlike spontaneous market orders - lacks a systematic and decentralized discovery procedure for correcting prior errors and discovering the best uses for scarce resources. In many ways disinterventionism errs along the same flawed economic logic just as much the original interventions it attempts to correct. I accomplish this critique without abandoning an appreciation for the market's power for spontaneously coordinating human action towards socially beneficial ends. My critique of disinterventionism is not lukewarm support for the interventionist status-quo. If Austrian economists, and other free marketers, are to effectively advocate for the free market - even as many place blame for crisis after crisis on deregulation and free markets - then their arguments must be fully formed and able to critically discuss all aspects of (dis)interventionism. Thus I offer the alternative view that intervention and disintervention are really two sides of the same coin, both featuring many of the same flaws inherent to politically planning, controlling, and designing an economy. Finally, I also ask if it is possible to overhaul the disinterventionist process, and if so, to explore a few solutions.

    Framework

    First a clear explanation of interventionism is needed, both to understand what exactly it is that is being "dis-intervened" and to begin drawing similarities between these two seemingly disparate processes.

    Intervention
    can be broadly understood
    as the use of political means
    to achieve ends otherwise unattainable
    vis-a-vis the free market,


    or more specifically as the use of coercion to interfere with voluntary exchanges and action (Rothbard 1962; Ikeda 1997). This can take the form of

    price controls,
    limits on entry and competition,
    prescriptive regulation
    defining legally accepted business practices,
    taxation,
    as well as currency manipulation
    and numerous other measures.


    Although supposedly the "third way", according to its supporters, between a completely collectivized socialist economy and laissez-faire capitalism, interventionism as a separate and stable economic system is highly questionable given the number of compelling Austrian critiques. These generally argue that interventionism fails due to its ignorance of fundamental underlying market forces. This leads to failures that must be corrected; either by

    further interventions eventually leading to a socialist system,
    or a reversal and movement back towards a free market

    (Mises 1940; also see Rothbard 1962; and Ikeda 1997). This latter possibility of reversal is often mentioned, yet too little attention has been given to this process. The idea I am stressing is that intervention is essentially a political action designed to bring about a change in the catallaxy in line with a specific policy goal.

    I must also define my use of the term disintervention. By disintervention, I am referring in particular to a centrally planned political action in a mixed economy where a political actor(s) whether a bureaucrat, politician, government commission, or even governmental department specifically decides to

    reverse a prior economic intervention(s)
    such as by relaxing regulatory policy,
    removing price controls and limits on entry,
    abolishing departments or bureaus,
    privatizing state-controlled or owned industry,
    or other deregulatory moves.

    Typically this is performed in line with a specific plan: usually in an effort to improve economic growth, bolster and enhance competition, reduce government waste, or for consumers' interests. The scale of the disintervention we are referring to also plays a large role in our critique.3 While disintervention itself is a fairly open-ended term, and I believe various aspects of my critique could apply at all levels,

    I generally use it to mean piecemeal plans or programs that are quite focused in their intent.


    Usually this means disintervention in a specific sector of the economy which has been perceived to be stagnant or depressed - though it could also be in a successful area thought to have greater potential with liberalization. This tends to limit the extent of the disinterventionist process and will necessarily be a large variable in my analysis, as will be seen.4 Therefore my effort is largely constricted to instances of centrally planned disintervention aimed at specific policies or industries, rather than economy wide liberalization.

    The economic view that I employ is rooted in the Austrian tradition, yet also utilizes public choice insights where they are beneficial. This synthesis provides a powerful toolset for understanding the problems inherent to disintervention, and can contribute fruitful discussion to the role of intervention and disintervention in the economy. Austrian economics views markets as continual processes that utilize the maximum possible amount of society's dispersed knowledge, and are driven by entrepreneurial individuals towards self-correction, equilibrium, and socially beneficial discovery (Hayek 1948a, 1978a; Kirzner 1973, 2000; Mises 1949). Central to modern Austrian economics, and as I will later argue the largest obstacle facing the disinterventionist planner, is the knowledge problem as described by F.A. Hayek. In "The Use of Knowledge in Society" Hayek argues that the knowledge necessary for rational and efficient economic decision-making is both widely dispersed amongst millions of individuals in varying degrees, as well as of the particular time and place. Hayek further argued that no single mind or selection of minds could possibly aggregate and use all the relevant and pertinent information necessary to rationally plan and coordinate society's countless economic activities. The problem that emerges then is how to maximize the utilization of society's inherently dispersed and local knowledge in order for millions of various economic decisions to coordinate with each other towards socially beneficial ends. For Hayek the price system, as emerged from and utilized by the market, allows for decentralized decision-making to take into account the relative scarcity of economic resources. The price system's development therefore solves the need for the utilization of dispersed knowledge, while directing market participants towards providing for society's highest valued needs (Hayek 1948a).

    Market process theory was introduced by Hayek and developed by Israel Kirzner, to understand how prices form and direct economic decisions.5 In this view, it is the work of entrepreneurial activity continually seeking profits through the adjustment of "false" prices - that is, prices which are at odds with consumers' underlying preferences or that do not fully reflect available resources and production methods - towards their more corrected states (Mises 1949; Kirzner 1973, 2000d). As well, knowledge is gained and adjusted, along with prices, through the continual exchange and interaction occurring in the market (Hayek 1978a; Kirzner 1973). We should highlight that Austrian market process theory relies on the concept of radical ignorance for its analysis, such as in the previous examples. This crucial concept differs from the "imperfect information" of neoclassical economics in which information that is missing, is known to be missing; instead Austrians drop this unrealistic assumption. Thus, not only is knowledge dispersed, but much knowledge is not known to be unknown.

    Just as no central planner could hold all necessary knowledge, no producer could possibly know the highest valued use for his capabilities at all times. Profit potential emerges as the gaps between false prices and those more closely resembling underlying consumer preferences, thereby incentivizing their correction. This forms the basis for the entrepreneurial discovery procedure; a spontaneous process whereby knowledge is continually discovered and put to use better coordinating economic activity, and hence largely overcoming the knowledge problem (Kirzner 1973; Hayek 1978a). An important feature of the discovery process to note at this point is its essentially decentralized character, for the very idea that any discovery of dispersed knowledge can even occur to begin with implies that various actors are able to make use of the knowledge given and available to them through interactive exchange on the market.

    Israel Kirzner's approach to Austrian market process theory centers on the role of individual entrepreneurs within the discovery procedure for coordinating activity and encouraging new uses for resources (Kirzner 1973, 2000b). Kirzner's approach to market process notably denies the possibility of market failure - traditionally defined as some socially sub-optimal outcome arrived at via the "free market" and usually envisioned using neoclassical normative analysis. There is no room for market failure, certainly not in the long run, wherever free markets exist, since free markets are inherently dynamic and always encourage exchange and discovery. In fact any suboptimal market outcomes would themselves act as incentives for the discovery process (Kirzner2000c).

    However, this is not to say markets under any condition are without flaws, or always have the ability (of market participants) to overcome them. Markets are certainly apt to distortion and disruption through interventionism.6 This can result in several varieties of distorted market processes that lack all of the free market's vital features. Kirzner's typology classifying these types of distorted markets include:

    the undiscovered discovery process,
    the unsimulated discovery process,
    the stifled discovery process,
    and the wholly superfluous discovery process

    (Kirzner 1985).

    These processes, while illustrating different flaws of interventionism, all reflect the same understanding that free markets endogenously encourage solutions to society's needs while premature, misguided, selfish or even benevolently-motivated intervention circumvents, frustrates, or destroys the discovery process necessary for markets to function.

    I also draw from public choice theory due to disinterventionism's necessarily political nature. Public choice drops the assumption of benevolence on the part of political actors common to neoclassical economics and much of Austrian political economy. These insights allow me to touch on a few interesting questions for further exploration. For example, public choice often focuses on the role that vested interest groups have in influencing policy towards their desired ends, such as by organizing to protect their particular interests through lobbying and other pressure tactics (Yandle 1983). Through rent-seeking regulations they can restrict competition by limiting entry through licensing requirements, gain monopoly privileges, and impose prescriptive regulations that favor entrenched, larger, or certain businesses over new entrants (Stigler 1971). If interest groups are successful enough, they can even come to dominate regulatory agencies through tight personal and professional connections, or through effective lobbying practices, in a situation known as "regulatory capture" (Posner 1974). In addition to this typical analysis, and as somewhat of an extension, I will briefly discuss the possibility of "deregulatory capture" in the disinterventionist process.

    Austrian political economy and market process theory are well suited for understanding the full range of interventionist action and policy. This analysis and critique is especially useful for free market advocates as typical mainstream accounts of disintervention's failings often misunderstand the market's dynamic forces and tend to fault disintervention as market failure rather than, as I argue, government failure.

    A Picture of Intervention & Disintervention

    In order to better envision my argument, I will provide a few examples that can be drawn from to illustrate my points. The Austrian narrative tracing interventionism's initial failures and consequential "fixes" into ever further areas of the catallaxy is well known to free market economists and sympathizers. The main point that I am pushing, however, is not merely that this process exists, but that overtime this process - and the rules, regulations, codes, etc. embodying this process - necessarily becomes increasingly complex and convoluted.

    One need look no further than the
    United States Tax Code
    to see how glaringly obvious is this fact.

    Though the tax code is a revenue raising measure in name, it actually comprises one of the federal government's most trusted interventionist tools. Thus in order to direct economic activity at its whim, the

    Congress can insert new tax breaks, penalties, and credits
    designed to stifle certain activity, promote others, or even prohibit some -
    not to mention the multitude of hand-outs to special interests.


    By 2006 the federal tax rules and regulations comprising the code filled over
    65,000 pages.


    In order to help taxpayers fill out a 1040, just one form, the IRS publishes a nearly 150 page book. One estimate claims that the current tax code costs the US hundreds of billions of dollars due to the wasted hours and resources spent on compliance (Edwards 2006). And as if things weren't seemingly complex enough, the US Tax Code itself is but one section from the even larger United States Code comprising all of the federal rules, regulations, rulings, and codes that have been passed up until this time. The page count on this collection is even fuzzier, with many public figures commonly citing a figure upwards of

    one million pages.

    The odds that the thousands of regulatory codes listed are in harmonious coordination with one another is less than likely to say the least. At this point the knowledge problem embedded within the mixed economy should seem obvious.

    To abstract a bit from this example, picture a mixed economy with a certain number of interventions, m.

    Assume this number was arrived at via the interventionist process as described earlier where one failure gives call to further policies all trying to fix earlier failures. In real world situations the timeline for this process can run beyond months and years, spanning not only elected terms, but entire careers for the bureaucrats administering the process. The political actors intervening are rarely the same ones that previously intervened - even for one particular sector of the economy.

    To show how this can affect the process imagine that in year x, product A is deemed socially beneficial yet underproduced.
    To counter this, subsidy A is provided for the producers of A.
    As years go by product A is grouped together with a number of other products B-F that are found to be harmful pollutants.
    .
    ..
    ...
    To reduce their consumption tax penalty B is enacted which has mirror opposite effects.
    More time passes, the tax is replaced by another tax with a different structure filled with tax breaks to politically favored groups.
    .
    ..
    ...
    A substitute product of A is prohibited for "public health" reasons further altering consumption and production of A.

    Continue ad infinitum.


    Each intervention is seemingly called for by "expidiency" demanding a government solution and they are subsequently lumped on top of one another creating new effects and distortions, each of them affecting one another. Of course, as each intervention seems to resolve any problems raised (at least for the public chooser himself), time continually passes allowing for each subsequent intervention to distort the market process, prices, capital structure, and further misallocate resources.

    Given the established Austrian critique that interventionism fails leading to more intervention - combined with government's often one-way incentive structure to expand - why does disintervention occur at all?

    Ikeda proposes that the very failures of interventionism combined with ideological shifts can turn a mixed economy towards collectivism or laissez-faire. In this way, interventionism's extremes - exemplified by Mises's rather stark view that either laissez-faire capitalism or socialism are bound to emerge - can be held in check through an endogenous process guided by ideology and fueled by interventionism's own failures, even though the whole system remains unstable at large (Ikeda 1997). For my purposes, however, the motivation behind disintervention is mostly assumed away in order to focus my analysis primarily upon the actual process and its results rather than the political battles that often surround these policy decisions. However, I do discuss how perceived failure of the disintervention can affect the predominant ideological position and thus whether any further disintervention is possible. Finally, to launch my analysis I assume that the planners decide to pursue a course of disinterventionism. Interventionism has obviously left the economy stagnant, dysfunctional, and crisis-ridden. For whatever prevailing reason at the time, the planners have seen the light and wish to undo the interventions that bogged down, disrupted, and nearly destroyed the economy. Of course they must now devise their

    plan to end all plans...


    For many free market advocates, the story ends here, the hard part is over. The planners finally came around and agreed that what was needed was less government and not more. Economic liberalism has won the day. Yet this is an analytically bankrupt position to find oneself. The interventionist critique must extend across the full range of political action that believes an economy can be fine-tuned, whether this means tightening the tap via intervention, or in opening it up and assuming what comes out will still be the same beneficial market forces.

    Why Disintervention Fails The Flaws


    Interventionism is distortive, disruptive, and potentially socially destructive because it attempts to defy the criticisms and possibilities of centralized planning according to the market process view of the dynamic market. Yet disintervention faces the same problems. When disintervening, political actors with necessarily limited information and knowledge must somehow decide, not only what to liberalize, but how and when. It is perhaps these latter considerations which are the truly crucial elements for successful disintervention. "Crude" disinterventionism enacted without understanding the complex interactions that occur between an intervention, other interventions, and the dynamic market process may very well lead to cascading negative unintended consequences. Deregulation in the one sector, let's say housing, might lead to bottlenecks in another complementary (or even seemingly disparate) sector, say in finance, which might cascade into other areas in unpredictable ways.

    To better assert this point I offer the following: not all interventions are created equally. I say this to emphasize the fact that not all acts of government interference with the economy can be equally harmful, even according to the most stringent anarcho-libertarian standards. A price floor that falls below the current market rate is not as harmful as the price ceiling that (attempts) to cut the price of a product in half from its going market rate. There also exists the possibility that there may even be less obvious interventions that are unintentionally "beneficial" relative to others given the uncoordinated nature of the interventionist system. Likewise, even many free-market economists would agree that if a banking system must rest upon a "lender of last resort" with its subsequent moral hazard, then some regulatory framework preventing the to-be-expected excessive risk-taking may be justified or necessary in the meantime, even if the longer-run disinterventionist goal is a free market banking system.

    The mixed economy often also contains entire markets built on the backs of previously distorted market processes. The wholly superfluous market process emerges where opportunities for profit would otherwise never have existed outside of the influence of interventionism (Kirzner 1985). In the real world this can mean entire industries built on the shaky grounds of government intervention. Though due to a lack of unencumbered price signals, few if any might be able to realize this. Thus there also exists the chance that by liberalizing one sector, or removing one control, that a large collapse may be unleashed and backfire in the face of the disinterventionists harming the political capital necessary to continue with any necessary disinterventions.

    All this leaves the question of

    which ones are perhaps justified in the mean time in order to prevent further harm by "holding back" other interventions?
    How is a planner with their limited knowledge supposed to be able to tell the difference?
    Lastly how can these two answers explain in what order to disintervene?

    The policy problem I have presented - in the form of entrenched and overlapping, uncoordinated interventions - is one of organized complexity. Even presupposing that the number of interventions is set at point m, what still remains is a complex series of interlocking problems with no clear solution available to anyone guiding the disintervention. Of course I am describing the knowledge problem, traced along its implications for the possibility of (dis)interventionist coordination. Yet it must also be remembered that the knowledge problem is overcome everyday by the market process acting through the price system. Even if the planners understand this insight, they must still ask themselves: "So in a mixed economy, even one completely distorted by rampant intervention, why can't piecemeal disintervention of markets be relied upon to provide the intended results?"

    The disinterventionist planner may note that the market tends towards self-correction, and that surely if he just lets the market work, then this problem will sort itself out on its own. While a free market would have the mechanism of the discovery process, guided by profit and loss, for realizing the most socially beneficial ends from available means, interventionism lacks this mechanism in any true spontaneous form. If a disinterventionist plans to liberalize successfully they must decide at some point what to disintervene, when (in what order), and how. Markets are spontaneous orders lacking any centralized direction, made possible by the institutional settings that shape their incentive structures and guide the market process towards socially beneficial ends. So whereas the market process encourages decentralized entrepreneurs to utilize their particular knowledge of the time and place to drive the market towards self-correction and satisfaction of consumers' wants, the command economy - and any decision making in this vein such as (dis)interventionism - lacks the institutions and incentives required to drive a spontaneous process embodying society's dispersed knowledge. In a sentence then, interventionism - and its mirror lacks a spontaneous discovery process for systematically uncovering and incentivizing the correction of its past errors to the benefit of society. Disinterventionism as a policy necessarily confronts the knowledge problem, but this by itself is not enough to sink the mainstream "crude" disinterventionist position. After all, markets and the price system routinely overcome this problem everyday and do so remarkably well. Yet the more specific point I am arguing is that

    there is no tendency in piecemeal disintervention
    to successfully liberalize
    via correctly discovering the proper order, rate,
    or even what and where to disintervene.


    Next, I further develop my argument that disinterventionism confronts the knowledge problem, and the connected argument that disinterventionism lacks a discovery procedure.

    The Knowledge Problem and Discovery

    I contend here that it is essentially impossible for any single mind or collection of minds to know what each of the interventions in a mixed economy is, their respective effects and ensuing cross effects, or how they actually affect the catallaxy. And furthermore, the likelihood that all of these interventions are somehow aligned or coordinated in some "rational" order with little-to-no inconsistencies between policies is undoubtedly near zero. At this point the immense knowledge problem inherent, even at a given level of interventionism, becomes apparent to any wannabe disinterventionist.

    The murky, uncoordinated interventionist state, as I have illustrated, is the outcome of years of social and economic engineering done without an appreciation of the limits of concentrated decision making.

    The interventionist's downfall is the pretension that they possess knowledge
    they are not capable of possessing,


    compounded by the inability to correct their mistakes through decentralized decisions utilizing dispersed societal knowledge as is done through the market's competitive discovery process. Just as interventionism - and central planning more generally - lacks the ability to successfully coordinate resources in the face of the knowledge problem, so to it lacks the means to coordinate even its own decisions and actions. Likewise, disintervention suffers these same flaws. In a sense we are arguing that two wrongs do not make a right with regards to intervention and its mirror disintervention. An economy that has been distorted or destroyed by actions taken without the benefits of decentralized decision-making using all available knowledge, cannot be recovered by mirror decisions lacking the same benefits.

    The impossibility of concentrating all the relevant knowledge in order to make rational and successful interventionist decisions becomes readily apparent when I refer back to the example of the US tax code. Even in the situation presented where all the possible data needed were given and defined - ie, fully listed in print form in the multiple volumes of the tax code - it is simply impossible to know how all of these rules, codes, and regulations affect one another. To remove one intervention that seemingly causes clear negative unintended consequences, may not actually erase those negative effects. There may still be other complementary interventions, or the market process may have been so distorted under the intervention as to render those effects inflexible. It should therefore come as no surprise if an intervention is finally removed unaccompanied by any positive effects as were expected. There is also the possibility that disintervention can make the economic situation worse than it had been. Again due to the lack of complete knowledge of how the interventions in question affect the market participants involved, as well as its effects on other interventions, there is no way to know how a particular disintervention will unfold. This may result in a socially harmful misallocation of resources, say for instance if several conflicting - though somewhat equilibrative - regulations are disrupted without understanding their balancing act. Disinterventionism, despite the rhetoric, is still a centrally planned political action that attempts to steer markets towards some preferred ends. Whereas the interventionist typically views the free market as the culprit and proposes some defined solution, the disinterventionist sees prior intervention as the cause and likewise proposes its own plan. Again, despite their motivation and even if correct in their original diagnosis, they simply cannot know all of the necessary knowledge for understanding the effects of the interventions, and their proposed disintervention.

    (Dis)Interventionism Lacks a Discovery Procedure


    If any long-term pattern of socially beneficial plan coordination and cooperation is to emerge in the face of the knowledge problem, three conditions must be met:

    there must exist a mechanism for conveying society's dispersed knowledge regarding the particular time and place;

    decentralized decision-making must be allowed in order to fully utilize that widely dispersed (and often unknown) knowledge and information;

    and there must be some type of endogenous incentive structure for systematically encouraging the spontaneous correction of past errors upon their discovery.



    Within the free market's institutional setting - private property, the division of labor, and the price system - these conditions are necessarily inherent.

    The price system allows for a vast multitude of information to be conveyed beyond what is possible through interpersonal relations and communication.
    The division of labor decentralizes society's productive factors and encourages use of and reliance on the price system.
    Lastly, private property provides for the possibility to earn a profit, via the correction of false prices, through entrepreneurship and discovery.

    Combined together, these elements make up the basic structure of the competitive discovery procedure at the core of the market process.
    Last edited by presence; 03-24-2016 at 08:38 PM.

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

    'Resistance and Disobedience in Economic Activity is the Most Moral Human Action Possible' - SEK3

    Flectere si nequeo superos, Acheronta movebo.

    ...the familiar ritual of institutional self-absolution...
    ...for protecting them, by mock trial, from punishment...


  4. #3
    This discovery procedure is responsible for the "self-regulating" nature of the market. It encourages mistakes and failures to be uncovered and corrected by incentivizing their solutions. Hence without this - or an analogous - process for correction, (dis)interventionism can be expected to fail. A free-market politician may have

    the best of intentions,
    all the experts on his side,
    and the will of the populace,


    but without a spontaneous mechanism for reestablishing fully functional markets he will not be able to achieve long-term success. A political authority that has centralized economic control cannot simply loosen its grip from the top and simultaneously make the same decentralized decisions that markets allow, it is antithetical to the very idea of central planning.

    First among these crucial elements lacking in the interventionist state - similarly to the socialist commonwealth - is a functional price system. The price system is vital for expressing a broad swath of impersonal information including reflecting the relative scarcity of resources, dynamic societal needs, consumer preferences, and ideal production methods. Consumers and producers require prices, which also serve as informational signposts, to rationally calculate their economic activities (Mises 1949; Hayek 1948a). Yet interventions have no attached prices, therefore not allowing monetary calculation, thus rendering it impossible for planners or entrepreneurs to understand how important certain interventions are for current plan coordination. To illustrate this concept, imagine instead that interventions do indeed have prices.

    For example, a subsidy that provides a farmer with $20,000 a year would likely be worth something up to or equal that amount to the farmer - of course taking into account any of his related preferences. Then at the national level concerning 100 hypothetical farmers, and assuming similar individual valuations, the subsidy may be worth roughly $2,000,000 to the producer group. Similarly, prices could also be hypothetically generated for other regulations and controls, such as limits on entry and price controls. If this were imaginable, then it may also provide for some way of communicating whether certain interventions were important to the current economic order.

    If price control A were valued cheaply relative to price control B
    then one could infer that B is more crucial to some ends than A
    and that removing A would carry less harmful effects than B.


    Or if a tariff protecting a domestic industry was valued well above the market price for that industry's output then one could similarly conclude that the tariff was socially harmful. If this hypothetical price system in interventions was possible, then it might also be possible for consumers and producers to buy-out these interventions according to their own preferences. An entrepreneur wishing to enter a certain market, but barred by a state-granted monopoly privilege valued below his expected gain could choose to buy out the intervention in question.

    Yet even the hypothetical possibility of establishing a price system for interventions raises further dilemmas calling into question the issue of property rights. As I mentioned, without private property rights prices cannot be generated and thus are vital for functioning markets (Mises 1949).7

    They also allow beneficial profit-seeking and establish a legitimate chain of claims to the gains from production and exchange. However, within an interventionist state there exists no clear property "owner" of interventionism. The gains or "wealth" created is not true wealth, but rather rents redistributed (through coercion) from the broader populace. The production process itself also did not consist in satisfying consumer needs, but rather in some arbitrary political decision carried out through force or the threat thereof. Not only is it morally questionable whether those interest groups that won beneficial legislation at the expense of others should be handed the "property (or more correctly labeled redistributive) rights" to their preferred intervention, but this precedent would simultaneously reinforce a rent-seeking culture whereby interest groups instead


    vie to "produce" protection
    in the hopes of selling it back on the market.



    Given these very restrictive constraints on developing an interventionist price system, and the accompanying property rights issues, it is very unlikely then that the disinterventionists' knowledge problem can be overcome. However this still leaves the last element of the competitive discovery procedure unaccounted for:

    its decentralized character allowing competition
    and the use of dispersed knowledge.


    Some may say competitive decentralization, perhaps in the form of renewed federalism, is one of the most realistic possibilities for curbing state encroachment and revamping disinterventionism - I do not make this claim, and instead find it unfounded. The decentralized decision-making at the core of the competitive discovery procedure allows the market process to draw upon society's dispersed knowledge of the particular time and place through the price system. Without the price system, decentralization accomplishes nothing - and as I've established before, there can be no functional price system and market for interventionism. Likewise, though federalism's advocates often claim that "voting-with-your-feet" and elections can adequately serve the purposes of political calculation, these slow-responding methods are blown away by the vastly superior coordinative power embodied in the market process, price system, and the billions of "votes" cast every day by consumers and producers in the marketplace. Whereas inefficient producers tend to be driven from the market, governments within a federal system can survive for years, even decades, without adjusting in response to their "competitors" more desirable policies.

    Some may say that interventionism is already a self-corrective process, albeit a rather perverse one. After all, interventionism tends to build on itself as prior interventions fail and the call is made for more and more intervention to "correct" past mistakes. This "corrective" process is not a spontaneous order however, since government interventionism cannot be said to be "selfsustaining" per se, since it necessarily relies upon coercion and redistribution at its base rather than wealth creation (Ikeda 1997). As well, the "corrections" cannot be said to be in the direction of equilibrium - or even coordination with prior interventions - since it still lacks the price system and resulting input from profits, which signal socially beneficial decisions. Even if political "entrepreneurs" stumble upon partial fixes to past interventions it cannot be a sustainable or spontaneous process, since this self-correction lacks the market's

    endogenous

    incentive structure
    which systematically encourages socially beneficent actions (and discourages harmful ones) through better plan coordination. In this way we can see how the attempt by interventionists at correcting their past errors with more intervention, is not analogous to the self-corrective competitive discovery procedure. Hence, I find that interventionism lacks a discovery procedure. Disintervention is largely the same "corrective" process, though with a different guiding motive. Disintervention is typically a response by political authority to its own failures, but instead of the usual ratcheting interventionism, a freer market is sought. If my argument as such is consistently followed - that intervention and disintervention are essentially the same political action cloaked in different terms - then my last observation must be extended to its logical conclusion. If interventionism lacks the systematic procedure for correction and continual plan coordination, as encouraged by profits made possible through a price system and property rights, then disinterventionism also lacks the same systematic tendency for correction.

    Even without a price system and competitive process, I have been asked, why can't disinterventionists simply watch for ensuing bottlenecks and distortions to arise and then stamp them out with further disintervention? Couldn't this form a sort of discovery procedure?

    Unfortunately this still ignores that political actors virtually never face endogenous incentives rewarding disinterventionist acts or similar shrinkage to state power. This objection also assumes that public choosers can accurately distinguish between those adjusting forces that usher in needed entrepreneurial discovery, price corrections, and improved plan coordination from those that are potentially harmful because they risk further misallocation or market distortions. The former situation is a

    Kirznerian example of entrepreneurial activity

    better coordinating resources towards their most highly valued ends, and is likely what the benevolent disinterventionist has in mind when beginning the process (Kirzner 2000a). If disintervention corrects a previous distortion that once mislead resources to less valuable ends, then entrepreneurs may seize this new profit opportunity, and through competition push prices and plans towards better coordination. However, a flawed disintervention's effects are likely to look nearly identical to this process. Disinterventionism will almost always change the direction of the market process, shifting resources accordingly. Moreover, both "good" and "bad" disintervention may appear destructive to some market actors. In the "good" example, inefficient producers are likely to object as their profits and incomes are adjusted in accord with more correct prices. In the "bad" case prices, incomes, and profits too will change, yet are potentially misallocations. From the planner's perspective (and limited knowledge) it may be impossible to distinguish between them. Again, without a price system there is essentially no way to know what disinterventions have failed - at least until they become readily apparent and destructive.

    Even assuming that benevolent political entrepreneurs were continually searching for uncoordinated or harmful interventions as a target for disintervention,

    they would simply lack the same tools available to market entrepreneurs


    for guiding their actions towards socially beneficial ends. For every disintervention that yields negative unintended consequences, it becomes nearly impossible for any political actor to further untangle the mess through rational disintervention. This can be seen as a mirror process to interventionism's tendency to build on itself in an uncoordinated manner. Over time, radical ignorance as well as the knowledge problem become increasingly important since the appearance of unintended consequences are not necessarily immediate or apparent. Since the unintended effects are likely to be dispersed and hard to observe, it is equally likely that decentralized actors will be the first to discover these effects. In fact, it is very probable that the results of "crude" disinterventionism will be noticed by various market and political actors, though without a discovery process and price system to overcome the knowledge problem, these actors will lack the ability or incentive to affect a fix.

    Instead it can be expected that even if they do raise flags, simultaneous market and political entrepreneurship will override their concerns or even exploit the very problems they wish to solve. Without a price system that can be effected by entrepreneurial discovery of uncoordinated (dis)interventions, and previous errors or mistakes, there is simply no way to utilize these actors knowledge aside from loud public discourse.

    Public Choice Critique


    Lastly I will mention potential public choice issues with centralized disintervention. Notably public choice examines the roles of political actors and interest groups in determining policy outcomes. Typical public choice tends to emphasize these political actors as

    self-interested utility maximizers vying to capture regulation,

    and generally not to favor the free market (Posner 1974). Here is where traditional public choice can run into difficulty when attempting to explain disintervention (Peltzman 1989). After all, the subjects in question are usually fighting to preserve intervention and will generally fight against deregulation. Since this essay has largely assumed motivations for the initial undertaking of disintervention aside, I will continue to assume that somehow these forces have been ignored, gave in to the new tide of events, or that the disinterventionist planners have benevolent aims in sight. Yet I can still take the initial ideas from public choice regarding self-interested political actors and interest groups and apply them to disintervention. Of course the idea I am pushing is that

    they will have a hand in shaping these new disinterventionist developments to their liking
    as they have with the interventionist process.


    Under this framework, we could likely expect to see similar attempts at procuring advantage during the disinterventionist process. Formerly protected industries might expend their resources insuring that the new rules are catered to their liking, or in the case of privatization, wield their influence for gain from the transfer of ownership. Political actors may also be under pressure to take advantage of the process, such as through deal-making with favorable industries for political favors, or perhaps even through

    explicit or implicit bribery.

    They may also use their inside information to get a leg up on potential competitors, or shift resources to areas where they may be able to take control. If a particular interest group is successful enough in shaping the process for its benefit at the expense of the general welfare, I move to call this

    "deregulatory capture".

    The possibility of this occurring is not unlikely given that political decision-makers tend to convene with the industries and their representatives in question before taking any drastic policy actions. And again, just as interest group directed interventionism leads to

    misguided,
    overlapping,
    and uncoordinated policy
    that often collapses under its own weight,
    we can expect interest group influence on disinterventionism to create similar problems.

    What Does Failure Look Like?

    Having established my theoretical critique of disinterventionism and why it tends towards failure, I will briefly describe what this failure actually is or may appear as. Of course, positively identifying some perceived negative outcome as the result of disintervention is a complex issue that necessarily treads a thin line between market and government failure. If keeping in mind the dynamic market process viewpoint however, then

    market failure is not possible wherever free markets exist.

    As such, any "problems" arrived at through the market process, when uncovered, automatically incentivize entrepreneurs to find a solution (Kirzner 2000c). Though that is not to say that markets are "perfect" by any means. In fact, market solutions may take years, even decades, to arise. Yet because these solutions, when they do occur, are based on a price system reflecting dispersed knowledge, they will be more likely than government intervention to provide socially optimal outcomes. Then what I am really warning against are not temporary less-than-optimal outcomes, but a cascading series of negative unintended consequences that will tend towards the self-destruction of the original disinterventionist goals in question.

    Partial disintervention will generally tend to produce greater negative unintended consequences, especially if complementary sectors of the catallaxy still face heavy intervention. Bottlenecks in economic activity are just one potential negative unintended consequence that might result from disintervention (Ikeda 1997). If all price, quality, and output controls were removed from corn farmers while neglecting to remove the complementary controls on the farm equipment and fertilizer industries, this would likely be problematic. Again, even if the most benevolent of disinterventionist planners understood this possibility, they would still face the constraints posed by the knowledge problem, and the lack of an spontaneous and systematic corrective process. Partial disintervention, the most typical and mundane form witnessed, may even do more harm than the interventionist status-quo. So long as disinterventionism is limited in its outlook and aims towards specific policy goals it will face the constraints and flaws described.

    A similar effect can be seen if disinterventionism disrupts an artificial "equilibrium" created by multiple offsetting interventions. To go back to my previous example of the multiple seemingly uncoordinated interventions regarding product A and others, assume that market actors have adapted to this interference and that a somewhat stable market has emerged that largely reflects consumer preferences. A well intentioned political actor upon seeing this situation, believes that he knows how to undo these past errors and then attempts to liberalize this market. Yet just as I have argued, he must decide what, and in what order to best disintervene. So he goes to the published register of all codes and turns to the section regarding this particular market.

    He is immediately confronted by a labyrinth of pages


    filled with cross-references to dozens of different rules, regulations, and court decisions interpreting those codes in just this one market. Not only that, but even with the help of all his legislative aides none of them realizes that they bypassed an entire section of regulations germane to their work filed under a different heading in another volume. And many of the most damaging interventions are actually not included in either section since they are actually much more wide-reaching than the sub-sectioned directory shows. Of course they still may try their best, decide upon a single course of action, and remove a slew of distortionary taxes. Unfortunately for their well-intentioned plan, and due largely to their limited knowledge, none of them realize that a number of these taxes actually held in check a much older and overlooked subsidy program even more distortive than the taxes, and previously ignored until now due to its superfluous nature. From a situation where the allocation of resources was largely held in check by a circular intervention, partial disintervention has now created a new potential for misallocation to occur. The ideal solution may have been to go even further with the disintervention, yet without perfect knowledge the disinterventionists face a serious constraint.

    Disintervention is generally undertaken in order to correct the damage from past interventions and regain the benefits of the market process. Though this essay has largely assumed away from analyzing the true motivations for undertaking the disinterventionist course of action, it can be generally inferred that the preferred ends are improved economic growth, activity, efficiency, and increased prosperity. So regardless of how politicians or the public have come to push towards disintervention, I can infer that if the course appears to fail to achieve these goals it will very likely face stiff resistance. Whether or not the disinterventionist measures in question have actually failed is almost beside the point as well, what more or less matters may be how the effects are perceived. Since disintervention faces the flaws I have mentioned, along with the interest group pressures I have mostly ignored, one could reasonably suspect interventionism to reemerge. Just as the interventionist course may breed more interventionism up to a turning point before reversing course, a similar dynamic may arise out of disintervention (Ikeda 1997). In this way, disinterventionism - especially partial or piecemeal types - can be seen to fall quite easily into the Austrian framework of the dynamics of interventionism. This coincides with my overall argument that disintervention and intervention are really two products of the same ideology and mindset.

    Some Final Thoughts

    The picture I have been painting has been a critique of disintervention and its inherent flaws. Yet I am not attacking the ideals that often motivate these actions. What I hope emerges from this essay is the idea that disinterventionism is really just a permutation of interventionism. Both are planned political actions undertaken in the attempt to achieve some particular economic or social outcome utilizing largely the same tools of coercive economic manipulation. Though their alleged goals may appear as polar opposites, the means used for both disregard the impossibility of rational economic planning without a price system for transmitting dispersed knowledge and a decentralized discovery mechanism for "spontaneously" correcting past mistakes and false prices.

    The current financial crisis and recession must be mentioned as well. This subject has already been very aptly explained and analyzed by various scholars, particularly those free-market economists that trace interventionism's harmful effects to their logical and destructive conclusions.

    Despite this substantial body of work a large segment of the scholarly community,


    and the public at large, continue to see the free market as the culprit and point to financial deregulation in the 1970's and 80's as evidence. In order to effectively influence this debate, free market economists including Austrians - must be able to honestly discuss the benefits and flaws of disinterventionism.

    This essay would also argue that there is essentially no contradiction in seeing state interventionism and disinterventionism as playing roles in the cause of the crisis. Placing some blame for the financial crisis on disintervention is not blaming the free market. Given the critique I have presented, it is clear that disintervention is intervention wrapped in a different coat. The bank deregulation that so many people blame was distortive and destructive to a certain extent. But this is not because free market forces were left to themselves. It is precisely because of the arguments I have presented that this disintervention can be seen as a failure. This is not because there was any deregulation at all, but because the disintervention did not go far enough. Of course this ties in with the impossibility of planners to know how all of the thousands of government interventions affect one another. Yet various outsiders could see the inherent problems with releasing controls on banking activity without simultaneously removing the moral hazard caused by implicitly guaranteed bailouts and the "too big to fail" mentality. But without an unfettered price system to reflect dispersed knowledge through prices, combined with the power of the competitive discovery process to correct prior mistakes, these outsiders had little effect on the course that unfolded. The critique I have been developing is not to dissuade from the goal of laissez-faire capitalism. In order for free-market economists to be able to appropriately and seriously discuss the process of how the state can effectively shrink its role from the catallaxy, they must also possess a framework that can explain the benefits as well as the downfalls. These examples are also not presented as obstacles, but challenges for free-market economists to study using the most rigorous and robust research program available. This essay has touched on just a few topics to what could be broadly expanded into a larger research agenda.

    One serious question that has been briefly asked but which lacks a clear response is how disintervention can be fixed - if at all. A possible area of research may look into how privatization and deregulation could be decentralized to better allow dispersed knowledge and competition to strengthen the process. So-called "spontaneous privatization" is one possibility that has been mentioned (Zygmont 1994). This would remove the privatization process from bureaucratic control - and hence minimize public choice conflicts and flaws - and better allow entrepreneurs to accurately appraise the value of state-controlled industries. This approach also has the added benefit of possibly stimulating the development of a property rights common law and culture where this had previously been limited due to interventionism (Zygmont 1994). Of course this approach is largely limited to industries and its implications for how effective it might be on widespread governmental social programs is still little understood, as well it may be difficult to stretch beyond state ownership to the regulatory state for the reasons I've outlined above. But the basic ideas that it presents

    decentralization of the disinterventionist process,
    encouragement for discovery and experimentation,
    and a reduction of public choice concerns


    could be studied and applied to other areas. This may perhaps lead to a form of "spontaneous disintervention" where market entrepreneurs are able to point to mis-coordinated (de)regulations to act as spontaneous corrective process on behalf of political entrepreneurs or actors. While this does not entirely address my concerns regarding the knowledge problem, lack of a price system and property rights, and public choice issues, it may be a start in the right direction.

    Whether this process can be fixed at all is the other side to the question. Given the constraints on successful state disintervention from the catallaxy, can we ever hope or expect true laissez-faire capitalism to emerge through piecemeal reform? This raises the distinct possibility that

    nothing short of radical movement towards anarcho-capitalism


    might ever achieve an outcome close to its original goals. Is it wiser to work towards a radical ideal, or through a slow moving "politically feasible" approach? I have been frankly unconvinced by most "feasible" policy prescriptions for expanding markets and shrinking the state. Mark Thornton offers a sympathetic view when concluding his study on the economics of prohibition:

    "As in many other cases,
    real solutions to serious problems
    may be found only at the root
    and may be solved only
    with a revolution of ideas
    and dramatic change"
    (Thornton 1989).



    Serious work lies ahead for economists that wish to tackle this issue and I hope that this essay provides fuel for research in that direction. If the next generation of free-market economists - particularly those inspired by the Austrian school - hope to be taken seriously and influence the course of economic thought, they must converse on the topics that come to the table from all sides, rather than just trying to reframe the debate on their own terms. This is not just pragmatic, but idealistic and radical since it asserts that Austrians can shape future developments in economics. The next economists must also define a radical research program to take them beyond the shadows of the past's big thinkers and move in new directions while understanding and appreciating the insights that drove them there.




    [END]
    Last edited by presence; 03-24-2016 at 10:51 AM.

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

    'Resistance and Disobedience in Economic Activity is the Most Moral Human Action Possible' - SEK3

    Flectere si nequeo superos, Acheronta movebo.

    ...the familiar ritual of institutional self-absolution...
    ...for protecting them, by mock trial, from punishment...


  5. #4
    Great post presence, actually gives me something to look forward to reading when I get back from work. Out of rep.
    "The Patriarch"

  6. #5
    ..reserved

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

    'Resistance and Disobedience in Economic Activity is the Most Moral Human Action Possible' - SEK3

    Flectere si nequeo superos, Acheronta movebo.

    ...the familiar ritual of institutional self-absolution...
    ...for protecting them, by mock trial, from punishment...


  7. #6
    bump for morning crew

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

    'Resistance and Disobedience in Economic Activity is the Most Moral Human Action Possible' - SEK3

    Flectere si nequeo superos, Acheronta movebo.

    ...the familiar ritual of institutional self-absolution...
    ...for protecting them, by mock trial, from punishment...


  8. #7

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

    'Resistance and Disobedience in Economic Activity is the Most Moral Human Action Possible' - SEK3

    Flectere si nequeo superos, Acheronta movebo.

    ...the familiar ritual of institutional self-absolution...
    ...for protecting them, by mock trial, from punishment...


  9. #8

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

    'Resistance and Disobedience in Economic Activity is the Most Moral Human Action Possible' - SEK3

    Flectere si nequeo superos, Acheronta movebo.

    ...the familiar ritual of institutional self-absolution...
    ...for protecting them, by mock trial, from punishment...




  10. Remove this section of ads by registering.
  11. #9
    inauguration day pulse

    Last edited by presence; 01-20-2017 at 06:41 PM.

    'We endorse the idea of voluntarism; self-responsibility: Family, friends, and churches to solve problems, rather than saying that some monolithic government is going to make you take care of yourself and be a better person. It's a preposterous notion: It never worked, it never will. The government can't make you a better person; it can't make you follow good habits.' - Ron Paul 1988

    Awareness is the Root of Liberation Revolution is Action upon Revelation

    'Resistance and Disobedience in Economic Activity is the Most Moral Human Action Possible' - SEK3

    Flectere si nequeo superos, Acheronta movebo.

    ...the familiar ritual of institutional self-absolution...
    ...for protecting them, by mock trial, from punishment...


  12. #10
    Just skimmed the article at this point, so forgive me if this is off the mark, but...

    There may be economic problems in "centrally planning" liberal reform, but there are considerations other than economics.

    Sudden elimination of whole functions of government may have catastrophic political consequences: e.g. civil war.

    ...in light of which the costs associated with a more gradual approach might be worth bearing.

    Of course, it entirely depends on the situation; in some cases, massive, wholesale elimination of government functions might be perfectly feasible.



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