Paul Krugman and the Fatal Conceit

Paul Krugman, the sainted Keynesian economist of the New York Times Editorial Page irks a lot of conservatives. I could go on and on about Krugman, but here I’ll take a moment to discuss Krugman’s misguided call for  a “better policy elite.” By this, I’m assuming he means a government run by Princeton professors like himself.

According to this Brain-Trust-worldview, if only we had the “right” people in power—whether they be tenured Ivy Leaguers, math wizards, or benevolent dictators—we would be well along on the road to prosperity. Hubris aside, this model is impossible. No one person—or army of Tim Geithners—no matter how smart or saintly, can possibly possess the specific, local insights necessary to pull the strings of our incredibly intricate economy. This, alas, is what Friedrich Hayek meant when he spoke of the “”Knowledge Problem.”

Remarkably, the Austrian critique of central planning schemes, put forth by Ludwig von Mises and Hayek in the 1920’s and 1930’s, did not rest on moral objections alone. While they believed that collectivism was an odious affront to humanity, these economic outcasts argued that socialism and the top-down Keynesian schemes Europe found so seductive were wrong because they simply cannot account for price mechanisms. Prices obviously fluctuate all the time, yet the central-planner insists that remains some fixed answer to what a worker should justly be paid based on the value of whatever he’s producing. The socialist mistakenly thinks that the worth of an object is tied up in the production of the item itself. As twentieth-century authoritarian governments themselves have proven, without any prices as a guide, the State has no idea what to produce, nor in what quantities. Shortages ensue quite quickly. What is more, the fact that the USSR was able to estimate prices as long as it did is because it looked Westward. Truly, the Soviets relied on the natural price system of capitalism to prop up their factories.

Hayek points out that socialism and economic-meddling in general involve the “fatal conceit” that the intelligentsia knows what is best. Keynesianism and Communism are obviously not precise ideological parallels, but their underlying conceit and assumption of policy-making superiority are similar. To overcome the impulse of collectivism, we must stop fantasizing that wise bureaucrats can recreate the economic atmosphere of the 1930’s, 1950’s, or even Ronald Reagan’s 1980’s.

Much of the “blue state” decline rests on insolvent entitlement programs, which governments falsely prophesized they could fund into all perpetuity. They cannot. This does not necessitate fatalism, so much as a trust in what the French classical-liberal Frederic Bastiat called a faith in “that which is unseen.” Quite plainly, there are opportunity costs with every erroneous collectivist decision. The State, alas, is intangible enough as it is. We should not forego unseen investments and improvements in our own property and communities in the name of propping-up the policy elites who dominate the news media.