Politicos can't judge innovation


Going by the median leaves out the extremes and tomorrow's hot product

Michael Munger makes a great argument why politicos do a lousy job judging innovation.

The Cold War turned on a race to produce more weapons and wealth, a race run between markets and central planners. Khrushchev's famous 1956 warning, "History is on our side! We will bury you..." evoked an old idea.  Marxists believed that the empowered proletariat is the undertaker of capitalism, and they also believed that economic planning would empower the proletariat. In the 1970s, even most of the non-socialist world wondered whether any system of private, decentralized innovation and development could stand up to the planning and market direction of the Japanese juggernaut. Central planning, whether of the socialist (U.S.S.R) or corporatist (Japan, Sweden) flavors, seemed to many to be the more powerful economic engine.

How times have changed! Nobody (well, nobody outside of college English departments) still believes that socialism outperforms markets, of course. And Japan has gone into the same muddy tank that Sweden has wallowed in for years. Even Alfred Kahn, Jimmy Carter's inflation guru, said by the end of the '70s that we should "Cast a skeptical eye on glib references to the alleged success of government interventions in other countries in picking and supporting industrial winners."

But we still face the same basic problem. The boundary we fight over today divides what is decided collectively for all of us from what is decided by each of us. You might think of it as a property line, dividing what is mine from what is ours. And all along that property line is a contested frontier in a war of ideas and rhetoric.

For political decisions, "good" simply means what most people think is good, and everyone has to accept the same thing. In markets, the good is decided by individuals, and we each get what we choose. This matters more than you might think. I don't just mean that in markets you need money and in politics you need good hair and an entourage. Rather, the very nature of choices, and who chooses, is different in the two settings.

The whole article is worth your time, and not just because one of his examples happens to be Apple Computer.

Free markets are based on individual choice. Both the individual willing to buy and the individual willing to sell. Voluntary commerce. Neither side is forcing the other.

For that to happen, assumptions are built into the system. Clear titles. The ability to capitalize based on estimated future earnings. Clear channels of authority and responsibility. All aimed at reducing the cost of production, increasing the value offered, and underselling the competition.

Government can not match that.

There are millions of decisions that go into each and every product. Those decisions can't be made fast enough by a government agent. By the time the first generation is approved and produced by central planning, the improved third generation is available in a free market.

It all comes down to individual choice.

Individual choice is the foundation of freedom.

Hat tip Wendy McElroy.

— NeoWayland

Posted: Wed - October 11, 2006 at 04:48 AM  Tag


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