Conservatism, Part II

I’m starting another thread about this, because I think it’s important to get people to understand where conservatives are coming from, and the other conservatism thread is already 5 pages long and veering all over the map.

From my perspective, there are two major ideas that draw me to the conclusion that limited government and free markets is the correct way to organize a society. The primary propoents of these ideas are Milton Friedman and F.A. Hayek, both of whom are Nobel laureates in economics.

There are many reasons to distrust government, but these two concepts are ‘slam dunks’ in my opinion.

The Problem of Information

This was the area Hayek spent much of his life studying and explaining. The basic idea is that central planning of an economy can not possibly work, because A) the information requirements are vast, and beyond the capability of even the most complex and efficient central authority. And B) much of the information is hidden, and unknowable by a central authority.

Markets work like a massively parallel supercomputer, with the price system being the information bus. Decision-marking is decentralized, and prices give individuals the information they need to make optimal decisions. Central planners want to take this supercomputer and replace it with a central ‘processor’ that has to operate with only a tiny fraction of the data the supercomputer has. It is inherently less efficient, and always will be.

For an example of the complexity of markets, read this short classic essay: I, Pencil. I’ll refer to it several times in this discussion.

In Hayek’s view, the fundamental problem with government interference is that, because it is made in ignorance of all the potential ramifications and interactions, it distorts the marketplace. This distortion unbalances things, and forces the government to either increase its interference to try to correct the imbalances, or to withdraw the initial regulation.

For example, let’s say the government decides that poor people can’t afford fruit, so it mandates a price cap on fresh fruit. But if prices are lower, demand for fruit goes up, and the incentive to provide supply goes down. So now the fruit growers complain. So the government offers tax breaks or subsidies for fruit farmers. Now we have a second intervention. And of course, shortages of fruit appear, forcing government to intervene again to stimulate supply with greater subsidy. Now farmers in other areas complain that fruit farmers are getting an unfair advantage, and lobby for their own subsidies. In the meantime, some fruit farmers take the subsidies, but sell their fruit in non-price capped markets. So now the government has to put export restrictions on fruit farmers. Read “I, Pencil”, and think about all the interrelations and coordinations that get distorted or broken when a command impulse is made, and you get a sense for how intractible this becomes.

When the only tool a government has for controlling an economy is regulation, the only way it can fix the problems of regulation is to add still more regulations, or withdraw the original. In this way, regulated economies grow without bound until they become fascist or totalitarian, or they are forced to begin rolling back regulations. Hayek explains this effect in detail in one of the most famous books in economics, The Road to Serfdom, which should really be considered a must-read for anyone on the right or left who is interested in understanding the arguments of either side. This book, by the way, has had a tremendous influence on the modern world. Margarat Thatcher cited it as one of her prime influences in her sweeping reforms in Britain, it was a major influence on Ronald Reagan and other conservatives who followed, and it was a hugely popular underground work in Eastern Europe and pushed people like Vaclav Havel and Vaclav Klaus into fighting for reforms in their country.

Spontaneous Order, Effiency, and Government Interference

A major misunderstanding of capitalism and markets is that they are chaotic and uncontrolled. People think government regulation and planning is required to prevent everything from devolving into chaos. They don’t understand the concept of spontaneous order, even though it permeates everything we do. The vast majority of constructs in a capitalist economy arise spontaneously - no central planner or bureaucrat decided that they were necessary. And the shocking thing is that this order is rich, complex, and generally better than anything government could come up with.

Let’s take an example of designing the walkways for two different college campuses. How do we solve the problem of optimum paths between all the buildings? On campus one, we’ll get some really smart planners to sit down and design them. They’ll do optimum path calculations, run simulations, whatever. Then they’ll pour the concrete and set up the path system.

With a week of classes starting, I guarantee you there will be paths cut through the grass as students find their own way.

College 2 has a better idea. Let classes start, let students find their own way, wait for paths to be worn into the grass, and THEN pave them over. Spontaneous order, exactly solving the problem at hand with maximum efficiency and minimum effort.

So why couldn’t college 1 get it right? It’s a problem of information again. Where do students have to go? It depends on what courses they choose to take. Maybe astronomy is especially popular that year because of stories in the news, so more students took it and required a trip to the science building. Maybe some leave different exits because the bathrooms are closer, and it turns out that most people want to use the washroom at 10:30 in the morning, so they get overcrowded and students detour through another building. Or perhaps a new Taco Bell opened on campus, and people have to use the washroom more frequently after lunch. Maybe the planners figured that students would want to use the telephones at noon, but a drop in price of cell phones reduced that need.

But spontaneous order accounts for ALL of that information. And the thing is, you can’t even poll the students to find out what they want, because even they don’t know until it comes time to actually do it. That’s the ‘hidden information’ that is never available to central planners.

This describes how a mixed economy like our modern western nations work. Friedrich Hayek was not a libertarian, by the way. He believed that some rules were necessary for the smooth functioning of society. But those rules should be minimal, and as non-distortionary as possible. Taxes are required to pay for the function of a state, but better to have a simple flat tax than a complex tax code that distorts things.

But here’s the crucial thing: Those rules must be stable. Because once you set up your rule system, spontaneous order will develop around them. Even small changes in the rules can cause large, unpredictable and expensive changes in the order of things. Look at the college analogy again. The rules in this case are the building location, class locations, schedules, and other fixed bits of infrastructure. So we set up our rules, let students find the best paths, and then pave them.

But now some meddling administrator decides that it would be better if Astronomy were offered in the afternoon instead of the morning. Or, to save money one of the bathrooms should be closed and the other expanded. Suddenly, our intricate evolved system of pathways is inefficient. People start cutting across the grass again. So now we have to rip up our sidewalks and re-lay them. It costs money. It reduces efficiency until we re-structure.

This is what happens when the government meddles in the economy. When the rules stay fixed (even if they are not the best rules in the world), eventually a spontaneous order arises around them. A highly efficient, optimized order. Think back to “I, Pencil” again, and all the order and structure that has arisen around the manufacture of something as simple as a pencil. Now have the government step in and put a price cap on brass, or change logging regulations, or subsidize pens, or do any number of intrusive things in the marketplace. Suddenly that order is no longer efficient. Maybe now our log processing facility is under-utilized. There is a glut of ferrules because the increased price of wood caused pencil prices to go up and demand for them to go down. Now the plant that shaves the wood, which is under-utilized, is served by roads that were designed for the previous capacity, and now they are under-utilized. And so it goes.

These two issues form the core of the practicalist reasons for preferring limited government, and for resisting progressivism. Someone asked in another thread why conservatives are opposed to change. We aren’t. We’re all for change, so long as it arises spontaneously out of the natural order of things. What we’re against is the notion that government should play an active role in modifying and shaping the economy to be ‘better’. Such meddling is destructive to the natural order, costly, has unintended consequences that are impossible for planners to imagine, and in the end lead to even more regulations and a stifling of freedom.

For government to meddle in the market, then, it must have a strong compelling reason to do so. The burden of proof should be on the government to make the case, AND the cost-benefit analysis of the regulatory change must include the concepts above.

The difference between liberals and conservatives is that, in my opinon, liberals rarely think about the cost of regulation. They see problems, and see government as a universal tool for fixing them. They want to constantly meddle and tinker to imrprove things.

Conservatives want simple, basic rules that ensure safety, liberty, and promote the correct direction for society in large strokes. Then they want those rules fixed in place, so that a natural order can arise and work optimally.

Discussion, debate, questions welcome.

Well Sam, in the same way that few liberals would advocate no free trade whatsoever (ie. ultra-Marxism) since the cost to “progress” would be too great, I would hope that few conservatives would advocate no regulation whatsoever since the human cost would be too great (to say nothing of monopolies, cartels and price fixing).

It’s all in the balance, agreed?

Sorry Sam, that post was deliberately kept short in order to get it in before the 9:38 shutdown. I’d like to specifically address this proposal:

As I understand it, such cost-benefit analyses are themselves very expensive, require somewhat arbitrary inputs and projections, and are subject to slanted interpretation. Surely, by requiring only regulatory actions (not deregulatory actions) to be subject to such expensive audits you are making the contention “government regulation is unnecessarily expensive” a self-fulfilling prophecy?

In any case, the entire bedrock of socialist philosophy is that the aim of government interference is not necessarily to save money, but to reduce suffering and improve quality of life - two criteria which are somewhat difficult to quantify even by rigorous analysis. Requiring that any regulatory government action justifies itself financially is akin to requiring a deregulatory action to show that quality of life will not be adversely affected. By requiring further bureaucracy on top of the bureaucracy, you appear to be proposing fighting fire with paraffin, when there is a perfectly good auditing system called an “election”, surely?

  1. Entitling this thread “Conservatism” is misleading. Everything you say, Sam, reads to me as exclusively related to economics. If maximizing the economy were all that was at issue here, I doubt anyone who has taken ECON 101 would have any problem whatsoever with fiscal conservatism as a matter of public policy, excepting cases where the spontaneous order you refer to is not spontaneous at all, but is manipulated by human beings.

  2. Your premise of spontanaeity is good theory, but as you rightly point out, it’s “success” (and I purposely quote that word) is dependent upon a vulnerable and unlikely condition - stability. So long as human beings are involved in the system, there will never be anything spontaneous about it. To continue your college analogy, rather than mention a “meddling administrator”, consider the concrete company that is contracted to pour the sidewalks. The company’s owner is a friend of the Dean of Undergraduate Studies, and every two years or so, the Dean radically modifies the class schedule so the paths change which requires new sidewalks which makes the concrete guy money which he kicks back to the Dean for helping out. THAT is what government regulation is for - not to impose rules on the class schedule, but at least to create a dis-incentive for the Dean to exercise his ulterior motives.

I am not saying this is how regulation actually works, but rather how liberals conceive of the role of regulation. In your definition of conservatism, you imply that liberalism is in some way the opposite, that liberals want to micromanage everything. That is simply not the case. Liberal support of economic regulation at a federal level stems from a desire to protect the system, and the people in it, from those with the knowledge and power to manipulate the system for their own ends.

  1. On the one hand, I am very impressed with your analogy - it is sure to help a lot of readers get their minds around the theory of market capitalism. However, through your definition, you have very effectively proved a point that many liberals and now finally some conservatives have been screaming into deaf ears for the last 3 years - G.W. Bush is not a practicing conservative! If your explanation of fiscal conservatism is accurate, the bailout of the major air carriers, steel tariffs, agricultural tariffs, subsidies, and other bones of contention with GATT, WTO, and the EU, the blind eye turned by the SEC and Justice Department to the ENRON, WorldCom, and other stock/financial manipulation scandals, the absence of a competitive bidding process for Iraqi reconstruction, are all indicative of not a conservative “hands-off” approach to the economy, but rather a systematic practice of selective intervention/nonintervention that on the face of it appears to enrich a special segment of the market - Republican Party campaign donors. The administration may not mean it to have that effect, but that’s what it looks like.

  2. All that said, I ain’t got no problem with market capitalism. By and large it works because by and large the participants engage in it in good faith. But “conservatism” as practiced within the realm of U.S. public policy is less about economics and more about civil society. The peculiarly American brand of Conservatism is an odd juxtaposition of free market economic theory and social structure, that somehow if government keeps its hands off, society itself will develop that “spontaneous order” your market theory describes. There is just no evidence in the history of history that that will ever create a desirable result - time and time again, a “hands-off” approach yields few haves and many have-nots.

  3. Last, but not least, I recognize that the conundrum in my previous sentence is, who decides what “desirable” is? And THAT is where the Liberal/Conservative debate should take place. Do we as members of society fundamentally prefer greater public good or greater personal good, or some balance thereof?

So what was the problem in the fruit story? Should the government have made the observation [that poor people need fruit but can’t afford it] but done nothing about it, or just not have made the observation at all?

Nothing to add - well, I could add a lot, but when when I get involved in debates like this I get pretty nasty and I should rather like to avoid that - but I should really like a cite for that. Where have we seen, time and time again, “hands-off” approaches yielding few haves and many have-notes?

If I might expand your analogy a little bit…

The company that comes to pave the sidewalks will quickly find out something interesting. The dorm housing the football players is a regular hub of activity, and requires direct paths to pretty much every spot on campus. On the other hand, the dorm housing the wheelchair-bound doesn’t really need any sidewalks at all to anywhere on campus.

The football players, you see, are big, strapping guys. They are hardy, and can cut through even relatively difficult terrain to go directly to their destination. And when they cut through terrain, they stamp the ground down hard, and they end up snapping branches etc., leaving obvious paths. In fact, knowing how the paving decision is going to be made, they decide to do some afternoon laps back and forth along the paths they want paved, making them more obvious.

The wheelchair-bound, on the other hand, can’t move about at all without paved pathways. They’ve been stuck in their dorm waiting for the pavement to be laid. And since they haven’t been able to go anywhere, they haven’t left any obvious paths, and so pavement will never connect them to the rest of the campus.

And so it is with the free market. Often, the people that start off with an advantage are the ones who are able to manipulate free market forces for their own benefit. The people that start off with a disadvantage are the ones least able to manipulate the market.

You need money to make money. Free markets tend to bring capital to those with capital, increasing their relative power and wealth.

Sure, there’s no question that free markets have tremendous inherent advantages; few people deny that. However, it’s just as important to recognize that free markets have tremendous inherent disadvantages, too. Anyone who’s taken Economics 101 ought to acknowledge these, and realize that without some form of social regulation (which may include requiring the football players to vary the areas where they run laps, or may include allowing the wheelchair-bound to file for an exception from the normal method of deciding which paths to pave), free markets can create a lot of suffering.

Daniel

Hmmmmm, Cheese Monster, let’s see if I can come up with some historical examples of gross social inequality resulting from either a lack of public policy safeguards for those without power or even public policy explicitly designed to preserve inequality of power (this second instance analagous to Withrow’s post):

Pharaonic Egypt, Ancient Rome, the Islamic Caliphates, Charlemagne’s empire, Hapsburg Spain, the Dark Ages Papal states, Communist China, the USSR, Norman England, France during the 100 Years War, Boer South Africa, modern-day Liberia, Rwanda, the Aztecs, Nazi Germany, Taliban Afghanistan, all but the most recent history of Hindu India (castes), Imperial Japan, most countries in Africa with ruling tribal-based minorities, Saudi Arabia (historic and modern)…

Do I really have to go on?

Sam:

I agree that you’ve really only addressed economics. And I’d say you hit more on libertarian economics than conservative economincs. Conservatives, like Bush, may generally seek lower taxes and less regulation, but they are just about as guilty as the liberals of distorting the tax structure with “conservative” (sometimes called pro-family) tax breaks.

I think you’d find Friedman to much more of a libertarian than a conservative. He’s actually said so himself. (Small “l” libertarian, that is.) Of those who call themselves Conservatives, I’m much more inclined to agree with a George Will or William Safire than with a Cal Thomas or Ann Coulter. Much more inclined to agree with a Jack Kemp than a Trent Lott.

You’ve just made an extremely strong case for a government hands-off policy. Every example given is that of a society tightly controled by an authoritarian government. Many people seem to have trouble distinguishing between the power a government has and the “power” a business has. Hint: The former is the one with the guns.

On the contrary, John, I’ve illustrated that when left to its own devices (meaning without a common subscription to the value of fairness in society), human beings will by default (i.e. all other things being equal, hence “hands-off”) arrive at a system in which power (be it prestige, wealth, guns, whatever) is concentrated in the few and wielded over the many.

Just as a free-market capital system involving human beings, if lacking regulation, will naturally tend to a state of capital concentration, a free-market social system will naturally tend to a state of power concentration. It requires intervention/regulation by outside forces to counteract this tendency. For some, it’s religious ideals, for others, morality, and for some, conscious public policy choices.

Again, all this is predicated on what we believe to be “desirable” results - if one is OK with sharply defined socio-economic stratification and fearful of the unintended consequences of removing institutionalized obstacles to mobility, then one is probably a conservative.

Cat:

But you were asked for examples of wealth concentration when a “hands-off” approach was taken. All your examples were of government power concentration. Give us an example of when wealth was concentrated in a society where that concentration was not facilitated by goverment (eg, by granting monopolies).

John, I think you know that that challenge can’t be met – because there’s not been (to my knowledge) a society in which the government HASN’T been intimately tied up in economic affairs. Asking for for examples of wealth concentration when a “hands-off” approach was taken is akin to asking for examples of genocide under a social-anarchist society.

Daniel

I remember a New Scientist article in which a study had found that, in a completely hands-off market (eg. gambling game), wealth is inexorably concentrated in a small minority after a certain number of cycles.

Sam Stone -

Thanks as usual for an interesting essay.

The link to the “I, Pencil” essay does not work for me. Is it me, or is it broken?

One minor quibble -

Or we are in favor of changes which allow the natural order of things to arise spontaneously. I am thinking here of school vouchers and similar reforms, which are intended to allow the market to operate on the education system, and thus create a “natural order”. It also reflects the conservative desire for decision-making to be left to the individual, or to non-coerced groups like families, churches, businesses, etc., rather than to the government. Individuals and groups as described are more likely to interact so as to create a “natural” and sustainable, self-correcting order.

I think you are underestimating the desire of many to manipulate the market and society. Often with the best intentions, but socialists and other advocates of a managed economy are not rare, at least on the SDMB.

I think also your distinction between the “spontaneous” order, and that which arises from the manipulation of human beings, is a false one. The free market is the result of manipulations by millions of individual human beings. A managed economy is as well, but the numbers of those manipulating is much smaller - and therefore, by conservative thinking, less effective, because it is subject to the information collection limitations as described by Sam Stone.

Success for free markets does not depend on stability - just the opposite.

All markets are in flux. Prices and supplies change, demand varies, etc., all the time. The success and the efficiency of the free market lies in its self-correction capabilities, in which the price of goods and services varies in response to the millions of individual decisions from producers and consumers. Managed economies such as socialism are less efficient because, as Sam Stone points out, it is not possible for one or a small group of decision makers to access all the information necessary to respond to changes in the variables of the marketplace.

Markets are thus in a state of dynamic equlibrium. Managed economies have been distorted by a disproportionate weighting of the decisions of a small group, who cannot access as much information as the free market does automatically.

Not necessarily so.

In your example of the corrupt Dean’s friend, liberals and conservatives alike would agree that his actions are wrong. They might even agree on why it is wrong - that it is less cost-effective to allow one person to distort the decision-making process on new sidewalks for his own benefit, rather than finding out what the market price of new sidewalks is, and deciding whether or not to spend the money to move them.

But many liberal suggestions for manipulations of the market are not aimed at corrupt individuals. A more common rationale is the desire to reduce what liberals perceive as the heartless amorality of the free market in favor of some more desired state of affairs.

Take, for example, liberal suggestions of a “living wage”. Much of the pressure for this kind of legislation is not really aimed at greedy and corrupt capitalists who are starving their workers to squeeze profits out of them, although there is some of that as well. Most is based on the idea that anyone who works forty hours a week “should” be able to earn enough to support what living wage proponents think is a decent lifestyle. It is not hard to find anecdotes about struggling single mothers who are working minimum wage and cannot any of the things most of us take for granted. Living wage proponents then (usually) suggest legislation to raise the minimum wage to fifteen dollars an hour (or whatever), and consider that the problem will then be solved.

The conservative response to such ideas is much the same as to the idea of the corrupt Dean’s friend. Living wage legislation is a distortion of the operation of a free market, and is therefore less efficient than allowing people to charge for their labor at whatever rate the market will bear. Any benefits of an increased “living wage” will be more than offset by the disadvantages of job loss, increased operating costs, and bureaucratic overhead. This in addition to another increase in the scope and authority of government.

Or consider if the corrupt Dean’s friend above is really a liberal altruist. He thinks college students don’t get enough exercise, and therefore makes the sidewalks longer than they need to be. This increases the cost.

Conservatives would object to this in the same way they do to living wage legislation. And again, this goes beyond the ideal of a free and fair marketplace that is the ideal of conservatives.

Regards,
Shodan

That is not an accurate analogy. Instead, the liberal altruist would say, “We’ll watch where students make the most paths, and pave those areas. First, however, we’ll make sure that there are minimum paths available to accommodate everyone, including those incapable of bushwhacking.” A minimum path, a minimum wage – both are liberal ideas, intended to keep inherent inequalities in the marketplace from causing undue suffering.

Daniel

(addressed to Sam, several posts back - took me a while to write)

  1. Again, I’m not couching my position in economic terms, but in broader social terms, so “wealth” is not the only variable we’re dealing with.

  2. “Hands-off” I interpret to mean there is NOT an effort at a centralized government level to regulate or otherwise impose standards of behaviour or action upon a society at large. This lack of intervention can have two possible outcomes:

  • anarchy, in which case the entire society breaks down and the central authority ceases to exist

OR

  • analagous to the free-market economic system, those who posess social/civil power naturally tend to acquire more of that power, unchecked by regulation, resulting in institutionalized inequality (which I think is B-A-D).

In the cases you believe are examples of “hands-on” as opposed to “hands-off”, the unchecked power elites actually became the central authority - any regulatory interference after that point is simply an extension of their natural tendency.

  1. I get the impression that “conservatives” favor the interpretation that without the intervention of a central authority, human society will somehow spontaneously arrive at and abide by a set of standards for behaviour and action that do not unfairly favor either the haves or the have-nots. I think with the extension of the “college sidewalks” analogy, we have amply demonstrated that when people are a variable in the equation, a spontaneously desirable outcome is unlikely at best, and perhaps durn near impossible.

  2. Last, but not least (sorry about the length, just trying to be thorough and straightforward), liberals DO NOT believe that to counterbalance the natural tendency I describe above, “all people are inherently evil and therefore need to be regulated strictly to keep on the straight and narrow”. We simply believe that to achieve a just society, the entire society must reach a collaborative position on what constitutes acceptable behaviours and actions, and to be willing to enforce dis-incentives for behaving/acting to the contrary. Why? - because it is unlikely (again, based on the historical record) that individuals themselves will spontaneously and independently arrive at those standards and possess the will to enforce them.

Just as, I might point out, that some (not all, I admit) deregulated sectors of the economy have proven patently incapable of regulating themselves.

It’s also worth noting that once you’ve signed on to any minimum wage, we’ve already established that you’re a liberal – now we’re just negotiating on price :).

Daniel

(addressed to John, several posts back - took me a while to write)

  1. Again, I’m not couching my position in economic terms, but in broader social terms, so “wealth” is not the only variable we’re dealing with.

  2. “Hands-off” I interpret to mean there is NOT an effort at a centralized government level to regulate or otherwise impose standards of behaviour or action upon a society at large. This lack of intervention can have two possible outcomes:

  • anarchy, in which case the entire society breaks down and the central authority ceases to exist

OR

  • analagous to the free-market economic system, those who posess social/civil power naturally tend to acquire more of that power, unchecked by regulation, resulting in institutionalized inequality (which I think is B-A-D).

In the cases you believe are examples of “hands-on” as opposed to “hands-off”, the unchecked power elites actually became the central authority - any regulatory interference after that point is simply an extension of their natural tendency.

  1. I get the impression that “conservatives” favor the interpretation that without the intervention of a central authority, human society will somehow spontaneously arrive at and abide by a set of standards for behaviour and action that do not unfairly favor either the haves or the have-nots. I think with the extension of the “college sidewalks” analogy, we have amply demonstrated that when people are a variable in the equation, a spontaneously desirable outcome is unlikely at best, and perhaps durn near impossible.

  2. Last, but not least (sorry about the length, just trying to be thorough and straightforward), liberals DO NOT believe that to counterbalance the natural tendency I describe above, “all people are inherently evil and therefore need to be regulated strictly to keep on the straight and narrow”. We simply believe that to achieve a just society, the entire society must reach a collaborative position on what constitutes acceptable behaviours and actions, and to be willing to enforce dis-incentives for behaving/acting to the contrary. Why? - because it is unlikely (again, based on the historical record) that individuals themselves will spontaneously and independently arrive at those standards and possess the will to enforce them.

Just as, I might point out, that some (not all, I admit) deregulated sectors of the economy have proven patently incapable of regulating themselves.