Thursday, November 10, 2005

The problem with invisible hand arguments

There is of course Adam Smith's invisible hand, but I believe in a rather larger number of them than the one associated with "greed is good" in relation to money. In the political sphere, if you translate money to votes one can imagine the invisible hand of democracy ensuring a country's well being, where even a well-meaning dictator, Pope or whatever cannot self-adjust to changing political, cultural and economic landscapes.
The real problem with promoting invisible hands as a "fact" as opposed to "unproven theory" is that, like black holes, dark matter and truthful politicians is that they are invisible. One can only look at the indirect effects and claim them as due to economic structure rather than direct visible action by a particular entity. Just as I grudgingly think that we should take the cosmologists word as to the existence of black holes because they are the experts; we should trust the economists when their studies show that lower awards, zero tariffs, less red tape etc. etc. are good for the country as a whole, and the compensation for those that may lose is cheaper than the cost of not making these changes.


Dr. Clam said...

I agree with you in essence, I was primarily just picking on your loaf of bread analogy.... now I am going to pick on your ‘invisible hand of democracy argument.’
It might be applicable if we did make political decisions as often as we make economic decisions, but our system is not set up to adjust to changing landscapes any more flexibly than the other modes of government you mentioned. The most impressive example of adapting to circumstances that I can think of is the adaptation of Japan in the 19th century under an autocratic regime. I don’t see- at the present time, or historically- any sign that there is an ‘invisible hand’ guiding democracies either to optimal decision making or stability. The classical historians believed that democracy inevitably decayed into tyranny, and while I don’t think anything is inevitable (with the exception of the laws of physics, see earlier posts) I think that is the default option. We citizens of democracies vote ourselves more and more benefits, we continually increase the relative size of the non-productive portion of our economy and burden the productive portion with ever increasing compliance costs, we resist moves to free the movement of goods, labour and capital across our borders: all of this is non-adaptive behaviour that cannot continue indefinitely but shows little sign of abating. Lee Kuan Yew or Pope Siobhan IX are in a much better position to fix this kind of behaviour than an elected government.
The problem with adapting to circumstances is the flow of information to the decision makers: how do they get the right information? What model do they use to take decisions based on this information? It is becoming easier to get the information that is needed (today Google, tomorrow Google + trillions of omnipresent nanobots) but we are still arguing about the models. There isn’t any compelling reason that either an autocrat or the electorate will necessarily pick a good model- there are certainly plenty of dysfunctional societies out there- but I think it is highly unlikely that Caliph Marco al-Parigi (for example) would do a worse job of getting the information he needs and applying a sensible model to it than an elected leader, or a truly democratic council of everyone.

Marco said...

MP - "Look, I can explain a whole heap of positive effects with this one invisible hand!"
DC - "Where? Oh you mean one of these 10 visible hands over here? Yeah, maybe!"
MP - "No! No! This invisible one here. It's obvious when you think about it."
DC - "Surely you're mistaken. I'm sure it can be all explained perfectly logically with some combination of these visible ones. You could just as easily explain it as God's doing as that non-existent... umm I mean invisible appendage over there."
MP - "Oh, I see what you mean. It is rather hard to see it - maybe we should look in the UV spectrum or something. I'll get back to you"