Tuesday, August 04, 2009

The "fatal conceit" of Barack Obama

The lesson from Hayek is that when the rules are right, markets are collectively much smarter than any individual or group within them. This is the lesson that the Obama administration has utterly missed.

By placing Brian Deese, a 31-year-old with no business or automobile background whatsoever, in charge of General Motors, the Obama administration has signaled its belief that individual smarts is more important than the wisdom of markets.

Deese dropped out of law school to work on the Clinton and then the Obama campaigns in 2008 as an economic policy adviser. Despite his lack of relevant business experience, he has authority to make decisions about the future of GM and the allocation of resources in the automobile industry.

The administration evidently believes that experience in policymaking is an effective substitute for the local and contextual knowledge of how to produce goods and services. This is a complete misunderstanding of the way in which markets work and what kinds of knowledge matter.

Much of the same is true with Obama's supposed fixes for health care and financial services. Imposing a vision of how an industry "should" work and how it should produce and deliver its products from the top down is the height of political hubris.

The conceit behind it is one that dates back to the earliest visions of socialist central planning. Even as belief in that more comprehensive vision has died, the mindset behind it is still manifested in the belief that top-down fixes driven by well-meaning political actors are more rational than letting individuals with their local knowledge coordinate and cooperate via markets.