Saturday, September 24, 2005

The planning illusion & Katrina

Flicking through my copy of Ludwig von Mises' Human Action*last night -- as you do on a Friday night -- I found as always when reading Mises that gems of insight just leap off every page. Here's a few gems that help explain why, despite his insights, Mises is still somewhat unpopular with mainstream economists:
  • From 'Economics as a Profession': "The development of a profession of economists is an offshoot of interventionism. The professional economist is the specialist who is instrumental in designing various measures of government interference with business."
  • From 'Forecasting as a Profession': "[T]he future is always uncertain, not radically so, but largely. Human action in an uncertain world with pervasive scarcity poses the economic problem in the first place. We need entrepreneurs and prices to help overcome uncertainty, although this can never be done completely."
  • "In fact, reasonable businessmen are fully aware of the uncertainty of the future. They realize that the economists do not dispense any reliable information about things to come and that all they provide is interpretation of statistical data from the past."
  • "If it were possible to calculate the future state of the market, the future would not be uncertain. There would be neither entrepreneurial loss or profit. [But] what people expect from the economists is beyond the power of any mortal man."
  • "The very idea that the future is predictable, that some formulas could be substituted for the specific understanding which is the essence of entrepreneurial activity, and that familiarity with these formulas could make it possible for anybody to take over the conduct of business is, of course, an outgrowth of the whole complex of fallacies and misconceptions which are at the bottom of present-day anticapitalistic policies. There is in the whole body of what is called the Marxian philosophy not the slightest reference to the fact that the main task of action is to provide for the events of an uncertain future.
    The fact that the term speculator is today used only with an opprobrious connotation clearly shows that our contemporaries do not even suspect in what the fundamental problem of action consists. Entrepreneurial judgment cannot be bought on the market. The entrepreneurial idea that carries on and brings profit is precisely that idea which did not occur to the majority. It is not correct foresight as such that yields profits, but foresight better than that of the rest."
The centrality of entrepreneurialism to human action is one of the crucial Misesian insights, one which Arnold Klingat TechCentralStation applies in analysing the critics of the response to Hurricane Katrina in New Orleans. These critics, Kling argues, have tended to focus too much on 'insights from hindsight' and on "the need to formulate and implement better plans," and too little on the need in all human enterprise for good old-fashioned improvisation. Says Kling:
I think that people have a tendency to put too much faith in centralized planning, and they do not have sufficient regard for decentralized improvisation. The more ambiguity that exists in a situation--because of its novelty, uncertainty, and the absence of critical information--the more that it favors improvisation over planning.
Kling calls this touching faith in centralized planning and in 'more and better plans' as "the planning illusion." You'd think he'd been reading Mises too, wouldn't you:
When something goes wrong, there is a natural desire to blame a lack of planning. In fact, with hindsight, it is always possible to come up with a plan that would have worked better. I would refer to this as the planning illusion.

This illusion causes a number of problems... In many cases, better approaches emerge from decentralized improvisations.
Arnold provides a number of examples of what this decentralised, entrepreneurial outlook looks like in practice.
* Human Action is online at the Mises Institute. Feel free to test my claim by dipping in yourself and seeing what gems you come up with. Feel free however to skip the first 160 pages, where those gems are the least in evidence. And do feel free to skip the sometimes unfortunate and intemperate rantings of some contemporary Misesians -- "stark raving nuts" as one blogger called them.


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