April 17, 2020 Reading Time: 6 minutes

“Surely,” you might have heard someone say, “free markets are great at providing things like beans, cars, and Hollywood blockbusters, but surely, there are some things that are just too important to be left to the market.” A quick Google search for the phrase “too important to be left to the market” gives us child-rearing, the environment, health, television, energy, education, housing, social media, “libraries’ missions,” finance, sports and leisure, food production, and water as examples of things that the invisible hand simply cannot handle adequately.

Markets are, of course, “imperfect” insofar as they cannot and will not produce utopia. It is a huge leap, though, from the sometimes-fumbling invisible hand to the idea that the visible fist of the state will make things better. A decade ago, the philosopher James Otteson built on the work of Adam Smith and Friedrich Hayek to explain what he calls “the Great Mind Fallacy.” It helps us do the comparative-institutional exercise that, in turn, helps us learn whether or not something being “too important to be left to the market” really makes sense. As the political scientist and anthropologist James C. Scott argues, states excel at making the societies they govern legible. This is manifestly not the same thing as actually solving social problems. Combined, these help us see how, as the economist and Nobel laureate James M. Buchanan, “Order (is) Defined in the Process of its Emergence.”

By now, it is cliched to reply that if things like education, finance, sports and leisure, and so on are really fundamental to human flourishing, they are too important not to be “left to the market.” This isn’t just a flippant, offhand expression of reactionary, ideological distrust in public institutions. It’s a statement of deep conviction about the fundamental importance of market processes that harness and deploy the contents and convictions that inhabit billions of minds and that produce not the beautiful, articulated plan of a single Great Mind but what the philosopher, physician, and polymath Raymond Tallis has called “a boundless, infinitely elaborated community of minds that has been forged out of a trillion cognitive handshakes over hundreds of thousands of years.”

States do not deal well with communities of minds forged out of cognitive handshakes. Scott has written a trio of books that underscore the point: Seeing Like a State (1998), The Art of Not Being Governed (2009), and Against the Grain: A Deep History of the Earliest States (2017). A 2010 Cato Unbound symposium summarized his argument (note that these are not Scott’s words, but those of the symposium editor): “…States can only exercise their power on what they can know about. Knowing requires measuring, systematizing, and simplifying.” Measuring, systematizing, and simplifying don’t sound so bad. They are, after all, what scientists and scholars do all the time. Here’s the catch, though: “It requires, in other words, missing out on a lot of particular local data.” 

States are very good at identifying a well-defined problem and rendering a system legible to its functionaries. This is not the same thing as identifying the right problem (or set of problems) and providing anything approximating the “right” solutions. It is just finding something for powerful people to measure and control. In the process of making things legible, states give short shrift to other problems that are extremely important but that are outside the scope of their interest. If the goal is “stop the spread of COVID-19 at all costs,” then an authoritarian lockdown seems like a pretty obvious solution. Once you relax the “at all costs” part of the goal, things become much less clear. At a fundamental level, it looks like the theorists and practitioners who have slammed on the brakes of the free society are committing what the philosopher James Otteson called “the Great Mind Fallacy” in a 2010 paper in the journal Social Philosophy and Policy. He defines two problems, the Herding Cats Problem and the Gathering Information Problem, that plague any plan for state action. As he describes “the Herding Cats Problem of state action:”

“…because human beings have their own ideas about what to do, a legislator wishing for them to conform to his comprehensive plan, however beautiful and attractive in itself, is bound to be frustrated. Human beings upset patterns, as Robert Nozick said, and they do so in numerous and unpredictable ways. Hence, the legislator is faced with either giving up on his beautiful plan or attempting to impose it by force.” (p. 276)

In addition to the problem of mutually-incompatible goals, he describes the Gathering Information Problem:  

“The economist Friedrich Hayek argued that information about individuals, about their local situations, and about their personal goals, circumstances, opportunities, values is dispersed in concrete packages in billions of brains. For the legislator to devise a plan for society encouraging behavior that would lead to beneficial consequences, he would have to possess this information. But because this is impossible, Hayek argued, the legislator’s plan, whatever it is, will be unable to exploit individuals’ unique reservoirs of information, and thus the plan will be underinformed and overly simplistic.” (pp. 276-77)

He combines the Herding Cats Problem and the Gathering Information Problem to give us the Great Mind Fallacy, which “is the endorsement of political and economic principles that require, to fulfill their promise, some person with the ability to overcome the [Herding Cats Problem] and the [Gathering Information Problem].” (p. 277)

COVID-19 policy, to say nothing of public policy analysis very generally, seems awash in the Great Mind Fallacy. Economists and other social scientists, for example, are under constant pressure to identify “policy implications” of their research, and I get the sense from my reading of the academic literature that a lot of us seem to think we are providing the arguments and parameters that a Great Mind will combine into an effective plan. Assuming a benevolent central planner might sometimes be a useful mental exercise or modeling convention, but it is something else entirely to think that actually-existing political institutions approximate these gods. 

My friend and mentor David R. Henderson explored this in his recent AIER article “Liberation from Lockdown Now.” As he puts it, some ten percent of the labor force has applied for unemployment benefits “because state governments are forcefully preventing them from working.” Data on jobless claims illustrate the magnitude of the problem. There might be a strong argument to be made for increased liquidity in order to help people with sudden, short-term cash flow problems, but as Henderson notes, it is misleading to call the round of checks coming from the treasury a “stimulus” because “A government cannot stimulate production that it has forbidden.”

Henderson asks: “Could the power of citizens’ imaginations be unleashed to produce sufficiently effective social distancing at lower costs than what governments mandate?” We will never know, but he points to societies that have maintained open societies while keeping the virus in check. There is, of course, also the possibility that this will serve as a proof-of-concept for the next round of awesomely authoritarian interventions that government officials dream up. That’s how Franklin Delano Roosevelt’s Brain Trust saw World War I’s War Industries Board, and as the economic historian Robert Higgs explained in his 1987 book Crisis and Leviathan, government power grew after World War I, after the Great Depression, and after World War II. It will, no doubt, grow as a result of the COVID-19 pandemic.

“But how will ‘the market’ handle the problem?” This is usually where a lot of people stop listening to economists because we can identify broad outlines and social processes, but it’s rare that we can articulate and explain in minute detail precisely what the “solution” will be. We can’t do this because we cannot articulate every aspect of every cognitive handshake out of which Tallis’s “community of minds” has been forged. It is precisely the fact that people cannot specify in advance precisely how ‘the market’ will address the problem that makes markets indispensable. “The market” is not simply one technology among many for solving a well-defined problem. Rather, the market–shorthand for a system in which people are voluntarily trading private property and free labor–is a context in which the very problems we need to solve emerge and are defined. Or, to use the words of James M. Buchanan in his short but powerful essay “Order Defined in the Process of its Emergence,”

“…the ‘order’ of the market emerges only from the process of voluntary exchange among the participating individuals. The “order” is, itself, defined as the outcome of the process that generates it. The ‘it,’ the allocation-distribution result, does not, and cannot, exist independently of the trading process. Absent this process, there is and can be no ‘order.’” 

He continues a little further down:

“Individuals do not act so as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of “as if” functions that are maximized. But these “as if” functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know…”

And then he gets to the heart of the problem:

“…unless, of course, we are to preclude individual freedom of will.”

That is precisely what the interventions giving us what Gene Epstein has called the Great Suppression have done. A lot of people, of course, have no problem with that: there are more than a few iron fists concealed beneath health professionals’ latex gloves. Forsaking the market, though, is a serious mistake because markets generate information and knowledge you simply aren’t going to get anywhere else or, importantly, any other way.

Art Carden

Art Carden

Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama and a Research Fellow at the Independent Institute.

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