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Thursday, September 27, 2018
Current Affairs ... Economics/Business ... Technology ...

We hear that many in the Democratic Party today are warming up to the idea of socialism; and that many young adults now favor socialism over capitalism.

One of the strongest criticisms of socialism, in academic terms anyway, came from the 20th Century philosopher and economist Fredrich Hayek. In a nutshell, Hayek said that the problem with socialism, relative to free market capitalism, regards information. According to Hayek, free markets make good and efficient use of economic information, automatically – no one oversees the information flow, but it works out in a very good way. Whereby, in a socialistic economy controlled by a centralized government, human intervention gets in the way of information flow, and makes the overall economy very inefficient.

A New York Times article put it this way —

[Hayek] argued that most of the knowledge in a modern economy was local in nature, and hence unavailable to central planners. The brilliance of a market economy was that it allocated resources through the decentralized decisions of a myriad of buyers and sellers who interacted on the basis of their own particular knowledge. The market was a form of “spontaneous order,” which was far superior to planned societies based on the hubris of Cartesian rationalism.

A web site dedicated to this “knowledge problem” includes this summary of Hayek:

In his “The Use of Knowledge In Society,” Hayek explained that information about supply and demand, scarcity and abundance, wants and needs exists in no single place in any economy. The economy is simply too large and complicated for such information to be gathered together.

Any economic planner who attempts to do so will wind up hopelessly uninformed and behind the times, reacting to economic changes in a clumsy, too-late fashion and then being forced to react again to fix the problems that the previous mistakes created, leading to new problems, and so on.

Market mechanisms like pricing do a better job than planners because they incorporate what everyone knows indirectly through signals like price, without central planning. Thus, no matter how deceptively simple and appealing command economy programs are, they are sure to trip up their operators, because the operators can’t possibly be smart enough to make them work.

But today we have Artificial Intelligence (AI) and big data and huge inter-connected data networks, with almost everyone giving up all sorts of info into centralized data banks via social media and ever-present smart phones. According to Wikipedia, back in 1945 when Hayek wrote The Use of Knowledge in Society,

a centrally planned economy could never match the efficiency of the open market because what is known by a single agent is only a small fraction of the sum total of knowledge held by all members of society. A decentralized economy thus complements the dispersed nature of information spread throughout society. In Hayek’s words, “The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; that is, they move in the right direction.”

But zoom forward to today – knowledge is not so local anymore. With smart phones and data networks and AI, are moving into a central planner’s dream – and maybe also their nightmare. Yuval Harari has a very thoughtful and mentally stimulating article on The Atlantic web site that explains how technology concentrates increasing amounts of detailed knowledge about everyone’s daily life into the hands of a small number of powerful interests (think about it – every purchase that you make via your phone or using a credit card or even cash with a “loyalty card” is registered in some big corporate database; and then there is your digital health care records, your government criminal records, tax and income records, motor vehicle records, on and on).

With AI available to speed up all the muss and fuss of data mining, modern information technology holds the power to erase the advantages of democracy and erode ideals of liberty and equality. If the increasing popularity of socialism continues and the voters give the government expanding power over the businesses and institutions that run all of these data networks, it will become increasingly feasible for big government (or big government coordinating with big business) to limit our rights and direct our lives for the “greater good”. Do we really believe that the people who will lead this new socialist utopia will be modern day saints, always defining the “greater good” in a sincere and selfless way?

SO, in sum – finally a technology comes along that could circumvent Hayek’s “knowledge problem” and its impediments to socialism. And yet . . . all of that information in one place is, in itself, an incredible concentration of power with a lot of potential for social harm. All of this socialist information power can “trump” the advantages of concentrated wealth, the fuel that drives the free-market capitalist economy. If all of this information were put into the hands of angels, perhaps the dreamed-of socialist paradise could be realized. But humans remain humans. And money still talks – socialism or not, it will probably be the wealthy who will become our leaders. Don’t forget that 203 of 535 current members of Congress are worth at least $1 million, about 38%, whereas on the national level there are 10.8 millionaires out of 252 million adult Americans, about 4.3%. Also, 35 of our 45 American Presidents are estimated to have had net worth exceeding $1 million as adjusted for inflation. And yes, Trump is at the top of the wealth list; with George Washington coming in second!

Under big-government socialism, our wealthy leaders will be able to corral and control the information power that modern AI, big data and information networks offer. And it could turn them from rich people into kings and queens. I’d like to end this essay by saying “If we let them.” But do we really have a choice? Perhaps we do . . . but that would require you to get rid of your smart phone (or dumb it way down, no more apps for ordering pizza and using cashless Amazon stores), and go back to using cash. Are you ready for that?

◊   posted by Jim G @ 5:11 pm      
 
 


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