Michael Eisenberg is a venture, capitalist, businessman, and author of the book The Tree of Life and Prosperity. On this episode of EconTalk, Russ Roberts hosts Michael Eisenberg for a conversation on venture capitalism, technology’s influence on the economy, and the unique lessons that can be taken from a book that has stood the test of time, the Hebrew Bible. Eisenberg expresses his optimism for people’s empowerment in a constantly evolving world: he is ‘long on humanity.’ How long on the future are you? Share your thoughts with us; as you know, we love to hear from you.     Eisenberg presents his investing philosophy with a desired profile of entrepreneurs and companies that have the potential to empower humans and businesses to be economically successful. Roberts and Eisenberg share a similar passion for the power of storytelling in business, but investors must be aware of the full story, not just the “bedtime story.” Eisenberg appeals to ‘back casting’ in finding his own vision for an investment’s viability, while Russ presents the classical economist question for valuation: ‘and then what?’ How do you approach stock investments, business plans, or life goals? What is challenging about making concrete deductions in evaluating plans?   Roberts and Eisenberg talk about the importance of teamwork in entrepreneurship and great business success, citing the collaboration of Israeli military members in revolutionizing Israeli innovations and the importance of executors behind the veil of the power of geniuses like Bill Gates and Steve Jobs. Russ presents the example of running a restaurant beyond food quality. What other examples can do you think of where failures occur because of a lack of balance or collaboration? What might have prevented such failures?   Roberts and Eisenberg present portability in technology and specifically in social networks as being a good check on competition and upholding consumer value. Recently, Instagram and Mark Zuckerberg developed “Threads” which will attempt to compete with Elon Musk’s Twitter. Instagram users can transfer their follower/following statuses easily onto the platform, but Instagram, of course, owns the new platform. If Threads gains huge popularity, do you think Elon Musk will allow users to transport their network preferences and tweets over? Why or why not? How should other tech giants like Amazon allow for more competition and consumer value?   Eisenberg highlights the importance of entrepreneurship and corporations in providing for humanity’s needs, partly because the government is still running on the ‘pony express’  and are way behind on keeping up with technology. Eisenberg lists the people behind the COVID vaccine production process as not being a ‘panel of experts’ for further support of his belief and trust in entrepreneurs to adapt and take advantage of opportunities. What should our level of dependence be on the market versus the government for creating a bigger pie of gainful opportunities for more people? (0 COMMENTS)

As I’ve mentioned on this site a few times, I’m a regular watcher of CBS Sunday Morning. My favorite segment is the nature one at the end, which goes from about 30 seconds to 45 seconds. But there are also other good segments. Steve Hartman is my other favorite: his typical story is a heart-warming one about someone doing something wonderful for someone else, often a stranger. On issues like climate and global warming, though, CBS has no balance. It doesn’t present the issue as if there is any disagreement among scientists and it typically shows spokespeople who take among the most extreme views, like the idea that if we don’t do a lot now, we will have big trouble within a few years. There is little to no basis for that view. Its August 6 segment on the recent heat wave, which was the lead story, was no exception. Even worse, there was an added wrinkle, which would be noticeable to people who closely follow Biden administration policy. Before I get to that, notice how host Jane Pauley leads off. (You have to watch the first few seconds of the video to see this; it’s not in the transcript.) She states: Politicians may still debate it but it’s getting harder and harder to deny. With temperatures climbing to new heights everywhere, something’s going on out there. Pauley tells the reader that the debate is between politicians. Unstated implication: there’s no debate among scientists, which is false. It then segues to David Pogue, who completely buys into the idea that this latest heat wave is an indicator of global warming and that global warming is a crisis. Near the end of the segment, Pogue gets into what the Biden administration is doing to deal with heat waves. Here’s an excerpt: Last month, President Biden announced some small steps toward adapting to dangerous heat, like expanding access to drinking water, improving weather forecasts, and setting up a heat alert system. But Guardaro maintains that there’s much more to be done. City planners should develop heat infrastructure (like cooling centers and strategic greenery), and the federal government should start taking heat as seriously as it treats other climate disasters. For example, FEMA has never declared extreme heat as a disaster. Do you notice something missing? I did. One major thing the Biden administration is doing is making is more expensive for people to adapt to dangerous heat. How so? With new regulations limiting hydrofluorocarbons (HFCs), an ingredient in many air conditioners. The Competitive Enterprise Institute spells out the problem here. (Disclosure: I give a small annual contribution to CEI.) Ben Lieberman, writing in 2021, stated: If finalized in its current form, the proposed rule would reduce future supplies of HFC-410a and HFC-134a and raise prices for them. As we note in our comments to the agency, doing so will increase air conditioner repair costs. Any system that loses refrigerant from a leak—a common occurrence—would have to replace the lost refrigerants with the increasingly scarce and costly supplies of HFC-410a and HFC-134a. Worst off would be low-income households, some of which can barely afford air conditioning as it is. And the current western heat wave’s victims are mostly those lacking access to air conditioning, which further underscores the need to keep it as affordable as possible. Nonetheless, the EPA’s lengthy analysis of its proposed rule ignores the impacts on homeowners and car owners, not to mention businesses that rely on HFC-using air conditioning and refrigeration equipment. What if, instead of repairing your old residential air conditioner, you decide to buy a new system designed to use one of the supposedly climate-friendlier alternative refrigerants? Expect to pay more, especially for a system using one of the patented new refrigerants that cost several times more than the HFCs they are designed to replace. But once again, the EPA turns a blind eye to these costs, insisting that these new systems will be better and cheaper overall, without ever explaining why manufacturers and consumers preferred HFC-410a in the first place.   (0 COMMENTS)

I have fallen into acquaintance with a delicious book, in which I actually found the equally delicious expression “to fall into acquaintance.” University of East Anglia historian Emma Griffin writes, referring to the 1797 autobiography of a Glasgow shoemaker, “In early adulthood, M’Kaen had ‘fallen into acquaintance’ with a young woman and wished to marry her” (Emma Griffin, Liberty’s Dawn: A People’s History of the Industrial Revolution [Yale University Press, 2013]). Griffin found her material in 350 autobiographies written by actual or former industrial workers starting in the late 18th century and often not meant for publication. The incipit of the Liberty’s Dawn says: At the dawn of the nineteenth century, a subtle and little-noticed social change began to take place in Britain. As the industrial revolution picked up pace, a growing number of ordinary working people picked up pen and paper and wrote down their memories. … This book tells their story, an unexpected tale of working people carving out for themselves new levels of wealth, freedom and autonomy. She describes the industrial revolution as follows: It is clear that something momentous happened in Britain between the end of the eighteenth century and the middle of the nineteenth. ‘Revolution’ is an unavoidable and apt description of these events. At some point, the nation stopped trying to make all its goods by hand, and started to burn fossil fuels to drive machinery to do the work instead. In the process, large numbers of families gave up working the land, and moved to towns and cities to take up employment in factories, mills, and mines. … By the end of the eighteenth century, the economic growth associated with industrialization began to ripple to society. The steady incomes provided by these industrial occupations radically changed lives. For example, as one chapter explains, the new wealth reduced the age at which marriage was possible: Skilled work, or access to relatively well-paid unskilled work in industrial areas, helped to encourage younger marriage; the absence of these opportunities in rural areas had the opposite effect. … Without access to the brighter opportunities provided by a skill, those working in agriculture, fishing, and other forms of rural day labor simply waited—their marriages were uniformly spread from their mid-twenties to their early thirties, and occasionally beyond. … We are left then with a fairly sharp break in marriage customs around the 1890s, with almost complete social conformity before that decade and a sizeable minority of couples rejecting traditional values afterwards. Griffin criticizes the opinion of “generations of historians” about the impact of the industrial revolution on workers’ lives: It must be admitted that the suggestion that many of those who lived and worked their way through the industrial revolution believed their lives had been improved by that process jars with what we think we know. Generations of historians have painted the industrial revolution in relentlessly dark colors: a force which was wholly destructive for the poor, remorseless, unforgiving in its grinding down of the independent labourer of old. This, clearly, is not the assessment of those who lived through it. We have repeatedly seen that working men were extremely adept at grasping opportunities from the turbulent times in which they lived. And now we see them glorying in changes they witnessed. Surely it is time to reconsider the oft-repeated claims that the industrial revolution brought little but misery to those who did most to produce it. The economist reader may sometime find her economic knowledge insufficient and judge a bit superficial her opinion that too much laissez-faire characterized the industrial revolution. Yet, as she admits— Yet even with a government that did nothing, there is an uncomfortable truth that we should confront: industrialisation had remarkable power to put food on the table. And for the first generation, that generation which had expected the hunger of their own childhood to be experienced once more by their children and their grandchildren, food on the table was all that really mattered. More than this, it was the manifestation, the effect of liberty’s dawn. Griffin writes: Critics will argue that the material gains for most families were small. But they were just enough to drag wage-earners out of the servile submission that poverty had forced upon them since time immemorial. Let me leave the last word to Noah Cooke, a weaver who became known as “the Weaver Poet.” In 1876, as the industrial revolution was at full speed, he wrote:  The working class never had better times than now. (0 COMMENTS)

Many economists argue that the way to reduce inflation is to create “slack” in the economy, i.e., somewhat higher unemployment.  I believe that’s a mistake.  Unemployment is often an unfortunate side effect of reducing inflation, but doesn’t cause lower inflation. David Beckworth recently interviewed Ricardo Reis, who had this to say about the Phillips curve: [T]he way I understand monetary policy is, whereby tightening monetary policy, a central bank is able to bring inflation down. In the same way that when I go to the doctor with an infection with a bacteria of some kind, antibiotics are the way to kill the bacteria and cure me from that. However, a side effect, and I emphasize, let me say it slowly, a side effect of raising interest rates is that you also cause a recession. You also lead to an increase in unemployment. In the same way that a side effect of taking antibiotics is that they tend to wreak havoc with your gastrointestinal, digestive system. Note that it is not a channel. It’s not by taking antibiotics and screwing up my intestines that I therefore kill the bacteria. No, no, it’s a side effect. Likewise, raising interest rates lowers inflation and has a side effect of unemployment, but it may not lower unemployment the same way that you may go through a course of antibiotics and be perfectly fine with your gastrointestinal system. So the fact that unemployment has not gone up, does not in any way discredit the way in which monetary policy works, does not pose a puzzle of any kind, because an increase in unemployment following a tightening of monetary policy is not something that has to happen for inflation to fall. It’s something that often happens as a side effect. This is also how I look at the Phillips curve. My only quibble is that Reis seems to equate tightening of monetary policy with higher interest rates.  That is often the case, but (as with the inflation/unemployment correlation) not always.  The tight money policies of 1929-32 and 2008 were associated with sharply falling interest rates.  It makes more sense to view rising interest rates as a common side effect of tight money, just as rising unemployment is a side effect that frequently occurs with lower inflation.  But just as high unemployment is not the cause of falling inflation, rising interest rates are not the cause of falling inflation.  Instead, it is tight money that reduces inflation. PS.  There’s been a great deal of puzzlement about the fact that NGDP growth remains well above trend, despite a dramatic rise in interest rates that began in early 2022.  But this should be no surprise, and indeed is almost the norm.  For instance, the Fed began sharply raising interest rates in the spring of 2004, and NGDP growth remained at or above trend in 2005, 2006 and 2007.  There are similar examples throughout US macroeconomic history: Generally speaking, interest rates are a somewhat procyclical variable.  For instance, they rose almost continuously throughout the 1960s.  So there’s no reason to assume that higher rates will be associated with economic weakness.  It depends entirely on why interest rates have increased.  (Or if you prefer, whether they have risen relative to the natural rate of interest.) (0 COMMENTS)

It was Don Lavoie, not Friedrich Hayek, who coined the term “knowledge problem” in his seminal 1985 National Economic Planning: What Is Left?1 (itself a more accessible and policy-focused distillation of Lavoie’s thesis, under Israel Kirzner, entitled Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered). Lavoie reformulated and clarified the knowledge problem as developed by Ludwig von Mises and Friedrich Hayek, took to task the various proposals of the day calling for more state control, and articulated a radically liberal alternative. You might think we know all there is to know about the knowledge problem by now, but as it turns out, the proposals of the 2020s don’t differ all that much from the proposals of the 1980s, and Lavoie’s knowledge problem remains just as relevant as ever. What do you know about the knowledge problem? Now, everyone knows what the knowledge problem is: central planners lack access to all the knowledge necessary to comprehensively plan an economy. And most everyone accepts the knowledge problem on this reading (everyone except for market abolitionists). Here’s how Lavoie puts it: Comprehensive planning, the classic doctrine of planning advocates, seeks to achieve economic coordination without relying on the contention of separate decision makers with one another; it thereby deprives itself of access to one of the most important sources of knowledge exhibited by these kinds of orders. Just as in biological competition, there is the ‘information bearer’ function of DNA, so in the society of Tradition, this function is further served by such developments as language and culturally acquired techniques and habits. In the society of Market, profit and loss signals are added to this array. In the society of Planning, there is no new information bearer and those of the Market are discarded. It is this lack that gives the knowledge problem argument its force. (86) But a major point of Lavoie’s “National Economic Planning: What Is Left?” was that the knowledge problem rules out not only comprehensive economic planning (nationalizing entire industries and total state ownership over all the means of production), but also non-comprehensive economic planning (targeted state ownership, subsidies, price and wage controls, tariffs, quotas, monopoly privileges, and other policies distorting price signals). This is the sort of economic planning most people support today (even those self-avowed “state socialists” who nevertheless imagine more welfare state than communist state), and it’s probably even more commonplace than in the 1980s because the fall of the Soviet Union dealt a significant blow to the case for comprehensive planning, turning its less radical cousin into the moderate, reasonable-sounding alternative. Lavoie showed not only the knowledge problem’s continuing relevance, but also its more expansive, even radical, implications. The knowledge problem is not unique to certain groups, ideologies, or even institutions. The knowledge problem afflicts all human action. Our reason can lift us to unbelievable heights, but we’re still inescapably bounded, limited, and ignorant. The question is the extent to which certain practices, procedures, and feedback mechanisms help alleviate or exacerbate the knowledge problem. Our goal is, well, to accomplish our goals. But neither the best means to our goals nor the full ramifications of our goals are automatically known (or necessarily knowable!). There is a chasm between our intentions and our consequences–not always an unbridgeable chasm, but a chasm that can often be widened or narrowed depending on what tools we use. And since our goals all simultaneously draw upon the same shared reservoir of scarce means (the time, materials, and ingenuity which may always serve alternative ends), it becomes more and more difficult to even see how wide or narrow the many overlapping chasms are, let alone “measure” them or compare them against the chasms implicit in other potential goals. Selecting from our infinite array of means and ends the most efficacious among them, or, more accurately, merely figuring out which arrays’ chasms between intention and consequence are wider or narrower, is a problem for which we need knowledge. This is the knowledge problem: achieving efficacy in the face of uncertainty, or more accurately, continually telling the efficacious from the inefficacious and trying to adjust accordingly. “The knowledge problem is part of the human condition, points to a general feature of human decision-making, and will remain an everlasting consideration in comparative institutional analysis.” This is why the knowledge problem wasn’t made irrelevant with the collapse of comprehensive planning. The knowledge problem is part of the human condition, points to a general feature of human decision-making, and will remain an everlasting consideration in comparative institutional analysis. Our lack of omniscience is omnipresent; hence our reliance on various social devices to help guide our means/ends selections, from the more explicit signs of speaking, writing, voting, and/or polling to the more implicit signs of associating, giving, and/or trading (including the resulting prices). This list is far from exhaustive and the listed devices are far from mutually exclusive. It’s hard to even imagine a society relying on any single one of them, rather than a varied mix of them at different levels, in different contexts, and on different margins. Of course, those concerned about the knowledge problem tend to place special emphasis on a device that is uniquely useful, but also uniquely misunderstood and threatened, a device which many states tried to violently abolish in the 20th century and continue to coercively interfere with today: the price system. Prices have a number of useful features such as 1) bundling material incentives with its signals (and thereby turning the signals into scarcity indicators and lowering the transaction costs of cooperation outside one’s preexisting circle of social trust), 2) compressing relatively large amounts of knowledge into relatively simple signals (and thereby lowering the transaction costs of knowledge conveyance and facilitating relatively faster adjustments in the face of change), 3) capturing dispersed, local, tacit, and/or inarticulable knowledge (and thereby facilitating more accurate comparisons between various means/ends selections), and 4) conveying people’s judgments about their opportunity costs (and thereby turning that formerly incommunicable knowledge into public, tractable, comparable, and actionable signs for others to, however unwittingly, incorporate into their means/ends selections). Of course, speaking, writing, voting, polling, associating, giving, and all other devices involve opportunity costs (all actions do), but none of them convey opportunity costs, instead keeping knowledge of opportunity costs hermetically sealed within each of us and thereby private, intractable, incomparable, and inactionable. What those devices convey are preferences, which, while incredibly useful in their own right, are nevertheless abstracted and untethered from the concrete resource tradeoffs implied by actual means/ends selections and, by extension, the potential tradeoffs implicit in the means/ends selections available for everyone simultaneously. By contrast, prices emerge from trades and therefore reflect the tradeoffs people actually make in their means/ends selections, lending the price signal an epistemically unique place along the many signals we rely on in our decision-making. The problem (efficacious decision-making) is not a mere technical one (a single planner autarkically allocating resources within a single plan) but a language one (many planners mutually coordinating resources across many plans), and price is the language of opportunity cost, the only means by which we can “economize” in the sense of comparing the opportunity costs of rival plans. Planners literally lack the medium necessary to economize: No advocate of planning has yet indicated a workable medium, analogous to the insects’ pheromones or the scientists’ journals or the market’s money prices, through which the interdepartmental rivalry [between a planned economy’s different departments] could generate a level of social intelligence that exceeds the individual intelligence of its participants. (85) The function that prices play in a market is a cognitive one. It is to reduce for each decisionmaker the otherwise overwhelming number of technologically feasible ways of producing things to the relatively much smaller number that appear economic—that is, appear to more than repay their costs. Without the guidance provided by price signals, each producer is likely to engage in a project which, were it the only goal of society, could probably be carried out (technological feasibility) but which, since it is not the only goal, finds itself running out of scarce resources used up by other producers (economic infeasibility). Price movements convey the more or less accurate knowledge of the relative scarcities, the values, of all the factors of production to those who calculate potential and actual profits with them. Yet the only force that tends to pack this scarcity information into prices is the degree of the tug exerted on prices from various directions by multitudes of competitive bidders. Each is committing himself, and either his own wealth or that which it is his responsibility to manage, to his own assessment about where future profits are to be found. (54) Seeing prices as unique cognitive devices shows why they shouldn’t be destroyed (comprehensive planning) but also why they shouldn’t be distorted (noncomprehensive planning). While comprehensive planning is like trying to communicate by abolishing language, noncomprehensive planning is like trying to communicate by speaking different languages, and instead of trade, central planners (comprehensive or otherwise) speak only coercion. As Lavoie wrote: … the profit motive cannot be viewed as merely a wind or current, a driving force that keeps the economy moving or flowing. Inextricably bound up with its operation is its function as the economy’s rudder, or as its dikes and locks, as well. When the government tries to steer a market system, it is not simply providing direction to an otherwise drifting economy; it is necessarily pulling against the directions already indicated by the principle of profitability under some agreed-upon rules of social cooperation. It is not providing guidance to a rudderless ship of state. It is instead struggling to gain control of a rudder that would in its absence steer the economy toward a relatively well-coordinated outcome, even though the government has no scientific grounds for its pretense that it knows how to steer the economy toward some alternative, equally coordinated, outcome. By blindly interfering with its rudder, the government will misdirect the ship and possibly damage or destroy its rudder. But it lacks the knowledge to replace the rudder already supplied by the profit motive.” (119-120) Essentially, the problem with noncomprehensive planning is a direct corollary of the critique of comprehensive planning. The latter is impossible, because no single agency could attain a level of individual intelligence that could rival the social intelligence that emerges from the competitive process. While noncomprehensive planning is not an impossibility (indeed the world has seen little else this century) it does represent an attempt to interfere with the competitive process in order to steer it onto desired paths of development. But the same lack of knowledge on the part of any single person or organization which makes it impossible for comprehensive planning to replace the market also makes it irrational for a noncomprehensive planning agency to try merely to ‘guide’ the market. If the guiding agency is less knowledgeable than the system it is trying to guide—and even worse, if its actions necessarily result in further undesired consequences in the working of that system—then what is going on is not planning at all but, rather, blind interference by some agents with the plans of others. A comprehensive planning agency, if it could exist in a modern economy, would be distinguished from planning of the more mundane and partial variety (as it is done, for example, by businessmen) in that it would be able to plot all the consequences of its own actions. In that case unintended consequences could be dispensed with and humanity could truly become master of its own future development. But if this ambitious goal proves unattainable, as most advocates of planning now admit it is, then what can be said in this regard of noncomprehensive planning? How does it differ from the partial planning of the individual firm? Surely neither can pretend to be able to anticipate the remote consequences (both in time and place) of the limited variables it controls. In each case the attempt by any one decisionmaker to solve one problem may unintentionally lead to the creation of new problems for other decisionmakers. The primary characteristic that distinguishes the noncomprehensive planning done by a government from the familiar planning the rest of us engage in during our daily lives would seem to be that the former has the advantage of being able to employ coercion to help achieve its purposes. The rest of us have to persuade others, for example by offering them something valuable in exchange, in order to get them to cooperate with us so that we can achieve our goals. This coercive advantage does not guarantee, however, that the goals promoted by the government planners will be accomplished. By definition, noncomprehensive planning seeks to control only part of the economic system and hence those parts which it does not control are free to react in their own ways and at their own initiative to government policies. These reactions and the consequences they engender cannot be fully anticipated by noncomprehensive planners, and thus may cause undesirable and unplanned results to follow in the wake of their policies. All proponents of noncomprehensive planning ought to address themselves to this issue. They ought to explain why any one agency in society should have this coercive advantage over others in the economy. In particular, in light of the knowledge problem, why should we expect noncomprehensive planners to be any better informed about the remote consequences of their coercion-backed plans than the rest of us are about the consequences of our persuasion-backed plans? (95-6) Comprehensive planning’s more moderate, reasonable-sounding cousin in noncomprehensive planning continues to dominate prevailing policy proposals in the form of calls to increase state control over everything from education to healthcare to housing to immigration to trade to transportation to energy and beyond. Whether left, right, or center, empowering the state to blindly interfere with something is an enduringly popular idea. But all of these schemes amount to little more than planners trying to substitute their own individual intelligence for everyone’s social intelligence by meddling in something larger than themselves, something too complex and dynamic to be captured by a static model or comprehended by a single mind, let alone controlled or “guided” by the relevant authorities. Policies which merely restrict this or regulate that may be more moderate than full-on central planning, but they are no less unreasonable. Neither will the increasingly fashionable idea of an AI-planned economy help us “transcend” markets. AI’s staunchest advocates seem to conflate the knowledge problem for a technical or computing problem and envision a world where the emergent, ongoing signals of the market’s rivalrous trial-and-error processes somehow already exist as a continuous stream of ready-made inputs for computers to manipulate and optimize. Artificial intelligence is no more a substitute for social intelligence than individual intelligence is. Lavoie, who had a degree in computer science, was well aware of both the potential and the limitations of computing power: While I confess to being as romantic as anyone about the untold benefits that computers promise for future generations, it does not strike me as even a remote possibility that these machines could replace market institutions. Rather, we can expect them to facilitate market transactions increasingly and thereby improve the coordination of plans. The reason is not only that computers are a long way from being intelligent enough to replace an individual human mind in the making of the sorts of skillful judgments that economic decision making requires. More to the point, even if some supercomputers were invented that surpassed human mental powers in every respect, their “intellect” would be put to a far more effective use if organized competitively than if organized by a single plan. Minds, whether human or not, achieve a greater social intelligence when they are coordinated through the Market than is possible if all economic activity had to confine itself to what a single supercomputer could hierarchically organize. (54-5) Whether AI technocracy, Stalinist centralization, Wilsonian militarization, RFC cartelization, populist restrictionism, democratic socialism, some mix of them all, or some new scheme drawn up tomorrow, Lavoie would suggest we close the door on economic planning and get to work on alternative, more viable, more inspiring solutions to the world’s problems. If knowledge is the problem, freedom is the answer Lavoie considered himself a “radical” in the sense that he thought “our society is in serious trouble and demands a sharp departure from current policies” (1) and affirmed the need to “transcend—through principled and concerted social action—war and militarism, political oppression, and special privilege, and to set in motion progressive forces that will begin to solve such difficult human problems as poverty, disease, and environmental decay” (1-2). But Lavoie parted ways with many radicals when it came to planning, and instead argued that “the ultimate ends of the radical movement will almost certainly be frustrated if national economic planning is chosen as the means for their realization” (2): Comprehensive and noncomprehensive planning emerge from this account as successive and ultimately reactionary diversions of what began as a genuinely progressive movement, diversions which have not only wreaked havoc on the millions of human lives who have had to live under planned economies but which have also caused immense harm to the whole notion of popular ideological movements for radical change. (9) Today the radical ideology of planning is intellectually bankrupt. All that remains are meek suggestions to try yet one more variation on the century’s dominant theme of noncomprehensive planning. But this policy does not resolve the knowledge problem; it merely substitutes a form of destructive parasitism on the market process in place of its earlier unachievable goal of dispensing with market processes altogether. The knowledge problem shows that the freely competitive market order makes more effective use of the information that lies dispersed throughout society than can any of its participants. This means that noncomprehensive planning is blind interference into a complex order, interference which can succeed in protecting and enhancing monopoly power and privilege, but which cannot improve the productive capacity of a modern technologically advanced economy. (241) In short, noncomprehensive planning is not a basis for a radical movement at all. It is politics as usual. It is another plea by messianic political leaders that we should trust them to set things right. The goal of a genuine radicalism must be to transcend this whole level of politics. (237) Lavoie actually agreed with Karl Marx that markets involved an “anarchy of production” but argued it was precisely this anarchy (the “ongoing rivalrous struggle” amongst producers) upon which the production crucially depends! Absent anarchy, all producers would be confined to a single plan and therefore blind to the opportunity costs of rival plans, lethally hampering their collective social intelligence. The “anarchic” process of ongoing mutual adjustment through the market forms an intricate, delicate tapestry, and the iron-fist of the state is not a very precise instrument. Attempting to direct, control, command, circumscribe, regiment, regulate, restrict, or otherwise interfere with this anarchy is doomed to exacerbate, not lessen, chaos. Iron-fists are also blind-fists. Lavoie identified a critical link between planning and power, which he saw as going hand-in-hand in practice: Their [“the real fathers of planning”] aspirations were not to achieve any Utopian vision but to secure for the major corporations effective isolation from the rigors and uncertainties of competition. Planning in practice was born as a mutual protection society for a corporate elite. (221) The origins of planning in practice constituted nothing more nor less than governmentally sanctioned moves by leaders of the major industries to insulate themselves from risk and the vicissitudes of market competition. It was not a failure to achieve democratic purposes; it was the ultimate fulfillment of the monopolistic purposes of certain members of the corporate elite. They had been trying for decades to find a way to use government power to protect their profits from the threat of rivals and were able to finally succeed in the war economy. (225-6) The citadels of power are in fact, whether they know it or not, more threatened by the spontaneous forces of the openly competitive market than by any other factor. Power thrives on coercive obstructions to market competition. Ideologies that seek increased governmental intervention into the economy have been only helping the powerful secure better control throughout the world. But an ideology that embraces the spontaneous forces of the market process can yet succeed where all these planning ideologies have failed. The more fully these principles are applied, the more the productive elements of the economy are released; the more opportunities for improvement that the competitive discovery process is permitted to uncover, the more the economy grows. (240) In Lavoie’s hands, the knowledge problem goes far beyond a mere negative critique of comprehensive and noncomprehensive economic planning. It also guides us in creating positive remedies for social ills. Lavoie’s “persuasion-backed planning” (or McCloskey’s “trade-tested betterment”) is an illuminating description of market processes. Testing new plans, ideas, technologies, resource combinations, organizational strategies, etc. by persuasion or trade is far superior than testing them by coercion (superior both epistemically, in terms of knowledge, and morally, in terms of freedom). Lavoie showed the intimate, perhaps necessary, connection between knowledge and freedom. It turns out epistemic progress and economic progress are not all that different, and they are both linked by freedom: Coercion obstructs the flow of knowledge in the market process for the same reason it obstructs it in the scientific community. The spontaneous transmittal of scattered information that is continually being accomplished by the various tugs of market rivals is distorted when some of the participants gain the coercive advantage. (84-5) But if knowledge—whether scientific or economic—is based on tacit skills, if it is inextricably personal, and, most important, if it depends upon the free play of open debate and contention, then the intelligentsia’s justification for special powers evaporates. For the very freedom of inquiry on which the success of science rests is in this case inconsistent with the bestowal of special powers to anyone, including the scientists themselves. (264) For the same reason that science requires freedom and intellectual competition to progress, a modern economy requires economic freedom and market competition. We rely on interpersonal rivalry to give us knowledge about alternative production methods without which most of the present world population would be doomed to starvation. (237) Lavoie closed National Economic Planning: What Is Left? with a quote about the connection between knowledge and freedom by nineteenth-century radical natural-rights theorist Lysander Spooner and it seems fitting to include that same quote here: We all come into the world in ignorance of ourselves, and of everything around us. By a fundamental law of our natures we are all constantly impelled by the desire of happiness and the fear of pain. But we have everything to learn, as to what will give us happiness, and save us from pain. No two of us are wholly alike, either physically, mentally, or emotionally; or, consequently, in our physical, mental, or emotional requirements for the acquisition of happiness, and the avoidance of unhappiness. No one of us, therefore, can learn this indispensable lesson of happiness and unhappiness, of virtue and vice, for another. Each must learn it for himself. To learn it, he must be at liberty to try all experiments that commend themselves to his judgment… And unless he can be permitted to try these experiments to his own satisfaction, he is restrained from the acquisition of knowledge, and, consequently, from pursuing the great purpose and duty of his life.2 For more on these topics, see “Peter Boettke on Don Lavoie and Central Planning,” Peter Boettke with Juliette Sellgren. Podcast episode. Adam Smith Works, The Great Antidote, January 2023. “How the Collapse of Communism Has Undermined Faith in American Capitalism,” by Richard B. McMenzie. Library of Economics and Liberty, September 7, 2020. Don Lavoie on the Socialist Calculation Debate, by David Henderson. EconLog, January 11, 2012. Peter Boettke on Mises. EconTalk. For Lavoie, the knowledge problem informed not just a radical critique but a radical vision, a lively, humanistic, cosmopolitan, and emancipatory vision of cultural, scientific, and economic progress through peaceful social cooperation, dynamic experimentation, and mutual exchange. As the knowledge problem continues to be misunderstood, underrated, or downright ignored, and as human freedom continues to be trampled on, it’s vital we keep the legacy and, more importantly, the ideas of Don Lavoie alive and well. Footnotes [1] Don Lavoie, National Economic Planning: What Is Left? Cambridge, Massachusetts: Ballinger Publishing Company, 1985. [2] Lysander Spooner, Vices Are Not Crimes, Cupertino, California: TANSTAAFL, 1977 [1875]. * Cory Massimino is an independent scholar. He is a fellow of the Center for a Stateless Society. His research focuses on virtue ethics, market process economics, and anarchist political theory. His writings have appeared in publications including The Guardian, The Independent, and Playboy. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Image of Adam Smith in the style of Cezanne. Generated by DALL-E OpenAI software, based on public domain material. Many scholars, especially from other disciplines, have voiced concerns regarding a simplified interpretation of Adam Smith’s ideas in modern economics, asserting that it has been exploited to advance a particular free market ideology. For example, in her book Adam Smith’s America (2022) Glory Liu argues that “given the breadth and richness of Smith’s oeuvre, it is hardly surprising that intellectual historians, political theorists, and social scientists often complain that distorted notions of self-interest, free markets, and ‘the invisible hand’ have eclipsed Smith’s moral philosophy, jurisprudence, and more, and that Smith has become little more than an emblem for think tanks or a historical sound bite in textbooks.” In this article, we employ David Galenson’s approach to innovation and draw a parallel with the art world to assert that the oversimplification of Smith’s ideas may be partly attributed to the prevalence of conceptual innovators in economics during the 20th century. These innovators tend to simplify economic concepts through abstraction. Much as Paul Cézanne approached art as an experimental innovator, Adam Smith can be seen as an experimental innovator in economics. Similarly, just as Picasso and other modern artists embraced and expanded upon Cézanne’s experimental ideas using a conceptual approach, modern economics incorporated and was built upon Adam Smith’s ideas. Conceptual and Experimental Innovators In his quest to understand creativity, David Galenson of the University of Chicago realized that art is an excellent laboratory to study creativity from an economic perspective. As in the case of researchers, great artists are also great innovators. Significant works of art contain substantial innovations. Regardless of the nature of the innovation, its relevance ultimately lies in its degree of influence on other artists. From detailed study of more than two hundred artists’ careers, Galenson establishes that there are two very different types of innovators in art: conceptual innovators, who plan in detail before making a work, and experimental innovators, who take the most important decisions about their work while they are making it. Conceptual innovators use their art to accurately express ideas. The precision of their objectives allows them to plan their work and execute it decisively. Pablo Picasso, Andy Warhol, and Frida Kahlo were great conceptual innovators. Their conceptual innovations usually consist of something completely different, which breaks the conventional rules of the discipline. Their most radical new ideas, and consequently their greatest innovations, tend to appear early in their careers. “… experimental innovators seek to record their visual perceptions and lack a clear goal. They proceed tentatively, through trial and error, gradually building their skills while doing their work, and tend to make their greatest contributions late in their careers.” In contrast, experimental innovators seek to record their visual perceptions and lack a clear goal. They proceed tentatively, through trial and error, gradually building their skills while doing their work, and tend to make their greatest contributions late in their careers. Paul Cézanne, Georgia O’Keeffe, and Jackson Pollock are some examples of great experimental innovators. The categories of conceptual innovator and experimental innovator do not apply only to the art world. Later work shows that the same patterns are repeated in other areas, such as literature (Galenson 2005, Elias, 2013), music (Galenson 2009), the quality wine industry (Elias et al, 2020), and gastronomy (Elias et al, 2022). Bruce Weinberg and David Galenson (2019) show that economists can also be divided into these two types of innovators. Conceptual economists are those who identify specific problems and solve them using deductive reasoning. They tend to make their most important innovations early in their careers, when they are more likely to challenge established ideas. On the other hand, experimental economists ask broader questions and solve them by accumulating evidence. Their most significant innovations often come after long periods of research, as they analyze more and more evidence. Experimental innovators use inductive reasoning and base their innovations on accumulated experiential knowledge. Empirical research often involves generalizing from evidence, so empirical innovators are often experimental. A conceptual empiricist would be an example of an empirical innovator whose primary contribution was testing hypotheses formulated a priori. Douglass North, Robert Fogel, Friedrich Hayek were great experimental innovators. On the other hand, conceptual innovators use deductive reasoning and their innovations stem mainly from a priori logic, often in response to existing work. Theorists are typically conceptual, and the most abstract and mathematical theorists tend to be the most conceptual. Kenneth Arrow, Paul Samuelson, Harry Markowitz were great conceptual innovators. Adam Smith: Experimental Innovator Adam Smith possessed most of the attributes of an experimental innovator. He developed most of his ideas based on empirical and experiential evidence. He was a perfectionist, who made progress slowly, constantly revising and refining his writings. An Inquiry into the Nature and Causes of the Wealth of Nations, written late in his career when he was 53, is considered, by any measure of influence, his most important contribution. Smith’s concept of competition and the division of labor are examples of important ideas rooted in observation. According to George Stigler (1957), Smith’s concept of competition was “in the sense of rivalry in a race—a race to get limited supplies or a race to be rid of excess supplies… Smith did not state how he was led to these elements of a concept of competition. We may reasonably infer that the conditions of numerous rivals and of independence of action of these rivals were matters of direct observation.” In elaborating on the Division of Labor, Smith recounts “I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day.” Drawing a parallel to the art world, Paul Cézanne, an archetype of the experimental innovator, shared a similar approach to Smith. Cézanne, known for his meticulousness and constant pursuit of improvement, expressed his longing for attaining his artistic goals and the accompanying sense of uneasiness until he reached his desired level of accomplishment. Smith’s correspondence with Thomas Cadell further emphasized his meticulous nature and his dedication to perfecting his works. In a letter of March 1788, two years before his death, he acknowledged his slow progress, the numerous revisions he made to The Theory of Moral Sentiments, and his intention to leave behind his published works in the best possible state. According to Galenson (2006), Cézanne’s apprehensions in his final years were ironically misplaced, as his last body of work became highly regarded and influential, shaping future artistic developments. Similarly, Smith’s late contribution, The Wealth of Nations, attained immense influence and ranks among the most cited books in the field of Social Sciences. It is widely taught in colleges, with over 5,500 syllabi featuring it, while The Theory of Moral Sentiments enjoys less prominence, appearing in approximately 1,300 syllabi. The significant disparity in reprint numbers further highlights the differential recognition of Smith’s works during the 20th century (Montes, 2006). Adam Smith’s Legacy through the Lenses of Conceptual Innovators After World War II, economics experienced a shift similar to the art world in the 20th century, where conceptual innovators became dominant. During this period, economics heavily incorporated mathematics to formalize established economic ideas and address social and economic issues. The modern understanding of Adam Smith in economics is rooted in the work of these conceptual innovators who formalized and interpreted his ideas. Paul Samuelson was a great conceptual innovator, who made discoveries through highly abstract reasoning, and made his greatest contributions early in his career. In his commemoration of Samuelson, Avinash Dixit (2009) asserts that, much like Sir Isaac Newton, Samuelson had the remarkable ability to extract the hidden principles of economics, which had been shrouded in convoluted language by earlier generations, and reframe them with remarkable clarity using the language of mathematics. “I loved the Foundations [Paul Samuelson, 1947],” Robert Lucas wrote in a 2001 memoir. “Like so many others in my cohort, I internalized its view that if I couldn’t formulate a problem in economic theory mathematically, I didn’t know what I was doing. I came to the position that mathematical analysis is not one of many ways of doing economic theory: It is the only way. Economic theory is mathematical analysis. Everything else is just pictures and talk.” For example, when writing his best-selling textbook Economics, Samuelson conceptualizes the “invisible hand” as perfect competition and elucidates its welfare implications: Even Adam Smith, the canny Scot whose monumental book, The Wealth of Nations (1776), represents the beginning of modern economics or political economy—even he was so thrilled by the recognition of an order in the economic system that he proclaimed the mystical principle of the “invisible hand”: that each individual in pursuing his own selfish good was led, as if by an invisible hand, to achieve the best good of all, so that any interference with free competition by government was almost certain to be injurious. This unguarded conclusion has done almost as much harm as good in the past century and a half, especially since too often it is all that some of our leading citizens remember, 30 years later, of their college course in economics. Along the same line, in his Foundations of Economics Analysis (1947) in Chapter VIII on Welfare Economics, he wrote: Beginning as it did in the writings of philosophers, theologians, pamphleteers, special pleaders, and reformers, economics has always been concerned with problems of public policy and welfare. And at least from the time of the physiocrats and Adam Smith there has never been absent from the main body of economic literature the feeling that in some sense perfect competition represented an optimal situation. George Stigler (1982) described The Wealth of Nations as a “a stupendous palace erected upon the granite of self-interest.” Even though it can be argued that for “Adam Smith human nature was predominantly social, which explains the relevance of the impartial spectator, and human conduct is fundamentally ethical, which is determined by the social interaction that leads to moral rules” (Montes, 2004), the idea of Stigler is powerful and simple. As a conceptual innovator like Samuelson, he took from Smith what allowed him to simplify and develop a complete theory. Robert Lucas (2003) posits that the fundamental framework of economics, as established by David Hume, Adam Smith, and David Ricardo, revolves around the idea of individuals being essentially similar and driven by simple objectives. Differences in behavior are attributed to situational factors rather than cultural, biological, racial, or class-based disparities. Lucas asserts that this viewpoint has remained unchanged for two centuries, with no new paradigms or shifts. However, he acknowledges progress in economics as primarily technical, involving advancements in mathematics, data analysis, statistics, and computational methods. This progress aims to enhance the empirical foundation and problem-solving capabilities of economic theory while remaining aligned with the initial goals set by Hume, Smith, and Ricardo. In a second stage, The Theory of Moral Sentiments has been influential in extending modern economics. As Leonidas Zelmanovitz discusses in a recent article at Econlib,1 there was an effort to consider more realistic assumptions about human motivations and the limitations to the knowledge of economic agents has been going on in mainstream economics. Gary Becker made substantial contributions to integrating the complexities of human behavior into economic models by drawing inspiration from Adam Smith’s concepts in The Theory of Moral Sentiments. For example, in his book Accounting for Tastes (1996), Becker utilizes Smith’s insights to enhance economic analysis. In the book Becker explores the role of habits in shaping personal and social capital. He highlights Smith’s explanation of the affection for family members through habit, quoting Smith’s statement that individuals are naturally inclined to have warmer affections toward their own family members due to the habit of sympathizing with them. Conceptual Innovations in Economics and the Arts: Building on the Shoulders of Great Experimental Innovators For more on these topics, see “Inventing the Invisible Hand,” by Glory Liu. Adam Smith Works, November 1, 2018. Competition, by Wolfgang Kasper. Concise Encyclopedia of Economics. Division of Labor, by Michael Munger. Concise Encyclopedia of Economics. The formalization of Adam Smith’s ideas using mathematics helps explain the simplification of his concepts found in both The Wealth of Nations and The Theory of Moral Sentiments. This formalization occurred due to the influence of conceptual innovators in economics, who sought to enhance economic analysis and make it more rigorous. Paul Cézanne revolutionized modern art through his breakthroughs. His concept of portraying multiple perspectives on a single canvas influenced artists like Picasso and Braque, who developed cubism by simplifying and abstracting Cézanne’s ideas. Cézanne’s meticulous approach to his craft, seen in his deliberate strokes and deep contemplation, left a profound impact. Similarly, to the innovation in economics, where conceptual innovators enhanced analysis, Picasso and his contemporaries reshaped artistic expression, pushing the boundaries of representation. References Becker, Gary S. Accounting for Tastes. Harvard U. Press, 1996. Dixit, Avinash. 2009. Paul Samuelson 1915–2009″. PDF file. Elías, Julio; Garcia, Alvaro; Ferro, Gustavo; De Salvo, Carmine Paolo. “Knowledge and Innovation Analysis in the Wine Industry in Argentina,” Monography, Interamerican Development Bank, May 2020. Elías, Julio; Garcia, Alvaro; Schiling, Maja; Mount, Ian. “Analysis of Innovation in the Gastronomic Sector of Peru,” Monography, Interamerican Development Bank, May 2022. Galenson, David W. 2007. “Old Masters and Young Geniuses: The Two Life Cycles of Artistic Creativity,” Princeton, NJ: Princeton University Press. Galenson, David W. 2009. “Innovators: Songwriters,” NBER Working Paper No. 15511. Galenson, David W., 2005. “Literary Life Cycles,” Historical Methods: A Journal of Quantitative and Interdisciplinary History, vol 38(2), pages 45-60. Liu, Glory. Adam Smith’s America. Princeton U. Press. 2022 Lucas, Robert E. Keynote Address to the 2003 HOPE Conference: “My Keynesian Education.” Montes, Leonidas. (2004). Adam Smith in Context: A Critical Reassessment of Some Central Components of His Thought. Stigler, George J. 1971, “Smith’s Travels on the Ship of State,” History of Political Economy, 3(2): 265-277 Stigler, George J. “Perfect Competition, Historically Contemplated.” Journal of Political Economy 65, no. 1 (1957): 1–17. Weinberg, B.A. and Galenson, “D.W. Creative Careers: The Life Cycles of Nobel Laureates in Economics.” De Economist 167, 221–239 (2019). Footnotes [1] “Behavioral Versus Free Market Economics,” by Leonidas Zelmanovitz. Library of Economics and Liberty, Jan. 2, 2023. * Walter Castro is a Professor of economics at the Pontificia Universidad Católica Argentina (UCA Rosario), where he also coordinates the Department of Economics, among others. He hosts a daily radio program “El Regreso” (Return) on Fisherton CNN–now CNN Radio Rosario–and participates weekly as economic columnist for a television program broadcast by Cablevisión. Since 1992 he is Founding Partner of “Castro y Fernández”, a consulting firm specialized in advising and reengineering business companies. Julio Elias is Professor of Economics, Universidad del CEMA, the Executive Director of the Joint Initative for Latin American Experimental Economics (JILAEE), and Executive Director of the Center for Creativity Economics, Universidad del CEMA. (0 COMMENTS)

Thirty-five years ago—on June 24, 1988—the front page of the New York Times had a three-column announcement from the nation’s capital: “Global Warming Has Begun, Expert Tells Senate.”1 This “guns of August” proclamation invoked a military metaphor: “Sharp Cut in Burning of Fossil Fuels Is Urged to Battle Shift in Climate.” Philip Shabecoff, the paper’s environmental correspondent, reported on the previous day’s Senate testimony of NASA scientist James Hansen, who stated with “99 percent” confidence that the current warming trend, led by increases in atmospheric carbon dioxide (CO2) from fossil fuel combustion, was here to stay. “If the current pace of the buildup of these gases continues, the effect is likely to be a warming of 3 to 9 degrees Fahrenheit from the year 2025 to 2050,” summarized Shabecoff. “The rise in global temperature is predicted to… melt glaciers and polar ice, thus causing sea levels to rise by one to four feet by the middle of the next century” (this century). Thirty-five years later, the Times alarm rings exaggerated—very much so. Taking the midpoints of 6 degrees and two-and-a-half feet, with an impending start of the due date (2025), the recorded increase to date is approximately one degree and four inches. The climate debate has been marred by exaggerated warming estimates from unreliable, biased climate models and a “deep ecology” view of nature-versus-man. The physical science of global warming only begins a multi-disciplinary debate over public policy. But far from caution and restraint in the face of unknowns and contrary evidence, climate policies have become ubiquitous. There is command-and-control at all levels of government, as well as a drive to domestically price CO2 with tariffs (“border adjustments”) to prevent leakage (business relocation to avoid domestic CO2 controls). Classical liberals have critically assessed the case for climate alarm and the policy of forced energy transformation away from consumer-preferred fossil fuels to wind, solar, and batteries. Two notable, timeless perspectives have come from William Niskanen (1997) and Steven Horwitz (2012). William Niskanen In Fall 1997, political economists William A. Niskanen, then chair of the Cato Institute, published an essay against regulating (CO2) and other greenhouse gasses via a global treaty (or otherwise).2 The Kyoto Protocol was just ahead, which pitted the neo-Malthusian intelligentsia and rent-seeking corporations (such as Enron and BP) versus modern, consumer-directed high-energy living. “In December,” Niskanen’s essay3 began, “policymakers will meet in Kyoto to discuss an international treaty to control greenhouse gases.” But with a dearth of knowledge about the costs, benefits, and alternatives, broad regulatory action is premature…. For this treaty to merit our support, the proponents should be asked to demonstrate the accuracy of all of the following statements: 1. Continued increase in the concentration of artificial greenhouse gases (primarily carbon dioxide) in the atmosphere will increase the average global temperature. 2. An increase in average temperature will generate more costs than benefits. 3. Emissions controls are the most efficient means to prevent an increase in global temperature. 4. Early measures to control emissions are superior to later measures, whether to control emissions or adapt to a temperature increase. 5. Emissions controls can be effectively monitored and enforced. 6. Governments of the treaty countries will approve the necessary control measures. 7. Controlling emissions in richer countries is desirable even if emissions in poorer countries are not controlled for several decades. Condition #1 has in all likelihood been met, but the other six have not, making a case against government activism and for free-market adaptation. In support of Niskanen, Jerry Taylor of the Cato Institute wrote at the time4: There is no compelling need to act now…. There are a tremendous number of uncertainties… it would seem only prudent to continue to try to answer the open questions about climate change before making major changes to Western civilization. Niskanen added this perspective in a ten-year look back5 (in 2008): With my characteristic optimism, my 1997 paper on global warming remarked that ‘We should know a lot more about this issue in the next 10 to 20 years.’ Unfortunately, there has been a rush to judgment on this issue without a significant increase in the information on which to base this judgment. [An] abatement strategy… will prove to be both costly and ineffective…. [A] rush to judgment on the optimal response to the increase in temperature is the greater danger [than adaptation]. Steven Horwitz Austrian-school economist Steven G. Horwitz’s essay, “Global Warming Is About Social Science Too,”6 provided a list of essential questions to make a case for government intervention. 1. Is the planet getting warmer? 2. If it’s getting warmer, is that warming caused by humans? 3. If it’s getting warmer, by what magnitude? 4. What are the costs of global warming? 5. What are the benefits of global warming? 6. Do the benefits outweigh the costs or do the costs outweigh the benefits? 7. If the costs outweigh the benefits, what sorts of policies are appropriate? 8. What are the costs of the policies designed to reduce the costs of global warming? The first three questions relate to physical science; the last five are for economists and other social scientists to debate. Given physical change, Horwitz finds open questions and unsettling answers to forego a rush to government. The last question (#8) particularly spurred his interest. “Even if we design policies on the blackboard that seem to mitigate the effects of global warming,” he notes, “we have to consider, first, whether those policies are even likely to be passed by politicians as we know them, and second, whether the policies might have associated costs that outweigh their benefits.” Continuing to public policy: So if in our attempt to reduce the effects of global warming we slow economic growth so far as to impoverish more people, or we give powers to governments that are likely to be used in ways having little to do with global warming, we have to consider those results in the total costs and benefits of using policy to combat global warming. This is a question of social science that is no less important than the scientific questions I began with. “[I]t is perfectly possible to accept the science of global warming but reject the policies most often put forward to combat it,” Horwitz concluded. “One can think humans are causing the planet to warm but logically and humanely conclude that we should do nothing about it.” Horwitz also notes that the pejorative “denier” can be used against those who commonly use the term against critics of climate alarm. “[T]hose who think they can go directly from science to policy are, as it turns out, engaged in denial – denial of the relevance of social science.” The Debate Today The questions and reasoning of Niskanen and Horwitz continue to define the climate debate. And at year 35, their caution against the rush to policy—now a climate road to serfdom—is only stronger. Regarding physical science, global lukewarming is winning out over high-warming estimates from “too hot” climate models. Time-series data of weather extremes is far less than alarming. And CO2 science has documented, under controlled experiments, the benefits of carbon dioxide enrichment for agriculture and a greener earth. Harvard economist’s Martin Weitzman’s case for climate activism (2009)7, based on “fat tail” catastrophic outcomes, has been thoroughly criticized by classical liberals—and demoted with climate models pruning back extreme scenarios.8 The mere passage of time has strengthened the case for free-market resiliency in place of governmental CO2 mitigation. Self-interested adaptation internalizes the alleged negative externalities, while greenhouse gas mitigation diminishes from the “saturation effect,” wherein increasing atmospheric concentrations reduces the forcing effect of CO2 (a logarithmic relationship). “the costs of government-forced transformation to dilute, intermittent, inferior energies have created energy poverty, economic decline, and power blackouts. New environmental issues have resulted from government forcing of wind and solar on the electricity grid and batteries for transportation.” Energy-policy-wise, the costs of government-forced transformation to dilute, intermittent, inferior energies have created energy poverty, economic decline, and power blackouts. New environmental issues have resulted from government forcing of wind and solar on the electricity grid and batteries for transportation. Consumer-preferred, taxpayer-neutral energies (oil, natural gas, and coal), meanwhile, have proven their worth under a human betterment standard. James Hansen in Retrospect Have the ensuing decades sullied the fear and aspirations of the father of climate alarm, James Hansen? The short answer is no, but crosscurrents in his thinking are evident. In 1998, Hansen cast doubt on his certainty of high-warming, settled science: The forcings that drive long-term climate change are not known with an accuracy sufficient to define future climate change. Anthropogenic greenhouse gases (GHGs), which are well measured, cause strong positive (warming) forcing. But other, poorly measured anthropogenic forcings, especially changes of atmospheric aerosols, clouds, and land-use patterns, cause a negative forcing that tends to offset greenhouse warming.9 Hansen’s critics would say this has been and still is the problem, introducing expert error. Turning to energy substitution and public policy (social science, per Horwitz), Hansen has stated: “Suggesting that renewables will let us phase rapidly off fossil fuels in the United States, China, India, or the world as a whole is almost the equivalent of believing in the Easter Bunny and Tooth Fairy.” In short, classical liberals can find support for their case from the leading climate activist. Conclusion For more on these topics, see Rent Seeking, by David R. Henderson. Concise Encyclopedia of Economics. Judith Curry on Climate Change. EconTalk. Bjorn Lomborg on the Costs and Benefits of Attacking Climate Change. EconTalk. Robert Pindyck on Averting and Adapting to Climate Change. EconTalk. The debate continues with classical-liberal insights in full bloom. There is the “knowledge problem” and “fatal conceit” of climate planners toward defining the problem and how to regulate, domestically and internationally. There is the reality of government (political) failure in the quest to address market failure—and government intervention expanding from its own shortcomings. There are also the predictable problems of corporate rent-seeking and imaging in place of consumer sovereignty and fiduciary duty. Can capitalism survive? Footnotes [1] “Global Warming Has Begun, Expert Tells Senate.” Philip Shabecoff, Special To the New York Times, June 24, 1988. [2] William Niskanen, “Too Much, Too Soon: Is a Global Warming Treaty a Rush to Judgment?” Jobs & Capital, Fall 1997, pp. 14–19. [3] William Niskanen, “Too Much, Too Soon: Is a Global Warming Treaty a Rush to Judgment?” Reflections of a Political Economist (Washington, D.C: Cato Institute, 2008), p. 29. [4] Jerry Taylor, “Clouds over Kyoto: The Debate over Global Warming,” Regulation (Winter 1998). [5] William Niskanen, “Too Much, Too Soon,” p. 29. [6] Steven Horwitz, “Global Warming Is About Social Science Too.” The Foundation for Economic Education, February 23, 2012. [7] Martin Weitzman, “On Modeling and Interpreting the Economics of Catastrophic Climate Change.” Review of Economics and Statistics, 91[1], 2009. [8] Robert P. Murphy, “The Tables Have Turned on ‘Uncertainty’ and Climate Change Policy.” Insitute for Energy Research, October 16, 2019. [9] James Hansen, Makiko Sato, Andrew Lacis, and Elaine Mathews, “Climate forcings in the Industrial Era.” PNAS, October 27, 1998. * Robert L. Bradley Jr. is CEO of the Institute for Energy Research (IER). (0 COMMENTS)

The role of rationally articulated ideas may be quite modest in its effect on a given election, a legislative vote, or an action of a head of state. Yet the atmosphere in which such decisions take place may be dominated by a particular vision—or by a particular conflict of visions. Where intellectuals have played a role in history, it has not been so much by whispering words of advice into the ears of political overlords as by contributing to the vast and powerful currents of conceptions and misconceptions that sweep human action along. The effects of visions do not depend upon their being articulated, or even on decision-makers’ being aware of them. “Practical” decision-makers often disdain theories and visions, being too busy to examine the ultimate basis on which they are acting. However, the object here will be precisely to examine the underlying social visions whose conflicts have shaped our times and may well shape times to come. ——Thomas Sowell, A Conflict of Visions: Ideological Origins of Political Struggles (p. 8).1 Thomas Sowell’s A Conflict of Visions, published in 1986, introduced the ideas of “the constrained vision” and “the unconstrained vision” as a way to characterize political disagreement. Decades later, conservatives still use the term “constrained vision” to describe themselves and the term “unconstrained vision” to characterize their opponents. While I think that Sowell’s analysis has great value, I believe that the terms themselves do an imperfect job of conveying his framework. I should note that Sowell’s notion of how philosophy affects politics reminds me of a popular quote from John Maynard Keynes: Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.2 If political beliefs were systems of thought, like those found in mathematics or physics, then what Sowell calls a vision would be a set of fundamental postulates. With one set of postulates, you get Euclidian geometry. With another set of postulates, you get Reimann geometry. Similarly, with the constrained vision your political views tend toward the right, and with the unconstrained vision your views tend toward the left. As Sowell puts it, These different premises—often implicit—are what provide the consistency behind the repeated opposition of individuals and groups on numerous, unrelated issues. They have different visions of how the world works… Visions are the foundations on which theories are built. p. 3-4 It would seem that a vision is a predisposition to see the human condition in a particular way. It cannot be proven or disproven. It is more like a hunch or a “gut feeling” than it is like an exercise in logic or factual verification. p.6 The term unconstrained vision suggests a world in which all problems can be solved. By contrast, One of the hallmarks of the constrained vision is that it deals in trade-offs rather than solutions. p. 14 I think that many people who have read Sowell or who are aware of his terminology see this as the essential difference between the constrained vision and the unconstrained vision. That is, the unconstrained vision posits a world in which conflicts can be made to disappear or can be resolved with perfect justice. The constrained vision posits a world in which some human conflict is inevitable, and the best that one can hope for is a resolution that is peaceful and not too grossly unfair. “If you think that embedded cultural knowledge usually contains more wisdom than elite knowledge, then you will tend toward the constrained vision. If you instead see existing norms and institutions as a problem and the ideas of a cognitive and moral elite as the solution, then you will tend toward the unconstrained vision.” But I think there is a different way to frame the contrast embedded in Sowell’s analysis. It is a contrast in how people compare the norms and habits embedded in culture and institutions with the knowledge possessed by the most enlightened members of society. If you think that embedded cultural knowledge usually contains more wisdom than elite knowledge, then you will tend toward the constrained vision. If you instead see existing norms and institutions as a problem and the ideas of a cognitive and moral elite as the solution, then you will tend toward the unconstrained vision. In a subsequent book, Sowell will call the latter The Vision of the Anointed. A number of passages in A Conflict of Visions fit with this interpretation focused on cultural knowledge vs. elite knowledge. In the constrained vision, any individual’s own knowledge alone is grossly inadequate for social decision-making, and often even for his own personal decisions. A complex society and its progress are therefore possible only because of numerous social arrangements which transmit and coordinate knowledge from a tremendous range of contemporaries, as well as from the even more vast numbers of those from generations past. Knowledge as conceived in the constrained vision is predominantly experience—transmitted socially in largely inarticulate forms, from prices which indicate costs, scarcities, and preferences, to traditions which evolve from the day-to-day experiences of millions in each generation, winnowing out in Darwinian competition what works from what does not work. p. 36-37 The unconstrained vision had no such limited view of human knowledge or of its application through reason. It was the eighteenth-century exemplars of the unconstrained vision who created “the age of reason,” as expressed in the title of Thomas Paine’s famous book of that era. Reason was as paramount in their vision as experience was in the constrained vision. According to [William] Godwin, experience was greatly overrated—”unreasonably magnified,” in his words—compared to reason or to “the general power of a cultivated mind.” Therefore the wisdom of the ages was seen by Godwin as largely the illusions of the ignorant. p. 40 Implicit in the unconstrained vision is a profound inequality between the conclusions of “persons of narrow views” and those with “cultivated” minds. p. 41 The power of specifically articulated rationality is central to the unconstrained vision. The power of unarticulated social processes to mobilize and coordinate knowledge is central to the constrained vision. p. 47 What distinguishes those with the constrained vision is that the inherent constraints of human beings are seen as sufficiently severe to preclude the kind of dependence on individual articulated rationality that is at the heart of the unconstrained vision. The knowledge, the morality, and the fortitude required for successful implementation of the unconstrained vision are simply not there, according to the constrained vision—and are not going to be developed, either by the masses or by the elite. p. 106-107 [In the unconstrained vision, there is a large] the gap between the existing masses of people and those who have advanced further toward the intellectual and moral potentialities of man…. To those with the constrained vision, there is a correspondingly smaller difference between the intellectual and moral elite, on the one hand, and the ordinary person on the other. p. 153-154 For more on these topics, see Thomas Sowell on Economic Facts and Fallacies. EconTalk. “Encountering Thomas Sowell,” by Thomas Chatterton Williams. Law and Liberty, Mar. 15, 2021. Arnold Kling on the Three Languages of Politics. EconTalk. “Political Romance in the Internet Age,” by Arnold Kling. Library of Economics and Liberty, August 5, 2013. This conflict of visions can be seen in the contemporary culture war. The term “woke” originally was used by those on the left to describe someone who has the enlightenment to recognize and seek to overcome the racism in existing institutions. It has become an epithet used by those on the right to describe someone who is willing to replace important institutions with unworkable alternatives (“defund the police”). One side of the culture war sees elite knowledge as superior to cultural knowledge. The other side insists that the reverse is true. Therein lies the enduring relevance of Sowell’s conflict of visions. Footnotes [1] Thomas Sowell, A Conflict of Visions: Ideological Origins of Political Struggles. First published 1986. [2] John Maynard Keynes, The General Theory of Employment, Interest, and Money, ch. 24, p. 383 (1935). *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Last week, I learned from a group in Pacific Grove called PG Lives that the Pacific Grove School Board was meeting on August 3. Why did that matter? One of the agenda items was a small payment to the Monterey County of Office of Education for a training for teachers on “Implementing Equitable Grading in the Classroom staff training.” It’s item N in the linked agenda, on page 62. So I started reading on-line articles on equitable grading, saw enough that I was concerned about, and decided to show up to give a 3-minute comment. The link to the YouTube video of the meeting is here. There were 5 board members. Four of them showed up in person and one of them, Laura Ottmar, probed Sean Roach, middle school principal, about what equitable grading entails. I thought she did a great job, asking a number of questions that I would have asked. Her probing and his responses go from about 32:25 to about 53:40. Notice how Ottmar sticks to her guns at the 51:30 point, noting that the proposal is about implementation, not just about examining the policy. Her point was that if the plan were to be implemented, it would violate one of the Board’s policies. Then at 54:00, the chair opened it to the public, which included a lot of teachers. All 5 members of the public who were not employees of the Pacific Grove schools and who commented, including me, criticized the proposal. Some of the critics stated their concern that this involved race. They might be right and might have read more about it than I had. In my reading, I didn’t see this and so I spoke about what I knew. I had some uncertainty at the end of my 3-minute comment about what the book at issue, Grading for Equity by Joe Feldman, said about ethics and so I hedged appropriately. My comment goes from about 1:03:40 to about 1:06:40. If you look at nothing else, go to the 1:09:22 point and check the short comment of Lito Garcia, the principal of Pacific Grove High School. As he came to the microphone, I got a close look at his face and he seemed angry. Listen to what he says and his tone at about the 1:10:10 point. Does it sound as if he was trying to intimidate the school board? Later, board member Brian Swanson, at 1:23:04, commends the staff and teachers for their input. Notice whom he leaves out. This is public choice in action. There were approximately 15 staff members and teachers present and about 5 members of the public. The staff members and teachers are the concentrated interest group. We, the Pacific Grove citizens who pay the taxes, and some of whom have kids in school, are not. It seemed, from Lito Garcia’s tone and from Brian Swanson’s comment, that we, the great unwashed, were party crashers who were not welcome. My one disappointment with Laura Ottmar is at the 1:25:35 point where she says that she doesn’t want to “hinder what’s happening here” because she can “hear the passion.” So she will vote yes. At least she sticks to her guns about full implementation (at the 1:27:40 point.) In a note to her, I congratulated her on asking tough questions. I also noted that when all that’s required for a measure to pass is a majority, a 4-1 vote doesn’t hinder anything. On the other hand, a 5-0 vote will tell members of the public who are paying only a little attention that everything is fine. The whole segment on the proposal ends at 1:31:18. (0 COMMENTS)

The future of AI keeps Zvi Mowshowitz up at night. He also wonders why so many smart people seem to think that AI is more likely to save humanity than destroy it. Listen as Mowshowitz talks with EconTalk’s Russ Roberts about the current state of AI, the pace of AI’s development, and where–unless we take serious […] The post Zvi Mowshowitz on AI and the Dial of Progress appeared first on Econlib.