Wednesday 15 March 2017

When Jack Thinks He Knows Jill Better Than Jill



In 1998, inspired by watching a baseball game, the economist Don Boudreaux wrote a short essay entitled Much More Than Meets the Eye. It's a neat essay and well worth sharing (I've reprinted the whole thing below) for the way Boudreaux uses a sporting analogy to illustrate the widespread presumption of over-simplicity in the economy.

That is, just as the skill and dexterity combined with lots of practice goes into the prowess of playing baseball, similarly society and the economy appear to be a lot simpler and easier to organise than they really are. Because of this, third party politicians operate under the delusion that they know people's wants and needs better than the individuals themselves, and can govern their lives better than they can.

I have to admit, ever since being a young lad and first getting into those academic subjects like economics that would titillate and enhance the mind ever since, our sluggishness in evolving beyond this state of stultifying dependency has struck me as strange. While I understand the human need to help others, I remain perturbed by how, in a Jack and Jill scenario, we let so many Jacks dictate to us Jills what our preferences are and how much we should value things.

It remains utterly peculiar to me how almost everyone loves the idea that Jack knows enough to forcibly prohibit Jill from selling her labour for lower than the rate that Jack (with only a tiny fraction of all the facts) establishes is best for Jill. It remains utterly peculiar to me how almost everyone loves the idea that Jack knows Jill's perceived trade off in the pleasure of eating chocolate versus the prospect of being a few grams heavier as a result.

The same applies to Jill's wine, beer, cigarettes, number of hours she can work, whether she is allowed to charge the market rate for renting out her apartment in London, and the extent to which supply, demand and consumer choice ought to be factored in to getting a train, obtaining a university degree, and so forth (there are still many people who support nationalisation of railways and the scrapping of tuition fees).

I do sense that market-friendly thinking is on the rise, and with the mass-sharing of ideas thanks to the global online connectivity, and with hopefully enough people wanting to reap the benefits of critical thinking, it would be nice to see this trend continuing. For now though, there's still quite a way to go. 

Here's the short essay…

Much More Than Meets the Eye
Last October I watched a few telecasts of the Major League baseball playoffs. I noticed the Atlanta Braves’s all-star pitcher Greg Maddux and asked myself: “What makes this guy so special?”

I studied his pitching motion. “It looks like something I could do with a bit of practice. Why am I not making millions of dollars pitching in the Major Leagues?”

Of course, I know that I could never hurl a ball with Maddux’s combination of speed and accuracy—even if I could mimic very accurately the outward manifestations of his expert pitching style. Every single pitch delivered by Maddux is the result of countless precise muscle movements, only a tiny fraction of which are visible. In short, it is impossible really to observe how Greg Maddux pitches. All we can observe are a few rough external movements—how high he raises his leg, how far back he cocks his throwing arm, and so on. If skilled pitching indeed involved mastery of nothing more than the external movements every fan sees, then the world would be so awash with skilled pitchers that Greg Maddux would have to work two jobs to earn enough money to feed his family.

Maddux’s unusual expertise is invisible. This expertise is his rare knowledge of how to coordinate the tens of thousands of sequential minute muscle movements necessary to get the ball over the plate at lightning speed. Not only can no observer ever see the complex coordination of indescribably exact muscle movements in Maddux’s feet, legs, back, shoulders, arms, hands, and fingers, but Maddux himself could never hope to articulate to even the most perceptive listener just what he does.

In fact, we can never really see, or learn by words, how any pitcher pitches. We see only the surface phenomena—the tip of the iceberg. To watch a big-league pitcher pitch is to risk being misled into thinking that we see how to pitch. The actual pitching process is vastly more complicated than anything that can be observed, measured, recorded, communicated, or mimicked.

In this way, the market is like adroit pitching: everyone observes the surface phenomena but no one ever sees the underlying mechanism—invisible in its entirety—that gets the job done. Not even the most astute economist, entrepreneur, or financial analyst ever sees more than a sliver of the vast and intricate invisible workings of the market process that daily transforms raw materials and human creativity into billions of consumer goods and services.

Leonard Read explained what he called the “white magic” of the market process in his justly praised article “I, Pencil.” No one knows how to make an ordinary pencil; no one can ever know how to make a pencil. And yet pencils are produced in such huge quantities that they are virtually free for the taking. We have pencils not because some one person planned from the beginning the cutting of cedar trees, the mining of graphite, alumina, and bauxite, the extraction of petroleum and clay, or the organization of transportation to get supplies to pencil factories and pencils to retailers. When you contemplate the enormousness of all the tasks that are required to make a single pencil, you understand that no one can know how to do more than a tiny fraction of these tasks.

We have pencils (along with indoor plumbing, electric lighting, microprocessors, disposable diapers, camcorders, concert halls, . . . ) only because for each of the countless tasks required for the production and distribution of each good there are a few people who specialize in knowing how to perform these tasks. But no one knows—or can know—how to perform all of the tasks required to produce even the most commonplace of goods. The free market works as well as it does because, when property rights are respected and fully transferrable, the resulting prices tell each of the producers at the innumerable different production “sites” just what (and how much) to produce and with what particular combination of resources.

For example, if the supply of crude oil falls, the resulting higher price will prompt manufacturers of paint to produce less petroleum-based paints and more linseed-oil or water-based paint. The resulting higher price of petroleum-based paints will prompt pencil manufacturers to paint fewer of their pencils with petroleum-based paints and more of their pencils with paints made of substances other than petroleum. As F. A. Hayek taught, the pencil manufacturer need never know why the price of petroleum-based paint rose; all that is required for this manufacturer to act appropriately is for him to conserve on his use of petroleum-based paint. The higher price of such paint achieves this goal.

Every hour of every day millions upon millions of specialists around the world adjust their plans based upon prevailing prices in light of their own unique knowledge of their specialties. Each of these adjustments, in turn, spawns further price changes that cause yet others to adjust their plans. This great web of mutual and continual adjustments allows the free market to deliver the goods (both literally and figuratively).

But this web, though we know it exists, is invisible. We see only its surface phenomena—goods on supermarket shelves, physicians’ offices filled with magnificent diagnostic equipment, beer trucks making their daily rounds. No one ever sees the immense expanse of human cooperation across space and time—or the vision and gumption of entrepreneurs, or the highly specialized skills of workers—all of which are necessary if we are to enjoy even the most mundane of modern goods and services.

People who would plan an economy, or even regulate an industry, commit the cardinal sin against sound economics: believing that they can consciously improve that which they cannot hope to know. Just as it is utterly ridiculous for me to imagine that I can learn to pitch merely by studying videotapes of Greg Maddux, it is equally ridiculous for politicians or bureaucrats to imagine that they can improve upon the free market with knowledge only of the tiny part they are able to observe. Such conceit is toxic for a free society.

Donald J. Boudreaux
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