Two thought-provoking paragraphs from Matt Ridley:
From ancient Egypt to modern North Korea, always and everywhere, economic planning and control have caused stagnation; from ancient Phoenicia to modern Vietnam, economic liberation has caused prosperity. In the 1960s, Sir John Cowperthwaite, the financial secretary of Hong Kong, refused all instruction from his LSE-schooled masters in London to plan, regulate and manage the economy of his poor and refugee-overwhelmed island. Set merchants free to do what merchants can, was his philosophy. Today Hong Kong has higher per capita income than Britain.
In July 1948 Ludwig Erhard, director of West Germany’s economic council, abolished food rationing and ended all price controls on his own initiative. General Lucius Clay, military governor of the US zone, called him and said: “My advisers tell me what you have done is a terrible mistake. What do you say to that?” Erhard replied: “Herr General, pay no attention to them! My advisers tell me the same thing.” The German economic miracle was born that day; Britain kept rationing for six more years.
This is standard libertarianism. I like the stories but I don’t agree with the interpretation. I don’t think it is “economic planning and control” that causes stagnation in these examples. I believe it is expertise — more precisely, rent-seeking experts who know too little and extract too much rent. There are libertarian experts, too. They too are capable of doing immense damage (e.g., Alan Greenspan), contradicting Ridley’s view that “economic liberation” always causes prosperity. In both of Ridley’s examples, the experts give advice that empowers the experts. In the first example, Cowperthwaite is told by “LSE-schooled” economists to “plan, regulate and manage the economy.” All that planning, regulation and management require expertise, in particular expertise similar to that of the experts who advised it. Which you cannot buy — you have to rent it. You must pay the experts year after year after year to plan, regulate, and manage. Because the advice must empower the experts, there is a strong bias away from truth. That is the fundamental problem.
Freud is the classic rent-seeking expert. You are sick because of X, Y, and Z — and if you pay me for my time week after week, I will cure you, said Freud. Curiously no treatment that did not involve paying people like Freud would work. Curiously psychoanalytic patients never got better. Therapy lasted forever. You might think this is transparently ridiculous, but professors at esteemed universities such as Berkeley still take Freud seriously. Millions of people pay for psychotherapy. The latest psychotherapeutic fad is cognitive-behavioral therapy — which again requires paying experts to get better, week after week. Berkeley professors take that seriously, too.
Evidence-based medicine advocates are among the newest rent-seeking experts. Like Freud, they focus on process (you must follow a certain process) rather than results. (What they call process in other contexts is called ritual. Rituals always empower experts.) Rather than trying to learn from all the evidence — which might seem like a good idea, and a simple one — evidence-based medicine advocates preach that only a tiny fraction of the evidence (which you need a Cochrane expert to select and analyze) can actually tell us anything. Again, this might seem transparently ridiculous, but many people take it seriously. Evidence-based medicine has an amusing twist which is that its advocates tell the rest of us how stupid we are (for example, “correlation does not equal causation”).
The workhorses of the rent-seeking expert ecology — the ones that extract the most rent — are doctors. They are incapable of giving inexpensive advice. However they propose to help you, it always involves expensive treatment. This might seem like a recipe for crummy solutions, but again many people take a doctor’s advice seriously (by failing to do their own research). My introduction to the world of rent-seeking solutions was the dermatologist who told me I should take antibiotics for my acne. I was to take the antibiotics week after week — and because I was taking a dangerous drug, I should also see my doctor regularly. During these regular visits, the doctor never figured out that the antibiotic did nothing to cure my acne. I learned that by self-experimentation.
Like anthropologists who fail to notice their own weird beliefs (a recently-deceased Berkeley professor of anthropology took Freud seriously, for example), the profession that came up with the rent-seeking concept has failed to notice that many of them do exactly that.
One clue that you are dealing with a rent-seeking expert is that they literally ask for something like rent. Religious experts tell you to attend church week after week. Psychotherapists want you to attend therapy week after week. Psychiatrists tell you to take an anti-depressant daily for the rest of your life. My dermatologist told me to take an antibiotic daily (and to renew the prescription I needed to see him). And so on. As these examples suggest, rent-seeking experts thrive in areas of knowledge where our understanding is poor. Which includes economics.
More What I call “standard libertarianism” Tyler Cowen calls “crude libertarianism”. Maybe I should have called it “off-the-shelf libertarianism”. In addition to what Tyler says, which I agree with, I would say that governments and their “central planners” have sponsored innovation (e.g., the Internet, the greenback, basic scientific discoveries) much better than Ridley seems to give them credit for. Innovation is a huge part of economic development.