In one interview where he was challenged over his advice to tidy your room before presuming to be able to tidy the entire planet, Jordan Peterson made one of those pungent observations that seems obvious to some and incomprehensible to others. “I know the difference between someone who can make a complex system better and someone who will make a complex system worse.” And when you look at the damage to the economy already done, with worse to follow, by arrogant politicians who think they are “fixing the climate” through policies that will have no effect on the latter but will wreck the former, you get the troubling impression that the people in charge don’t even realize economies are enormously complex, let alone that it is possible to make them worse.
In that interview Peterson added immediately and bluntly that “Most people will make a complex system worse.” Which is fair enough but less depressing than it sounds because most of the progress that humanity has experienced, especially material progress, derives from there having been a handful of places where people embraced institutions that made things better. Namely free markets. And eventually the contrast with all the systems that made things worse, namely every system besides free markets, led to the latter being adopted almost everywhere.
One of the most ingenious elements of the market system was that it simplified the process by which people make decisions that promote common welfare: just look at prices and respond accordingly. As Friedrich Hayek explained in his lamentably obscure The Road to Serfdom, and Leonard Read simplified enormously in his classic 1958 essay “I, Pencil”, market prices resolve a transcomputable chain of interrelationships to a very simple calculation of whether it will cost less to make a pencil, or an insurance policy, than people will pay for it.
If so, businesses will go ahead and provide the good or service in question, and in so doing their private profit motive lines up with the public interest in making goods and services available in the most efficient way possible. So managing your business is, well, manageable. You don’t need to know why it’s profitable, only that it is. You make decisions based on the profit or loss that will result rather than on how everything connects to everything else. And “managing the economy” becomes fairly easy because it doesn’t require managing at all. Governments just have to protect people’s rights including enforcing contracts in impartial, efficient courts.
For central planners, of the hard or soft variety, no comparable mechanism to prices exists. Which means as soon as you sweep them aside and try to manage the whole production chain through central control, in the name of efficiency, fairness or any other “higher” value, you need to comprehend all the complexities at once. And you can’t, not because you are dim but because they are overwhelming.
In Read’s example, to make a pencil requires not just wood and graphite and a “ferrule” and some paint, but also the chainsaws used to fell the trees for the wood, the coffee the loggers drink, the ship that carries the logs, the cement for the piers at which they dock, the asphalt for the roads… and we’re only on the first component. We didn’t even get to the graphite, never mind the paint or that vexed “ferrule”.
As Hayek warned, in the kind of prose that gives “Teutonic” a bad name, an unavoidable consequence of taking upon yourself this unmanageable task is that what started as comprehensive planning rapidly turns into crisis management. And it spirals downward because each desperate short-run expedient to fix an urgent problem invariably makes the underlying misallocation of resources worse, by further suppressing the information available about tradeoffs or, in slightly less opaque terminology, “opportunity costs”. To put it in prose of the sort Hayek lamentably did not write, it is like someone trying to stamp out a brushfire with the hem of their pants on fire. (If anyone knows the origin of this metaphor please let us know; otherwise we’re claiming to have invented it.)
Which brings us to climate policy, in which governments otherwise convinced of the virtues of free markets drift into central planning in the name of saving the planet, as if all that was needed to remedy the hitherto fatal flaws in socialism was a sufficiently hyperbolic cause. A classic illustration of this mechanism is that in September, the British government actually ordered soldiers to start driving fuel tankers to refill empty gas pumps after nearly a week of long lineups and desperate motorists. To the fatuous enthusiast for central control, it looks like decisive action that solved the problem. But it’s actually the act of a desperado, the last line of defence (literally as well as figuratively) that only succeeded in masking how bad the problem is. Should a crisis erupt elsewhere while the armed forces are securing the energy necessary for life, what further resources exist to deal with it?
If the UK government had not charged ahead with eliminating the affordable energy consumers wanted in favour of something it had simply imagined could do the job instead, through a massive system of centralized regulation and taxation, British energy would have been provided by a decentralized network of private operators running pumps, driving trucks, making sandwiches and so forth based on the sorts of immediate price signals Read talks about, and there would have been no shortages. (Yes, sandwiches, because as per Read, in private markets people buy their own lunch from voluntary providers, but when it’s soldiers, the government feeds them.)
Other pertinent examples include Canada’s health care system and the Soviet economy. Or the awkward fact that to keep the lights on at COP26, the British government had to fire up coal plants at a cost of £4,000/MWh, 100 times the normal pre-crisis wholesale price, because in a country littered with wind turbines the only wind that was blowing was inside the conference hall. They simply did not understand that an energy grid is complicated and that having the emperor wave his hand airily and say “Go green” might be not the end of the story but the beginning of the really scary sad part.
So when it comes to making complex systems better, or worse, the first point is to realize that making them better necessarily involves decentralizing decision-making, so that no one person needs to know more than any one person can know. Or rather the second point, because the first is to recognize that they are complex. It is the fool who rushes in thinking it’s all so simple who is most absolutely guaranteed to turn a difficult situation into a disaster. And it’s not better to claim to recognize the complexity only to shove it aside, as for instance in this line from the Guardian’s George Monbiot that we also quote elsewhere this week: “In some respects, preventing climate breakdown is highly complicated. But in another, it’s really simple: we need to leave fossil fuels in the ground. All the bluster and grandstanding, the extravagant promises and detailed mechanisms discussed in Glasgow this week amount to nothing if this simple and obvious thing doesn’t happen.”
What if it does? What further complex effects might we expect from “simply” ceasing to use energy we can afford and rely on? Why, it remains simple… in his word processor: “For just $161bn – a fraction of the money governments spend on supporting fossil fuels – they could buy out and shut down every coal plant on Earth. If they did so as part of a just transition, they would create more employment than they destroy. For example, research by Oil Change International suggests the UK could generate three jobs in clean energy for every one lost from oil and gas.” This game is easy… to those who cannot perceive complexity.
Another such person appears to be Canada’s Prime Minister Justin Trudeau, whose boilerplate-headline “Politician concludes successful visit to wherever” press release on COP26 started “Climate change is the greatest long-term threat of our time, but it is also the greatest opportunity for our economy and workers.” How would he know? Has he ever so much as met the payroll for a pizzeria? No. But he can run an entire economy by exhortation and arm-waving.
This consideration means that the first requirement for being part of the solution to a complex problem rather than part of the problem is in fact humility, a recognition that even if you do possess outstanding talents they are not sufficient to allow you to function as emperor of the universe. As the great libertarian economist Ludwig von Mises responded, when asked what he would do if made dictator, “I would resign.”
No, wait. Humility is the second requirement. The first, again, is the capacity to recognize complexity. And those who persist in thinking all you need is love, Thomas Sowell’s “unconstrained” visionaries, are more dangerous if they are clever than if they are not.
To return to our beds, even cleaning a room turns out to be more complicated than it looks. You start by picking something up, then realize you need a place to put it, then realize you need a place to put it temporarily while you clear the spot where it really belongs, then that you need a trash bag for what’s in the temporary spot and so on in a chain that is manageable, but only because someone else made the trash bag and put it where you can simply go and get it.
At this point the available trash bags are full of bits and pieces of the economy while CO2 emissions continue to rise defiantly. And governments have no idea where to put the pieces back together, and don’t even know it’s hard. Such situations do not end well.