Arnold Kling  

What Went Wrong?

PRINT
Japan on the Knife Edge... Are Americans Really Getting L...

David Brooks writes,


In the first year of the Obama administration, the Democrats, either wittingly or unwittingly, decided to put the big government-versus-small government debate at the center of American life.

I would put this somewhat differently. The left decided that the debate was settled. They took the view that the financial crisis proved once and for all that markets do not work, and that wherever markets produce imperfect outcomes, government is the answer.

In the widely-unread Unchecked and Unbalanced, I argue that the narrative of the financial crisis needs to be more nuanced. There was government failure as well as Wall Street failure.

I think that one can make a case that recent decades have vindicated Hayek more than Keynes, Galbraith, or any other icon of the left. The World Wide Web is a vivid illustration of spontaneous order, in which central planning plays hardly any role. Apple controls the "apps" on the iPad through a centralized mechanism. The Internet remains wide open. If history is any guide, the centralized mechanism will lose in the end.

The problem with those who have decided to aim for a more statist society is not just that they have stirred up some reactionary sentiments among the peasant classes. They are attempting to centralize power at a time when the decentralization of knowledge is making centralized power inappropriate and ineffective.

I happen to be reading The Franco-Prussian War, by Geoffrey Wawro. Toward the end of the war, some Parisian radicals proclaimed a new republic, with many hoping to create a communist society. In many respects, they were out of touch with reality. They over-estimated their support in the countryside and their control over the military situation. Perhaps one can see parallels with the Obama Administration.



COMMENTS (20 to date)
Mike Rulle writes:

The timing of the crisis also played a role. I do not believe we ever had a financial crisis in such close proximity to a presidential election. This allowed for easy demagoguery. Further, the actions by Bush and Paulson made the leftist narrative that much easier to push. The crisis was made worse by their actions, particularly AIG and TARP. They set the table politically for dramatic and large Federal policies such as the stimulus and health care.

The only good that has come out of this is that it has forced the Republican Party to move more toward market ideology (due the magnetic force of the Tea Party Movement). Plus Obama has kicked it all up a notch. But turning this around, if even possible, is a decade long project.

Thomas DeMeo writes:

The World Wide Web is a NOT just a vivid illustration of spontaneous order. It was inadvertently born out of government R& D spending and its standards are controlled by a single organization, the World Wide Web Consortium (W3C).

It is an eclectic mix of where one central planning organization sets standards and governments, mega-corporations, startups and tinkerers all have made critical contributions.

Lord writes:

If anything, it is that Unchecked and Unbalanced applies equally to markets and there is a role for government to counter it, even if unlikely to fulfill that role. I see it as less a matter of policy than governance and while the search for the appropriate institutions and rules to prevent or reduce it are probably in vain, that does not mean unnecessary or unworthwhile. And far from some statist design, all there is is some tinkering to give the illusion something is being done. It is the charade of extremists on both ends that the country is being saved/destroyed to drum up support/opposition to the mundane.

topgun writes:

Thomas DeMeo makes a good point. Although, I share Arnold's libertarian tendencies and the agree with the general premise of Unchecked and Unbalanced, the Internet and Apple aren't suitable analogies to advance this argument. The 'centralized mechanism' of Apple that Arnold decries has worked wonderfully for them recently, both from a financial and innovation standpoint. Its turned Apple into a hugely profitable technology and design powerhouse.

BZ writes:

Hmm.. my understanding is that the intertoobs were turned over to allow private access at one point, at that the blossoming came afterwards.

Maybe you're right though. And perhaps it wasn't deregulation that caused the explosion of air travel in the U.S. Maybe it was the nationalization that preceded it, with a delayed effect.

dullgeek writes:

Thomas DeMeo:

Yes it's true that DARPA gave us TCP/IP. But that's a *FAR* cry from the world wide web. That's a function of 4 important developments:

1) HTTP which came from the IETF, which by that time was out of the hands of the US government

2) httpd which was initially developed by Tim Berners-Lee at CERN

3) Mosaic Web Browser which came out of NCSA.

4) The removal of the restrictions on on electronic commerce from the early Internet in 1993 by Rep Rick Boucher.

From these 4 separate, uncoordinated events, private enterprise gave us so many varied things that there is simply *NO* way that Vint Cerf and the other designers of TCP/IP could have possibly envisioned them: buying books, replacing your home telephone, killing local newspaper's classified ads, finding a date, deciding what movie to see & what restaurant to eat at, building an entirely free computer operating system, and countless other things that I'm glossing over.

To me, the internet looks a *LOT* more like the product of spontaneous order than the product of central planning.

$0.02

Dan Weber writes:

The Internet may be collapsing back into Facebook, which totally throws the concept of the distributed network winning out the window.

Matthew Gunn writes:

Quoting DeMeo, "The World Wide Web is a NOT just a vivid illustration of spontaneous order." No! I'm sorry, but this is an unbelievably massive misreading of history, markets, and the Internet.

The opposite of spontaneous is planned, and neither the government nor anyone else planned the current structure of the Internet.

Sure, the Internet has roots in Government sponsored research, but in NO WAY is the government responsible for the Internet's massive growth beyond its initial stages. Furthermore, it would be a tough row to hoe to describe the results of the Government research money as planned. Does anyone think that the people signing off on the grants had any clue of the result?

And beyond some laboratory seed money, the huge growth of the Internet is a result of markets! Not central planning and government bureaus! The huge economic gains from declining communication costs and network effects drove fantastic market entry.

Intel... Cisco... Sun... Netscape... Yahoo... AT&T... Linux... Oracle... etc... the innovations that made the Internet what it is today arose in free market context. And online, there is essentially zero regulation. Like a libertarian's dream, any software product is legal unless it maliciously harms other.

Did central planning tell the founders of Netscape to make a commercial browser? No.
Does the government or any central planning authority tell AT&T where to run fiber optic network cable? No.
Does any central planning agent tell Oracle what features to include in its database software? No.
Does any government agency decree what e-mail standards are? No.
Did any central organization direct how Linux development works? No.
The list goes on and on. Just about ZERO of the Internet's current structure was centrally planned. It arose spontaneously in a market context, with decentralized agents doing whatever to maximize profits or their individual preferences.
-------------------------------------
And looking at the W3C case, this isn't central planning! It's a mechanism to agree to voluntary standards to garner network effects within the context of a free market. It is COMPLETELY different.

If the W3C become truly tyrannical, Microsoft, Google, and free lance Firefox developers would tell the W3C to !@#$ off. The W3C has no actual authority on its own. Imagine the W3C proclaimed all web pages shall have a bunnies dancing in the background. It wouldn't happen.

And web standards and products are filled with features unilaterally added by one company or another. It is NOT a top down process governed by bureaucrats at the W3C.

Thomas DeMeo writes:

dullgeek- My point was that the internet was a mix of spontaneous contributions "along with" a significant measure of central planning and government support. It needed healthy doses of each to thrive. If one or the other had come to dominate, the internet would have likely failed to grow.

You cite a number of contributions, mostly from government funded research, which were top-down and formed universally accepted standards. Did the internet spring from some central plan? No. Did it bubble up spontaneously? No. It's a hybrid.

I will say this. The ability of top down forces to suppress the instinct to dominate the web, or to even leave a complex footprint has been critical to its success.

dullgeek writes:

Thomas DeMeo:

I think I may not have made my point very clearly. The things that I cite were small examples of government sponsored planning. However, each of those 4 things was not coordinated with the other. So it's hard to call their result a product of central planning. For example CERN is in Switzerland, while NCSA, the US Congress and IETF were in the US.

And what they'd produced by 1993 is not even close to the spontaneous production that has happened after Rep Boucher got a law passed enabling electronic commerce on the arpanet.

Today's internet simply does not even remotely resemble what was created via central planning. If you're suggesting that the mix of central planning and spontaneous order is somehow on equal footing, well I have to disagree. Today's internet is far, FAR, *FAR* more a product of spontaneous order than central planning by governments.

SydB writes:

The government and government/university sponsored research created a foundation upon which today's internet is built. All this talk about spontaneous blah blah blah is great if you're selling a book on complexity (last week it was fractal this or that), but fact is the government created the foundation and the military nurtured it for years.

In other words, the basic regulatory environment at the base had been cast fairly tightly. And all the gee wiz toys built on top of it--including windows and the likes--were largely produced by government planning. Of course they didn't know what they'd do with it, because the plans weren't that specific, but that's not the point. The basic set of tools had been created.

In summary, centralized authorities are quite good at creating a basic infrastructure as long as they don't try to regulate all the details or future uses.

Mr Kling then takes this basic idea and shoe horns it into his statist "studies" lesson for today. Plus some analogies that he finds in history. Got to love those history analogies. Not.

Kevin writes:

No doubt. Obama, like Bush, read his big win as the kind of unqualified mandate only available to people who are certainly correct.

Given the electorate's behavior in 2008, I can't say I blame him. We now know that the vote was less for something than against something, but ex ante if that election doesn't give you a mandate, what does?

Sean A writes:

"You have some people who philosophically believe that government has no business interfering in the market place. And in fact, there are several who suggested that FDR was wrong to intervene back in the new deal; they're fighting battles that I thought were resolved a pretty long time ago." -President Obama
He's right, you know. They settled it for us along time ago.

Justin P writes:

Re: Apple controls the "apps" on the iPad through a centralized mechanism. The Internet remains wide open.

I think the proper analogy is Apple vs Google. While both are central planners in their own right, the way they develop apps are strikingly different. Apple is very top down with it's app market, with apps taking months to make it through the approval process. The only reason Opera made it through was because of overwhelming Market support, where as any other app that "competed" with apple's apps, never made it past approval.
http://www.engadget.com/2010/03/23/opera-submits-opera-mini-for-iphone-to-apple-for-approval-video/

Meanwhile, Google, with it's open source Android, allows virtually anyone to make and app for anything, for any price. It's taking the spontaneous order/Hayekian route.
http://phandroid.com/2008/08/28/android-marketplace-vs-iphone-app-store/

Who will win? Well it looks like, while apple had the advantage of being first, Android is starting to kick their butts.
http://news.softpedia.com/news/Android-Marketplace-Gets-Over-9-000-New-Apps-in-March-139227.shtml

Chris Koresko writes:

@Arnold: "The World Wide Web is a vivid illustration of spontaneous order, in which central planning plays hardly any role. Apple controls the "apps" on the iPad through a centralized mechanism. The Internet remains wide open. If history is any guide, the centralized mechanism will lose in the end."

This description raises a yellow flag for me, if not a red one. I think the issue is that while Apple's products are "controlled ecologies," they are components of a larger and more open system, which we can loosely equate to the Internet plus the electronics and software industries.

The impact is that consumers can "vote with their feet", moving pretty freely between the iPad and a more conventional Windows or Linux netbook, for example. That means there are strong short-term competitive pressures that will keep Apple from falling too far behind their rivals. If they do fall behind, they can always open up the iPad ecology enough to let whatever innovations have occurred outside leak in. I like to think of it as being like a semi-permeable membrane like that of a biological cell. By filtering out some of the bad stuff and bringing in what they select, they are able to create a very smooth, pleasant user experience that many people will pay a premium for. That is their basic business model, as I understand it.

This is in contrast with, for example, a politically-controlled economy, which would tend to use coercion to avoid competitive pressure. It seems to me that decades ago it was common to see computer hardware and software companies attempt to build much more closed systems, but those systems mostly died out. I don't have data to back up that statement, though.

I don't think I'm expressing this well, which usually means I haven't got it all straight in my head. But I think there is something to it.

Thos. writes:

I think Mr. DeMeo is making the all-to-common mistake of misassociating governance with centralized planning. The standards-establishing role of WC3 (and, earlier, DARPA) is analogous to the order-establishing role of bricks-and-mortar governments when they provide for the common defense, punish fraud and enforce contract law.

There's nothing un-Hayekian about that role. Spontaneous ordering works better when it has an orderly playing field where the rules are known and property is secure. Establishing those conditions is precisely the proper role of government. Any fair reading of Hayek will acknowledge that he says as much. To insist that the concept of spontaneous order denies the legitimacy of government functioning in that role is to grievously misrepresent the concept.

R Richard Schweitzer writes:

Has it not come down to:

Ruling rather than representing?

And - to what end(s)?

MernaMoose writes:

I declare Thos. the winner.

But then, I'm just a big wad of fur on long spindly legs. With antlers so big I can hardly hold my head up enough to see straight.

Thomas DeMeo writes:

If you think it is important to argue that the internet wasn't centrally planned, go for it. I don't think it was centrally planned either.

I thought the original point of the thread was that decentralized power is better and more practical than centralized power, with the internet as a prime example.

In real life, what matters is where responsibility is taken at a granular level. Should the government have supported the large scale research initiatives which contributed many of the building blocks for the development of the internet? Who gets to decide standards? Who controls the registration of DNS? Does the government support large scale research initiatives? Who decides where fiber optic lines can go, and who can put it there? What bandwidth is available and how it is assigned? What new laws are required?

These things weren't the result of some central master plan, but none of these questions were answered by market forces, or an open battle of ideas, either. It seems that some heavy duty centralized power was exerted in some important ways, and it helped.

Seth writes:

Interesting thread.

It does seem like centralization has been Apple's problem from the beginning. It can create hit products that do well for quite some time, but eventually lose out to the decentralized products.

Apple's doing well now. It has great hits with its product set over the last ten years. It's hard to imagine what could erode that, but then again, I won't be the guy imagining it. But, I do find myself loading more and more pay stuff from sources other than iTunes.

Thos. - Excellent comment. I also liked Dan W.'s comment about the web collapsing into Facebook. I wonder what will blow it out again.

Comments for this entry have been closed
Return to top