There Are Lots of Ways to Get Punched in the Face
What *should* it look like?
“The best laid plans of mice and men often go awry.” — Robert Burns
“No plan of operations reaches with any certainty beyond the first encounter with the enemy's main force.” — Helmuth von Moltke
“Everyone has a plan until they get punched in the mouth.” — “Iron” Mike Tyson
There is a deep, deep fallacy that we are naturally all subject to. It has been ingrained in us from evolution and is pervasive in every culture. It is the idea, a fundamental belief really, that we can and should make plans. And it is not wrong at all; it just doesn’t work.
Yet there is a paradox. Belief in the virtue of making plans and the continued practice of (attempting) to do so is essential for everything to actually work out.
On the personal level this amounts to making predictions about one’s future and having those predictions fall short. It is at this pivotal point that one either gives up with planning altogether conceding to the utter futility of it all or (preferably) adjusts, updates, and adapts to try yet again. For planning to work one must master this iterative process.
At the social, organizational, and societal level the description is the same. However, the complexity of multiple actors (multiple plans) means that this process can easily break down. Let’s explore planning in this realm.
Spontaneous Order versus Planning Commissions
It is never too early to invoke the brilliant concept of spontaneous order attributable to Hayek, et al. It is summarized well in Adam Ferguson’s description of society as the "result of human action, but not the execution of any human design.” Perhaps even more on point is Hayek’s famous line: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
In stark contrast we have planning commissions1 with their presumably noble intentions and presumptively high-minded expertise. It is quite important to realize that the primary purpose of a planning commission is to thwart the plans of others rather than to create or supplement plans themselves. These are committees of “No” if not “Hell, No! Go to jail. Do not collect $200.”
So in this sense design is attacked on two fronts. One is that we simply cannot design once and for all at the large group level. The other is that when we do attempt to design, we get shut down by a hierarchy that sees things differently. (Un)fortunately planning commissions are still here to help because they have a secondary purpose—to do for us what we would otherwise not do for ourselves.
This is where planning can really get us into trouble. Because no one is in a great position to challenge the designs of the planners. They conjure up futures guided by unconstrained visions and influenced by cronyistic insiders. When questioned, they dismiss out of hand those without sufficient standing (power) and fall back on “how dare you!” to those posing more serious opposition.
Sitting in the middle are organizations like for-profit and nonprofit firms and other associations of like-minded teams working towards common goals. The principal agent problem as well as the simple matter of keeping everyone focused in the same direction is also an impediment to successful planning in this realm. This was the insight of Alchian and Demsetz explaining the theoretical and practical case for the firm—a method to marry up otherwise disparate parties. The short-short version might be: planning is necessary; planning among disparate entities always fails; therefore, we need a superseding entity to organize and align their interests toward common goals. It is only through a good iterative process with proper incentives, visionary leadership, and healthy communication that the planning fallacy can be overcome.
While socialists of all kinds can fantasize about their own ways to overcome planning failure, they lack the critical elements necessary to actually do so. So the planning commission world is left grasping in the dark like a cargo cult trying to duplicate and emulate the private world’s successful strategies.
In a second-best world that has a high degree of planning commissions, the most productive societies strike a balance by letting the market speak through the commission, circumvent the commission's dictates, and devalue the commission’s role. The work of great thinkers from Alexis de Tocqueville to Elinor and Vincent Ostrom is highly instructive here. Yet this type of balance is few and fleeting. The planning urge is always strong.
Impeding the second-best world from being well functioning are the forces of regulatory capture. This cronyism is not always intentionally malicious. The well-meaning form extends from business leaders looking to improve the regulations governing them to homeowners who simply want to determine the small, local world around them. While it is quite natural to want to shape the world in one’s favor, that doesn’t make it right. Beyond this is the problem that it results in locked-in local maximums keeping us from reaching new and continued improvements.
Very fortunately humans (especially American humans) tend to be passively resistant if not directly obstinate. People will do their own thing no matter how much the original designers plead, harangue, and attempt to force them not to.
The Futility of Design
None of this is meant to imply that we should never design or plan. It is meant to imply that we should be very humble about doing so including a disposition of expecting constant, unpredictable change.
In the natural world evidence of design is everywhere in evolution except of course in the form of a designer. Setting aside the argument claiming that this is evidence for a designer, God, we should instead take the lesson that only an omnipotent, omniscient being could possibly be a designer. All other imitators are doomed to disaster. Not failure, disaster. Failure we can tolerate. Failure we can adapt to. Disaster is end game.
Arnold Kling likes to say, “Markets fail, use markets.” The extended version could be “Governments don’t (can’t/aren’t allowed to) fail; therefore, DON’T use government”. Government has to get it right, but remember there is no reason to expect them (or anyone else) to do so. The free market relies on adapting to what it gets wrong—rewarding and incentivizing what works (profit) and punishing what doesn’t work (losses).
But It Might Work For Us . . .
There is one way that design can work—when it is not necessary. Here is what I mean. Consider Brian Klaas’s distinction between contingency and convergence. His appearance on EconTalk is a great overview.
Contingency describes a situation where outcomes come about only by virtue of some highly specific cause or series of prior events. In legal parlance it would be termed “but for” as in, “But for the defendant’s negligence, the plaintiff would not have suffered damages.”
Imagine you own a restaurant. The condition where everything is going along as usual until a lightning bolt hits your restaurant causing it to burn to ashes is following a contingent pathway.
Alternatively, there are convergent pathways. In these situations outcomes will converge to basically the same endpoint almost regardless of the starting point or events along the way.
A football season progressing until champion is determined is a following a convergent pathway. An overwhelming favorite winning a particular football game is also following a convergent pathway but with a greater degree of contingency sprinkled in.
To belabor the point, beginning the game with a coin toss resulting in a heads or a tails is completely convergent. The prediction of a “heads” outcome is completely contingent.
As Matt Ridley among others has pointed out, surprisingly some things exhibit high degrees of convergence. Still he would be the first to show that before that convergence always lies the necessary framework (freedom) that is quite contingent.
The Law of Unpredictability
No one in the 1920s could have predicted what Las Vegas, NV would look like in the 1950s. Nor could anyone from either of those periods have fully predicted what it would look like in the 1990s.
Today Vegas seems a lot like it was in the 90s, but there are meaningful differences, some subtle and some explicit, that are well beyond simply scale. And an observer making predictions in 1994 about 2024’s version of Vegas would likely be correct in obvious, trivial ways and wrong in crucial ways beyond mere details.
The universe is governed by laws of physics and chemistry. As time unwinds, the only thing stopping what comes next from being pure chaos are these governing laws. While it probably doesn’t meet a technical definition of chaos, one way or another it appears to be so for all intent and purposes. Hence, we can posit an emerging law: the law of unpredictability. Given that we cannot predict but that we must try, we need to figure out how to make the best of a hopeless situation.
There Are No Solutions
Free markets and free minds are by far the best principles for society’s progress because of the law of unpredictability. Yet have no doubt I fully realize the free-market approach is far from perfect. By no means should you assume that I presume the free market solves planning. It won’t because planning necessarily fails regardless of how we try it. This is the way not because it avoids failure but because it works within the inevitability of failure. We cannot know precisely or accurately what comes next. So we need an approach that accepts this ignorance and routes around it.
Any restrictions on peaceably made free choices are necessarily favoring one party over another. Deciding who should be favored is something every society (every human interaction) must grapple with and be governed by.
The simplest approach, a framework of negative rights that protects life, liberty, and property from unjustified violations, is the best not only because it is the most just but also because it is the most efficient and effective. Planning requires information. Information is best conveyed through prices, which allows cost/benefit analysis, operating within a well-functioning free-market system. And importantly, prices are emergent. The only method of reliably extracting good prices is a free-market system.
The best way to resolve the paradox and not be thwarted by the law of unpredictability is to take an Occam’s Razor approach choosing the least restrictive path. Any use of force to prevent a peaceful choice by someone that would otherwise be their choice to make (e.g., what to eat, who to date, what color to paint their house, what rate to pay their employee, what amount of water to use on their lawn or in their washing machine, how much smoke to release into the air from their factory, etc.) is choosing an outcome that sacrifices a better world for a less-good world unless very special conditions are met. Those are:
not all costs and benefits are incorporated into the decision (negative and positive externalities),
they cannot be incorporated without force (transactions costs are binding meaning negotiation is impossible), and
the governing body using force can overcome the knowledge and action constraints without causing new problems that outweigh the initial problems it sought to cure in the first place.
The risk the cure is worse than the disease is a serious and often underappreciated concern. This cuts in two directions regardless of how we try to address it.
For supply (resource creation and innovation): restrictions on supply prevent resources from meeting demand while subsidies to supply force resources to go where no demand exists.
For demand (peoples’ wants and needs): restrictions on demand force people to go without or find alternatives that are expensive (black markets) or simply inferior substitutes while subsidies to demand encourage resources to flow toward things people otherwise don’t want and away from things they otherwise would want.
Because satisfying the conditions necessary for force to be justified is a high hurdle and the best we can do is make blunt guesses at when to use force, the use of force to interfere with free choices should be restricted by a high hurdle.
Your being disappointed by an outcome is not sufficient. If you are not a rightful party for the choices that bring about an outcome, your opinion about it is not relevant to the emergence or evaluation of the outcome. Your opinion about the color I paint my house is not relevant unless you have a property right in deciding the color of my house. You might possess this property right, but we should probably not assume you do unless you have explicitly purchased that right from me. Granting it to you over my objection could theoretically be legitimate, but again that is a high hurdle.
Easy enough, but not all cases are so simple. At some points we will find ourselves drawing lines that are arguably if not certainly arbitrary. The boundaries of property rights are perhaps clear from afar, but zooming in the devil emerges again and again. It is an endless decision between the lessor of evils.
So the free market is neither flawless nor easy. It is just better than all the alternatives. There are tradeoffs to be made no matter what system is being used. The best we can do is try within an environment that tolerates trying, failing, and trying again.
Alex Tabarrok makes a strong point about allowing and building being crucial steps in the never-ending quest for progress.
Innovation is a dynamic process. It’s not surprising that the first gene therapy for DMD offers only modest benefits; you don’t hit a home run the first time at bat. But if the therapy isn’t approved, the scientists don’t go back to the drawing board and keep going. If the therapy isn’t approved, it dies and you lose the money, experience and learning by doing that are needed to develop, refine and improve.
Approval is not the end of innovation but a stepping stone on the path of progress. Here’s an example I gave earlier of the same principle. When we banned supersonic aircraft, we lost the money, experience and learning by doing needed to develop quieter supersonic aircraft. A ban makes technological developments in the industry much slower and dependent upon exogeneous progress in other industries.
You must build to build better.
Advancement is made one failure at a time.
Please understand that when I say “planning commissions” this is a stand in term to meant to encompass everything from an overzealous HOA to the U.S. State Department.