I have been thinking about mistakes, and the role they play in our ability to move forward and better ourselves as individuals, as a society, and also culturally.
This is not a novel idea. Megan McArdle, for instance, wrote book a few years ago (The Upside of Down, a book that I recommend) about the benefits of setbacks in our personal lives and in business ventures. Tim Harford wrote about these, too, in his book (Adapt, which I also recommend) in which he talks about the importance of trial and error in tackling the most important and pressing issues of our time.
Then there is this post from a few weeks ago by Matt Ridley about the importance that failure plays in prosperity.
And now comes this piece in the Wall Street Journal by Nobel laureate economist Vernon Smith about his own mistakes and erroneous beliefs:
Now is also a time for learning from our erroneous beliefs. Being wrong is what teaches us all the things we didn’t even know we could know. In my career in experimental economics, my beliefs have been spectacularly wrong three times. Each led to new learning of enduring importance. First, I believed that supply-and-demand models for nondurable goods were abstract ideals that couldn’t predict prices and outcomes. They could and did. Second, I thought asset markets with complete transparent information on their fundamental value wouldn’t yield price bubbles. They could and they bubbled. Third, I predicted that anonymously matched pairs in two- and three-person trust games wouldn’t overcome their self-interest and reach cooperative outcomes. Astonishingly, many can and did. Adam Smith, who understood human mutual fellow-feeling, wouldn’t have been surprised.
All of these authors, not surprisingly, evoke the process of creative destruction described by Joseph Schumpeter. But creative destruction, of course, does require creating even if it means failing and making mistakes. What if we come out of this current crisis and the biggest lesson most people take away is that we need to turn more of the economy — including more of the creative process, and responsibility for innovating — over to government?
That would be a disaster. It would also be particularly infuriating, considering that many of the reasons we are so unprepared for a pandemic can be traced back to government. At many levels, government prioritized other fears over preparing for a pandemic. It has also put in place many processes that prevent, or at least slow, innovation. This latter policy stance is largely due to a stubborn attachment to the precautionary principle and an infuriating lack of humility on the part of those who govern us (which continues to this day).
The failure of government is most obvious at agencies such as the FDA and the CDC. They, too, continue to fumble with their response. Yet except in some limited circles, I don’t hear much of a conversation about significantly reforming these two agencies when this is all over.
FDA and CDC aren’t unique. On Twitter last week, the Competitive Enterprise Instiute’s Iain Murray mentioned an SEC accounting rule that discourages medical stockpiling. And on the global level, the World Health Organization completely failed in its response to this crisis. But if such government agencies fail now, what are they for?
A big problem with governments at all levels, and all around the world, unfortunately, is that they are terrible at learning from their mistakes. Whether because of special interests, spending other people’s money, or the inescapable knowledge problem about which F.A. Hayek warned, governments are bound to fail. But when they do, unlike private individuals such as Vernon Smith, governments take way too long to change direction and end failed projects. (For an example, ask yourself if the failure of the government to launch healthcare.gov has dissuaded politicians from proposing ambitious new projects, or if everything we have learned from the negative consequences of bailout companies has prevented politicians from wanted to bail out more companies.)
But maybe there is a glimmer of hope. In the midst of this pandemic, we have witnessed the removal of many idiotic regulations for the sole purpose of helping people survive (sometime quite literally) and companies to innovate. These are regulations that don’t make sense in normal times, except in the mind of politicians, but make even less sense today.
There is a lesson in all this for those who are willing to listen. And my colleague Scott Sumner believes that people will listen. He writes:
Over the past month, we have seen a torrent of governmental incompetence that is breathtaking in scale. There are regulations so bizarre that if put in a novel no one would believe them. In contrast, the private sector has reacted fairly well, and has been far ahead of the government in most areas. . . .
I’m not a doctrinaire libertarian who opposes all government policies. I support policies to combat global warming and provide income subsidies to low wage workers. I could undoubtedly be convinced to support a few policies here and there to address this crisis. But the evidence coming out of this epidemic certainly does not provide a strong argument for a large and intrusive government.
The whole thing is worth reading. I am not doing justice here. On the other hand, Don Boudreaux expresses some fears here.
I hope Sumner’s optimism proves correct. If so, then it will show that, in some circumstances, the government can do what the private sector does routinely for the benefit of us all — that is, it can fail but learn from its mistakes.