Quantum mechanics states – and if you are wondering what Quantum mechanics could possibly have to do with government intervention in the market, just remember the author of this article has found his path to this topic from classical music- the universe – at least at quantum level – is all about probability until the very moment we actually observe the state of a particle. For instance, a particle can be at any position in some space and we can only use probability to guess its position unless we observe it in a position at that particular moment. If it sounds complicated it is the same as saying the president of the united states has no clue whether you will buy the product you have been staring at for some moments in a store until the very moment you decide to pick it up from the shelve.
And this is the building block of the market. The economy is based on decisions we can’t be certain of until the moment someone decides to actually pay for that. And the reason for this uncertainty is that a huge number of factors, mostly unknown to us, are involved. It would not be uncertainty had we possessed all the necessary information. We don’t and this is sad but true.
Here is an example: There is a glass on the table. You push it with sufficient force in some direction and it moves in that direction. All factors involved in this example are known. Rules of physics that govern the experimentation environment are also known and so all known actors will respond in predictable ways in different situations. You might spot the difference between this example and our daily social and economic lives. If you could, don’t underestimate yourself because the majority of politicians can’t.
So what about predictions economists make one might ask, inflation for instance. Economists predict that if a government pours money into the market, prices will go up. Your earning might rise but so do prices of all other products and services. You might end up poorer with more money in your pocket. In the long term, no human factor is involved in this equation and therefore it is more predictable. But in the short term, the human factor comes into play with all sort of confusion and unpredictable behaviours and things get messy. Economic predictions work best when no human is involved or they act perfectly rational (which is even less probable). Also, people should only consider their pocket to judge whether something is profitable(no supernatural considerations like environmental concerns). And so yes economic predictions don’t turn out to be correct all the time.
Two more examples:
A) Nike shoes are far more expensive than similar products. An economist might predict that a new brand will enter the market and because the price is far cheaper, fewer people will buy Nike and so Nike will need to lower its prices. Now more people will buy shoes as they cost less, and due to increase in demand both firms might think they can increase the price and so on and eventually the market will reach some sort of equilibrium.
Nothing close to what actually happens in reality. Those who buy Nike don’t buy just a shoe. They feel good when they wear a Nike brand. They might think their friends and society will consider them to be a cool person with Nike shoes. And they are willing to pay high prices for that and more. ‘A profitable deal’ is a far more complicated term than what economists believe it to be.
B) A not well-known company tries to sell a product. They price it too low to make sure more people will buy that. People, on the other hand, might think that is a rubbish cheap product. The sale is terrible. The company decides to sell the exact same product with a new packaging. This time they double the price. People see the product in stores and think why not give it a try. Some scientists describe mankind as a rational animal. But we are irrational creatures by default. We should consciously check the “rational” option for every and any of our daily decisions.
Economy, as a knowledge, is not something to predict the future but rather, especially in the macro level, to study novel ways governments managed to disrupt the market and come up with models to prevent future mistakes.
But this is the point of this article: what makes the game of governments disrupting the market and economists coming up with a model to describe that, different from being trapped in the middle of a hedge maze with unlimited paths and dead ends; the game of try and error.
Hayek believed that “The division of labour has gone far beyond what could have been planned.” and also “The very complexity of modern conditions makes competition the only method by which a coordination of affairs can be adequately achieved.” The market is a hugely complex system consists of an unlimited number of unknown factors and we people keep acting in weird and unpredictable ways and so there is no such thing like known physical rules in the glass example. Mathematically any prediction for such a system is a pure chance. A government might introduce a plan to create say 50,000 jobs which might have unknown effects that alongside other things might cause a recession that destroys 100,000 jobs. And now this is the job of economists to find out what went wrong. But when they discover it, only one path in the hedge maze is ruled out. There is an unlimited number of other ways to disrupt the market and politicians are creative people.
The conclusion is that if governments act randomly in the market that is to toss a dice instead of coming up with brilliant plans they will outperform governments with plans in the long term. And I have ruled out the possibility of corruption. That is if Gandhi or Mother Teresa form a government, consists of Gandhi and Mother Teresa kind of people. They still will be better off just to toss a dice in the long term. That is science.