Let’s begin a short series on some of the bad arguments democratic theorists commonly make. Today’s bad argument: The local knowledge argument. Democratic theorists know that libertarians tend to be meh democracy but hooray Hayek. So, they hope to throw Hayek back at us–“Gotcha!”. But the democratic theorist misunderstand what Hayek is saying, and so the gotcha! doesn’t get us. Hayek’s smart idea: Hayek argues that good decisions require good information. Decision-makers need to know more than general facts or principles. They must know relevant information about the local conditions, trade-offs, opportunities, problems, abilities, utility functions, and risks throughout the economy and among all the various people involved. Every viable economy needs some way to transmit this
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Let’s begin a short series on some of the bad arguments democratic theorists commonly make.
Today’s bad argument: The local knowledge argument.
Democratic theorists know that libertarians tend to be meh democracy but hooray Hayek. So, they hope to throw Hayek back at us–“Gotcha!”. But the democratic theorist misunderstand what Hayek is saying, and so the gotcha! doesn’t get us.
Hayek’s smart idea: Hayek argues that good decisions require good information. Decision-makers need to know more than general facts or principles. They must know relevant information about the local conditions, trade-offs, opportunities, problems, abilities, utility functions, and risks throughout the economy and among all the various people involved. Every viable economy needs some way to transmit this relevant local knowledge to its decision-makers. The quality of decision-making depends upon the quality of access and use of both local and general information.
How democratic theorists misuse this to make a pro-democracy argument: While the council of economic advisors might know general facts about free trade, they don’t know important local information, such as the local price of bus tickets, the cost of daycare, or what’s happened in downtown Youngstown over the past sixth months. Voters do know this local stuff. They use their votes to express their policy preferences in light of their local knowledge. Therefore, democratic theorists say, arguments for epistocratic rule or for epistocratic checks (judicial review, central banks, expert bureaucracies not subject to direct election, etc.) on democratic decision-making don’t work. Experts don’t have access to the local information unless there is widespread, equal voting.
What’s wrong with this?
Let’s pause and look at Hayek more carefully. Hayek is not arguing for a kind of general skepticism about policy, nor is he arguing for knowledge egalitarianism. Hayek certainly thinks economists know a bunch of stuff that laypeople don’t know, and that expert judgment often trumps democratic judgment. A fortiori, one thing economists know (which laypeople often don’t) is that you cannot easily beat the market, and you cannot plan the economy. It’s true that Hayek is not defending the rule of experts, but he’s arguing that one thing experts know is that experts can’t generally run the economy for you.
Hayek is instead saying that decision-makers need 1) some sort of information signal that transmits the diffused local knowledge to them, 2) need an incentive to act upon that information, and 3) need a learning mechanism which punishes them or rewards them insofar as they fail or succeed in acting on 1 and 2. In a market economy, market prices are an emergent feature of the forces of supply and demand, and supply and demand in turn are emergent features of every particular individual’s local knowledge and desires. Markets discipline and incentivize individuals to act in fairly rational ways upon both A) the local knowledge they have and B) upon the information transmitted by price signals, in large part because in markets individual decisions have individual efficacy with internalized consequences. If you buy a bad burrito, you eat a bad burrito. If you spend $15 on a movie that ends up being worth $10 in consumption value, you lose the $5.
Does any of this defend democratic voting? Nope. Democratic decisions are commons, not markets. Individual inputs (votes) don’t matter, and so individuals are not disciplined to use their votes they way they use money. They are not punished for casting a bad vote or rewarded for casting a good vote. Casting a vote is not like buying yourself burrito. Individuals are liberated and incentivized to indulge their biases, to use politics for expressive purposes, and to make bad decisions. Voters have little incentive to use their local knowledge to help form their political values or their policy preferences–and, indeed, empirical work overwhelmingly shows both that most voters lack stable policy preferences and that what preferences they have are not a function of their local conditions. Further, while prices are fine-grained, individuated, local, and constantly shifting, elections throw this all together (“aggregate” would be too optimistic a word) into one big, fat, low-information, once-every-few-years signal. Voters’ behavior is rarely based on their local information, and the transmission mechanism is poor anyway.
In short, democratic theorists: you don’t use Hayek’s theory of information to defend democracy. You don’t use it to show democracy is preferable to epistocracy or other alternatives. Rather, you use the theory to explain why any viable political system must limit the scope of political decisions, instead leaving a great number of these decisions to the market or to civil society. Market decision-making is collective decision-making with successful transmission of local information. Democratic voting both eliminates the incentive to use local information and also eliminates the ability to transmit it.
Hayek wasn’t an anarchist, so he thought for various reasons some decisions had to be made politically. But while Hayek was a kind of democrat, that’s not because voting mimics or approximates the information-transmission process of the market. Not even close.