Markets need good information

I could be described as a "fan" of free markets, though that isn't really the proper term to describe it. You can't be a fan when it is the only working option, and though political leaders frequently pop up that make noises about creating a state control system that works, it usually has more to do with economic ignorance or the hope that state control of the means of production will give that leader tremendous personal power (which it does).

I could be described as a "fan" of free markets, though that isn't really the proper term to describe it. You can't be a fan when it is the only working option, and though political leaders frequently pop up that make noises about creating a state control system that works, it usually has more to do with economic ignorance or the hope that state control of the means of production will give that leader tremendous personal power (which it does). There's a reason that dictatorships and state-controlled economies tend to go hand in hand.

That doesn't mean that the state plays no role in market systems. If you have ever read Hernando de Soto (and agree with his ideas), you would see that states are essential in that they create the legal framework within which economic activity can take place. Property laws need to be created, contracts must be enforced, and a general rule of law must be established that makes economic activity possible.

Given the essential role played by governments in free markets, how does one determine the proper scope of government action? First, you need to consider what kinds of incentives exist, and where they lead. Profit incentives tend to drive property owners to find new ways to use their property as well as create efficiencies, as such things lead to higher profits (harnessing self-interest, in other words, to generate things that can benefit society as a whole). Public officials, in contrast, have incentives to do things which benefit citizens as a group directly, which sounds great, but efficiency often takes a back seat (think: unnecessarily expensive toilet seat covers from factories in a politician's political district, or more recently, battles at Airbus over which European country gets which jobs as well as the nationalities of the executives that will lead the aircraft consortium).  Even even when government aims for efficiency, they often fail for lack of information.

Information is the most important discriminator when considering the proper scope of government action, as information - or the lack of it - is a key reason governments have a hard time of doing as good a job as private citizens at running companies or generating ideas that drive an economy. Every person is a specialist in the details of their own lives. That might seem like a silly distinction, but the fact that I get to "specialize" in my own life means that I invest lots of time in understanding my own needs and capabilities, and am thus best positioned to use the resources (mental, financial) at my disposal most effectively. Information deficit is the reason centrally-planned economies don't work, and understanding that principle naturally leads to a healthy respect for a private business sector that is the repository of the required information.

That long-winded preamble is the reason I was so annoyed by news that NASA had tried to suppress the release of a report that indicated mid-air collisions and bird strikes in American airspace were twice as common as previously thought.

In response to a request for access by the Associated Press under the Freedom of Information Act, NASA tried to justify this by claiming that "release of the requested data, which are sensitive and safety-related, could materially affect the public confidence in, and the commercial welfare of, the air carriers and general aviation companies whose pilots participated in the survey."

Give me a break. Imagine if, say, the Food and Drug Administration discovered dangerous levels of E. Coli in America's food supply. Should they suppress that information out of fears that it might "undermine American confidence in the security of its food supply" and stop buying beef and other meat products?  Any bureaucrat who suggested as much would be quickly removed from any position of authority, and deservedly so.

Governments shouldn't pick winners in a market. That is a job for markets to decide, as interactions between buyers and sellers is a process best guided by information that governments necessarily lack.

Governments, however, aren't supposed to protect companies from its consumers. If information is important to the proper functioning of market systems, then it is absolutely essential that that information be fair and balanced. Consumers should have the right to factor negative information into their buying decisions EVEN IF it leads to consumers that avoid purchase of a given product (in this case, air travel), as that is a proper reflection of REALITY, and REALITY leads to an economy that does a better job of satisfying needs and wants.

There are a number of substantive reasons why the survey data is more frightening than some expected. The volume of aicrafts in the sky has ballooned over the past decades, and our flight control systems have not received the investment necessary to keep up with the volume. John Kao, in his recent book "Innovation Nation," spoke of a visit to an airport in the Washington, D.C. area to see the computers that managed the airport's flight control systems (he must be a geek, as who else would make such a visit). The system filled a room (and had the combined horsepower of a typical desktop computer) and used vacuum tubes that administrators had to purchase from former Warsaw Bloc nations because no one else in the United States made them anymore.

We haven't invested adequately in America's infrastructure, and unsuprisingly, that infrastructure is showing signs of strain. The failures of that infrastructure, however, does not justify attempts by groups tasked with protecting public safety to hide studies that might reflect badly on that infrastructure.

The need for good information is a reason closed regimes with an interest in economic growth have trouble keeping a clamp on foreign information flows. You can't keep your people ignorant of the outside world and expect them to be effective businesspeople (which is why I am confident change will come to China, provided they stay on a path of economic growth).

In countries which claim to be open, however, there is simply no excuse for governments to try to keep information away from the public. That is a failure to adhere to market principles, not a symptom of it, and possible sign of too close a relationship between government and business.

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