Saturday, 22 December 2012

Quote of the day

From Ronald Coase and Ning Wang's "How China Became Capitalist":
The tragedy of the Great Leap Forward illustrates that the differences between a command and a market economy reflect a deep difference in mentality and attitude. A market economy can only be tolerated when no one is confident enough to claim omniscience. A point stressed by Hayek, the far-reaching implications of which have yet to be fully recognized, is that the most critical advantage of a market lies less in its allocative efficiency, and more in its free flow of information. But the flow of information would not make much sense, indeed it would be wasteful, if the problem that it helps to solve is not recognized. A market economy assumes two deep epistemic commitments: acknowledgement of ignorance and tolerance of uncertainty. It was hard for a defiant Mao and a triumphant Chinese Communist Party to accept either, even in the aftermath of the disastrous Great Leap Forward. (p. 18)
I have to say I wish someone has pointed out the bit about claiming omniscience to Muldoon, the New Zealand economy would have been better for it. When Muldoon published his book "The New Zealand Economy: A Personal View" a copy was sent to the economics journal, New Zealand Economic Papers, for review. In the 'Books Received' section of the journal the following note appeared below the entry for the book,
'Not a book which is likely to appeal to economists for, in Sir Robert's view, they are all disqualified from offering advice because they are either academic (and therefore theoretical), foreigners (irrelevant), Treasury officials (inexperienced) or Reserve Bank employees (inclined to panic). Sir Robert doesn't need economic advice because he alone possesses the experience, common sense, social concern, understanding of the New Zealand way of life and knowledge of the people which enable him to make "the judicious use of the widest range of weapons that are available"!' (Emphasis added).

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