Hayek: Helping Us Clarify How A Society Works

We frequently hear phrases like “the government should do something about that.” Do any of us really know what that phrase truly means?
Moreover, do any of us really think the government is capable of doing something constructive about the numerous challenges across a society? (If so, why do most government programs fail to meet their original policy objectives and rarely, if ever, stay within original budget projections?)
These latter questions beg a larger, philosophical question about whether the government should act in the first place, in spite of what is a common expectation among many that we should turn first to government for solutions. The larger question arises because many people do not have a clear understanding of how a “society” really works. A number of earlier postings – which address the misguided incentives that result from many government actions – are found at the bottom of this posting. But, while these postings often identify many failure points, we need to understand better what really drives positive outcomes in the world around us.
I recently discovered a wonderful new blog site, Cafe Hayek, run by two economics professors from George Mason University.
One of the site’s contributors, Professor Don Boudreaux has published an article entitled Triumph of the Individual at Tech Central Station in which he discusses Nobel Laureate Hayek’s contribution to our understanding about how it is individuals – not government or markets – that make things happen in any society:

…Hayek spent most of his career watching the worship of power supplant the love of liberty. Nazism and Stalinism were the two most grotesque forms of this power-worship, but as Hayek warned in his most famous book, The Road to Serfdom (1944), even milder forms are surprisingly dangerous.
…the source of Hayek’s fundamental contributions to our understanding of society comes from the method of doing social theory that he learned from these scholars.
This method is one of rigorous adherence to the tenets of “methodological individualism” — a fancy name for recognizing that the only units in society who think and act are individual persons. Society doesn’t think or act; the market doesn’t think or act; the United States government doesn’t think or act. Only individuals think and act…
Whatever the topic — war, economic growth, government regulation — the only way to achieve genuine understanding of what’s going on is to trace all actions back to the individuals who take them. The fact that individuals often act in concert — say, as voters — still requires those of us seeking to understand the outcomes of elections to understand the incentives and the constraints that confront the individuals who make up these groups.
Failure to be a consistent methodological individualist leads to misunderstanding. Consider, for example, that politicians and pundits frequently go on about how “we as a nation” did this, or how “we as a nation” must not do that.
“We” who make up the American nation number 300 million people, each with our own preferences, beliefs, and expectations. It’s only an illusion that “we” act — or can act — as one. It’s no less an illusion that “we” act when government acts in our name…
The Hayekian also understands that the individuals who make up government are spending other people’s money for yet other people’s benefit. So these officials lack both the incentives and the knowledge to spend this money wisely.
…The Hayekian isn’t misled by romantic talk of “we as a nation” rebuilding New Orleans (or doing any other task) because the Hayekian never forgets that only individuals choose and act — and that the market is the only means of harnessing individual knowledge and effort for the greater good.

Boudreaux, in the comments section of his posting, offers this Leonard Read classic, I, Pencil.

Bankrupt pensions, extraordinary healthcare insurance benefits, outrageous demands by private and public sector unions, lousy decision-making by some management teams as well as misguided incentives and marketplace meddling by government have been discussed previously on Anchor Rising:
Public Sector Issues
Misguided Incentives Drive Public Sector Taxation
A Call to Action: Responding to Government Being Neither Well-Meaning Nor Focused on the Public Interest
The Coercive Role of Government
Walter Williams: Attacking Lobbyists is Wrong Battle
Goldwater: A government that is big enough to give you all you want is big enough to take it all away
Bankrupt Public Pensions: A Time Bomb That Will Explode
Why Truly Free Markets & Timely, Transparent Information Are Needed to Protect the Freedom of American Citizens
RI Public Pension Problems
The Cocoon in which Entitled State Employees Live
The Union’s Solution for the Future: Get More People in Unions
Bankrupt Public Pensions, Part II
How Public Pensions Make People Well-Off at Taxpayers’ Expense
Public and Private Unions
Now Here is a Good Idea
Be Watchful
Rhode Island Unions Again Resist True Pension Reform
Private Sector Issues
Government Meddling Creates Marketplace Distortions, Increasing Long-Term Costs
If You Won’t Deal With Economic Reality, Then It Will Deal With You
Underfunding Pensions, Public and Private, can Hurt Taxpayers
Why Truly Free Markets & Timely, Transparent Information Are Needed to Protect the Freedom of American Citizens
Outrageous Employee Compensation Liabilities Continue to Haunt General Motors; Will American Taxpayers End Up Paying the Bill?
Why the Big Three Auto Companies Could Easily Fail
Airline Industry: How Government Meddling in Marketplace Costs Taxpayers & Consumers

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