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How, as government gets bigger, it gets dumber -- and why that's the real lesson of the financial crisis
Unchecked and Unbalanced
by Arnold Kling
What are the real lessons of the financial crisis that
emerged in 2008? One popular narrative claims that bankers
and financial markets engaged in rampant misbehavior,
demonstrating a need for closer regulatory supervision. But
the truth is quite different. In Unchecked and Unbalanced,
Arnold Kling demonstrates that the crisis was the outcome
of government policies which promoted and protected the
businesses that are tied to home-building, real estate
selling, and mortgage indebtedness. In particular, these
policies made the entire financial system increasingly
vulnerable to the discrepancy between fluid, dispersed
knowledge and inflexible, concentrated government power. As
a result, argues Kling, financial industry executives and
regulatory officials alike were unable to fathom the
complexity of the system that had emerged -- or to foresee
the consequences of what, from their perspective, were
sound, rational decisions. If the response to this failure
is to transfer even more decision-making responsibility to
elite technocrats in government the result will be to
further exacerbate the discrepancy between knowledge and
power that is at the root of the crisis.
(continued from above)
Even before the latest lurch toward government
expansion, Kling explains, the growing inequality of
political power should have been cause for concern. Through
both scale creep (in which population increases while the
size of the jurisdiction remains constant) and scope creep
(in which jurisdictions undertake more and more activities
each year) political power has become more concentrated.
Meanwhile, as information has become more diffuse in the
age of the Internet, the incongruity between inflexible
centralized government and fluid, decentralized knowledge
becomes greater.
Kling warns that increased concentration of power is a
problem, not a panacea, for our modern world and suggests
reforms that could promote the provision of public goods
using mechanisms that would alleviate the knowledge-power
discrepancy: substituting vouchers for direct government
provision of public services; allowing citizens to flexibly
create their own organizations to provide public goods; and
allowing citizens to directly allocate funds for public
goods, rather than delegate this power to representatives.
A remedy for bigger, dumber government
"If it seems to you as if politicians and government
officials are getting dumber, Arnold Kling has the
explanation: As their power grows, they know less of what
they need to know to exercise it wisely. Kling offers a
remedy that is likely to arouse interest in the electorate,
and apprehension in officialdom." -- Glenn Reynolds, Beauchamp
Brogan Distinguished Professor of Law at University of
Tennessee and author of the blog instapundit
"This is essential reading on the political dangers
facing us today and the risk of excess centralization.
Arnold Kling is one of my favorite commentators." -- Tyler
Cowen, professor of economics at George Mason University
and contributor to the blog The Marginal Revolution
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