AMA – Order Out of Freedom of Choice is a Scientific Mystery

“At the heart of economics is a scientific mystery: How is it that the pricing system accomplishes the world’s work without anyone being in charge? Like language, no one invented it. None of us could have invented it, and its operation depends in no way on anyone’s comprehension or understanding of it. … The pricing system–How is order produced from freedom of choice?–is a scientific mystery as deep, fundamental and inspiring as that of the expanding universe or the forces that bind matter.”

That’s Vernon Smith, who was awarded the 2002 Nobel Memorial Prize in Economic Sciences

The human condition is one of limited knowledge, limited foresight, uncertainty and ignorance about the future — everything that doom grand plans to failure. Certainly, humans can engineer machines with some degree of success. However, these machines are inanimate objects made of materials that have no will or volition. Social engineering fails because the material at hand are people who have no particular desire, nor the ability, to selflessly obey someone for some “greater good.”

Apart from the above mystery identified by Vernon Smith, there’s another mystery: why do some people endlessly attempt social engineering when every past attempt has resulted in wastage at best, and at worst, untold misery and death visited on hundreds of millions?

India’s planners have consistently created monstrous disasters. Yet every new set of leaders believe that they will succeed where others have spectacularly failed. It would be interesting if some journalist had the basic curiosity to ask Indian politicians this simple question: why?

And talking of questions, it is time for another “ask me anything.” What’s on your mind?

6 thoughts on “AMA – Order Out of Freedom of Choice is a Scientific Mystery

  1. Thanks Atanu for this AMA. I have a few questions:

    Should remuneration of judges come from taxes? If yes, how can judges be incentivised to work harder/better and give better judgments with less delay? Police functioning is the responsibility of government and government can be voted out. But with an independent judiciary, what is accountability of judges funded by taxpayer money?

    Should disaster relief be funded by taxes? Can you visualize people taking private insurance against natural disasters?

    How should upbringing of children procreated by irresponsible parents (those who procreate without thoughts of funding the kids upbringing) be funded? Should it be through taxes?

    What should be the incentive for an honest politician? Can you give a pointer to some country/system where politicians (whether or not they get elected to high office) are properly incentivised?

    Pointers to earlier posts/other links of your choice are most welcome. Thanks in advance for your effort.

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    1. The judicial system (like the police) should be funded from general tax revenues since, in some sense, some judicial services such as the criminal justice system are a public good. Civil justice, however, can be user-fees funded. The latter would incentivize the judges to be efficient.

      Disaster relief should not be tax funded. Those disasters that can be insured against should be handled through insurance. For those that are not insured, charity is the only relief available.

      Parents must be held responsible for the well-being of their children. For those unfortunate children with irresponsible parents, society has a moral obligation to take care of them. Note that it is society, not the government, that should address this matter.

      Politicians are drawn from the population. They reflect and represent the general make up of the population. A society of moral individuals will not tolerate immoral leaders. Fact is that you cannot have a nation of saints being led by a pack of criminals. Indians tolerate dishonesty, criminality, immorality in their leaders. Indians are collectively responsible for this. In economics terms, leadership is endogenous.

      See also a post on the case against government compensation of crime victims.

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      1. Atanu, thanks for the effort and time you took to answer.
        I have an observation regarding politician-incentive part of my question.
        I stay in a gated community of apartments. I got to watch resident-committee workings very closely. Being an Office-Holder-of-a-Resident-Association(OHRA) is a heavy and thankless job. Forget thanks, an OHRA often gets involved in spurious police cases due to disgruntled residents/contractors trying vengeance. Moreover, being OHRA does not come with any financial remuneration.

        I see three classes of people becoming OHRA
        1. People with high moral standards who believe it is their duty to pay back to society by being an OHRA. However, due to lack of any sustainable material incentive, functioning becomes difficult. The spurious police cases add to the woes.

        The dishonest embezzlers. They join to make money by direct embezzlement or trade influence with the contractors supplying the residence-complex.
        People who take immense pride in being an office holder. They are honest. They feel extremely happy with whatever social prestige that comes along being an association president/secretary/office-holder.

        There is a huge similarity between being an OHRA and being a government minister. It seems inevitable to me that set#2 will crowd out set#1 and set#3 over time. Hence I cannot visualize any country with an effective/honest governance system. However, I guess, there are countries who are doing better. Maybe Singapore, USA, UK. I refuse to believe that we Indians (as a collective) are better/worse than any other collective. What is the essential difference between us and the better-governed-countries? Plain dumb luck? I do not have an answer. You have said in past that everything boils down to the Indian constitution. But then the question is how did we manage to get such a constitution whereas the US did better? Plain dumb luck? Your ‘its all karma neh’ is a sign of your justified frustration. What is the reason behind our wretched-karma?

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    1. In the measured (by some metric) ease of doing business, India ranks 100 out of 175 nations. It’s a small mercy that India’s rank has improved but the larger question is why is India ranked at 100 instead of say 10. Someone is responsible for the idiotic policies that India suffers from. Wouldn’t it be proper for the government of India to figure out who or what is responsible for this sorry state? I guess it would be proper but it would be very embarrassing for the government to report that the entity responsible for India’s poverty (including the difficulty in doing business in India) is the government of India itself. Indians, of course, are collectively too ignorant to draw the straightforward conclusion that their greatest enemy is not some external entity (China, Pakistan, etc) but the government of India. If there is any justice in the world, the citizens would have lynched the politicians and the bureaucrats responsible for India’s poverty.

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      1. man that’s a very idealism loaded answer which i already knew, my question was regarding what exact policies do you modi got right in all this fucking mess of gst, noteban etc. Nothing he did seems to be the reason for this jump in ranking.

        And i wonder why in your idealism you chose 10 and not 1?

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