Scientific reasoning as opposed to authoritarian faith has driven our enormous progress for the last few hundred years, but this reason has limits and its usefulness in the social realm has translated poorly. In economics our philosophical understanding of human behavior and risk has been replaced with a delusional mathematical certainty. We develop precise formulas to construct models based on assumptions that defy the very precision that give the formulas any validity. Worse, these models require numerous assumptions that must all be true and accurate for the formula to work. The odds are against it.
The best that these social models can offer are best-case and worst-case scenarios with the chances of either being nothing more than an educated guess. In this case educated is not correlated with accuracy. We have many cognitive biases and one of them is to emphasize the negative; partially as an evolutionary survival tool and more currently as a useful political tool. Professionals have more to fear from underestimating threats than overestimating them. Italy sued seismologists for failing to predict an earthquake in 2009.
We create a moral hazard when we continuously make worst case predictions that do not come true; we learn to ignore warnings when they have the most value.
The application of scientific reasoning in the arenas of human behavior leads to outcomes varying from the disappointing to the disastrous. Unlike the outcomes of hard science, experiments in social science are hard to replicate. Trends are mistaken for principles because of our need to find order where there is none. The Phillips curve, the belief in a tradeoff between inflation and unemployment, guided economic policy for the much of the 20th century until the 1970s when we experienced higher inflation and unemployment simultaneously. A trend was mistaken for a principle.
The combination of individual rights with the nature of dispersed knowledge is the engine that drove the parabolic improvement in human betterment in the last few centuries described by Deirdre McCloskey (Bourgeois Dignity, Bourgeois Equality and Bourgeois Virtue). Capitalism is but one manifestation of that trend. When policy is based on elitism and centralized knowledge, individual rights quickly succumb to the general will, and the outcome is not pretty.
We have taken a detour on Hayek’s Road to Serfdom; we have managed to cede more power to the central government while retaining much of the individualism of the Constitution. This is a unique outcome in political evolution attributed to the genius of the Constitution itself combined with a unique American political culture that shrouds it. At its best progressivism expanded the promise of political equality into the economic sphere, assuring equal economic opportunity if not results; at its worst it was seduced by the false confidence of the historicists shared by its technocratic sisters in Europe.
If we wish a government to be armed with the tools to manage the unexpected whether a market crash, an existential war, or a pandemic, we must be able to trust them. This trust would be easier if they had a better track record before the emergency. They would have a better track record if they had not tried to nationalize every local problem or believed as Daniel Henninger at the Wall Street Journal noted “that any tear in the social fabric should be mended with permanent entitlements or subsidies.”
We only recognize our true power when we acknowledge its limits.