How Concentrated Knowledge Fails
Thomas Sowell recently evaluated Janet Yellen's nomination to be the new FED Chairman in a negative light by offering a simple quote from Mrs. Yellen. "Do policy-makers have the knowledge and ability to improve macroeconomic outcomes rather than making matters worse?" To which she answered: "Yes."
While Sowell uses history to disprove Yellen's belief, what was missing from the discussion was an explanation of the economic principles of knowledge and why an individual, even those as powerful as the president or FED Chair, do not have the knowledge to command and control the economy without making matters worse.
Since knowledge is not a tangible resource like wheat, it is often ignored or misunderstood. Knowledge as a resource has the greatest scarcity and is also the most scattered throughout society; and yet it is the most important component for economizing. As such, knowledge must be preserved, harvested, and packaged from divergent sources.
If accurate utilization of knowledge is essential in making informed economic decisions, then economic decision making must be based on utilizing knowledge to its greatest extent to move resources efficiently and promote economic growth.
The key question then becomes: what knowledge is the most accurate? The answer: That which is found closest to its source. Or In simple terms, he who is most affected knows best; or as an old proverb teaches us, "a fool can put on his coat better than a wise man can put it on for him."
Vital individual knowledge is traded and shared through a market-based system where widely dispersed information that is highly specialized based on individual situations can be brought together effortlessly. Millions of individual decisions best guide the movement of resources to their most valuable use.
When describing knowledge, most people assume a definition that consists of book smarts and college degrees. But not all knowledge is associated with such specified accomplishments. Sure, an advanced degree does provide a high level of expertise in one narrow academic area, but having letters attached to the end of one's name does not by default make one wise to the complexities and nuances of the world, or the pressing needs of an individual. To amass the volume of specific and intimate details necessary to promote the best decisions for the most people, individual knowledge drives efficiency systemically.
The knowledge of the masses taken as a whole is a much more powerful tool than the knowledge of an elite few, even if the elite have specialized skills and insights. There may be concentrated knowledge in specific areas that can provide important information, but it should only act as part of the total wealth of knowledge and not as a stand-alone directing the economy.
There is no doubt we must embrace knowledge as being an academic undertaking and look to those most qualified for their expertise. At the same time we must understand that in guiding resources, the individual wisdom of the masses trumps the selective knowledge of the lettered.
The bottom line is that some may know a lot about a little, but free men will know a little about a lot more because there is a difference between intelligence in a single area of expertise and distributed wisdom over a broad spectrum of life.
The knowledge necessary to determine the dynamic needs in an economy is far too broad to assimilate by any one person or small group. Moreover, it is especially dangerous if power is given to those who believe they can command and create an ivory tower vision of perfection in a world of limits. In the end, a "utopia," created by thinkers like Yellen, without individual knowledge and freedom is just a fancy name for a prison.
Progressive ideologues in the Keynesian mold like who believe they have the knowledge and ability to guide the economy with impunity are either uninformed or highly dangerous to the Republic. After all, if knowledge is the scarcest resource, then ignorance would have to be the most common behavior. The delusional thoughts of self proclaimed demigods whose narcissistic policy decisions affect millions need to be exposed.