Not long ago the press and politicians alike were singing the praises of the eminently qualified, uniquely equipped Treasury Secretary. His genius and experience would navigate America's economy through financial turmoil and guide us to prosperity again.
Of course, that Treasury head was Henry Paulson. These days we may think of him as the squanderer of the first $350 billion in bailout funds, but Paulson was to be America's economic savior. On September 20, 2008 Newsweek declared:
In many ways, Paulson was the ideal person to deal with this mess. A 32-year veteran of Goldman, he helped take the venerable (and venerated) company public and served as CEO from 1998 to 2006, an era in which the firm prospered. Goldman enjoys legendary status in New York, the elite among the elite.
As the economy continued to stumble, Paulson began to look less heroic. Within weeks he garnered headlines like this one from Time:
Paulson Credit-Card Bailout Draws Growing Criticism
Undeterred by the economic failure of the Paulson-managed bailouts, the Obama Administration and a supportive media turned their hopes to Tim Geithner. By all accounts he was not just the best man, but the only man for the job. The day of Geithner's first senate hearing, Senator Harry Reid released the following:
Tim Geithner is exactly the man for the job. His testimony before the Finance Committee today showed why Mr. Geithner is qualified and capable of righting this ship, and the ongoing struggles in the markets and in homes around the country....
From his time as the President of the Federal Reserve Bank of New York, and in leadership roles at the Treasury Department, IMF and the Council on Foreign Relations, Mr. Geithner knows...how to navigate the complex financial world.
The announcement of Geithner's nomination alone sent the Dow up 500 points in one hour, closing on November 22 above 8000 points. But with the Dow sputtering below that mark several months later, the U.K Guardian asked:
The embattled Treasury secretary has found himself under fire for everything from his failure to pay taxes and his inaction on the banking industry to, most recently, the bonuses at AIG. Will his new toxic-asset plan finally get things back on track - or does Geithner need to go?
After seeing such failure it is tempting to dismiss Geither and Paulson as buffoons. But their resumes simply do not support such a conclusion. They are two of the most qualified people in the world to serve as U.S. Treasury Secretary.
The problem is that the new responsibilities of the Treasury Secretary require more knowledge than any individual can have, no matter how talented and experienced. The fact that Geithner and Paulson are the most qualified does not mean that they are well qualified. As Dr. Thomas Sowell puts it:
Knowledge is one of the scarcest of all resources in any economy.... Even when leaders have more knowledge and insight than the average member of the society, they are unlikely to have nearly as much knowledge and insight as exists scattered among millions of people subject to their governance.
The lack of knowledge necessary to direct an economy (or significant portions of the economy) is not a problem unique to the Treasury Secretary. President Obama, Congress, and political leaders all over the world are mistakenly convinced that they have enough knowledge to run economies or large industries.
Government's intrusion into the auto industry is a perfect example of the weakness of a centrally directed approach.
Politicians in Washington are convinced that "green" cars are the salvation of American auto companies. There is some circumstantial evidence they may be right. But do we really believe that these politicians know more than hundreds of thousands of car salesmen, working across 50 states of varying terrain, affluence and transportation needs? The very suggestion is absurd.
If central planning can be called absurd in the short run, in the long run it is devastating. Central planning is not dangerous because the stock market plunges every time Tim Geithner makes a public statement. That is the effect we can see. It is what we won't see that that should worry us.
What we never see is the progress we might have realized had government not dictated that losses lose their sting and profits lose their reward. Turning toward command economics opens a breach between what we could accomplish with more freedom and what we do accomplish with less freedom. That breach usually begins too small to notice, but becomes larger with time.
The widening gap between free market and command economies was never more apparent than at the fall of Soviet Union. In Russia, the standard of living was inarguably better in the late 1980's than at the time of the Bolshevik Revolution. The availability of home electricity, indoor plumbing, cars, air travel and other amenities was beyond the imagination of most Russians in the 1920s. But compared the U.S., Russian progress was so slow and so inhibited by their economic system that their society seemed to us, not just somewhat under privileged, but utterly backward.
So while the Treasury Secretary makes for an easy target, the truth is no one man or small group can have the knowledge necessary to successfully execute the economic tasks assumed by government. In other words, the problem is not the central planners, it is central planning. Therefore, the solution is not to change the planner but to change from planning to freedom.