Thursday, April 4, 2013

If we can put a man on the moon, why can't we [fill in the blank]?

"Cosmos and Taxis" is one of my favorite Hayek pieces. It seems like I've had to read this for a half dozen different Liberty Fund colloquia in fact.

The title to this blog post allows me to highlight a couple different things related to spontaneous order (cosmos) versus made order (taxis). I'm sure you've heard someone say something like "If we can put a man on the moon, why can't we fix homelessness." (Or some such.)

The first observation, is that the moon landing was a well defined goal with a well defined measurement for success. A man-made order can work reasonably well in these contexts. If we know the goal and how to measure success, then gathering up resources, hiring the right people, making a plan, etc are all pretty straightforward. Indeed, as Coase noted in his famous "The Nature of the Firm" paper, having unplanned markets inside of firms can be counterproductive (because of transactions costs) and thus the soviet-like planning of firms can be superior inside the firm. A key reason for this is that the objective of a firm is well defined.

But what about the problem of "homelessness". Do we even know what the problem is? Surely, eliminating homelessness completely is unattainable, so what determines success?

A plan to "put a man on the moon" makes a certain degree of sense. A plan to "fix homelessness" may not because the problem itself is so fuzzy.

The second observation, is that it's easier to put a rocket on the moon because the moon doesn't move.*  When installing a man-made order, we often face behavioral responses that offset at least partly what we are trying to achieve. Homeless shelters may actually encourage more homelessness for example.

Spontaneous Order in sports

If you train your eyes, you will see spontaneous order all around you. I'm a stupid fan of all sports (even cricket!) and see spontaneous orders all over.

Since baseball started this week (Go Reds!), let me tell a story about how spontaneous order can come into conflict with man-made order. Baseball has developed a "code" of behavior among players. I'm not talking about the made-made rules in the rule book, but rather the unwritten rules of conduct. For the most part, baseball's written rules (man-made order) and its unwritten code (spontaneous order) work harmoniously with each other.

But not always.

One of the key aspects of the code is showing respect to your opponents especially if you are winning. If for example, your team is winning big late in the game, it is considered very bad form to steal a base or take an extra base. This is seen by the losing team as "showing them up". This norm evolved spontaneously over the decades probably because of the long seasons (162 games) played, the frequency with which teams play each other, and that even great teams lose 40% of the time.

Anyway...earlier this year, baseball had the so-called World Baseball Classic in which players played a tournament organized by country. It's like a World Cup for baseball. The problem is that one of the rules of this tournament allowed for settling ties in the early group rounds by run differential. In a game between Canada and Mexico, the Canadians were running up the score late against the Mexicans in order to increase their run differential. Well a big ol' fight ensued after the Mexican pitcher let it be known, by hitting a Canadian batter, that he didn't like such treatment. In the words of the Canadian skipper, "There's got to be another method other than running up the score on the opposing team,'' Whitt said. "No one likes that. That's not the way baseball's supposed to be played."

The bottom line is that when man-made orders conflict with spontaneous orders, as Adam Smith said, "the game will go on miserably."

*Of course, it does move, but thanks to Sir Isaac Newton we can predict its movement nearly perfectly.

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