Laissez-faire capitalists are fond of the idea of spontaneous order--that systems, including economies, left on their own, allocate resources better than top-down managed systems. This is true, to a point. Here's an excerpt from my response headlining on
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In the 1950s other sciences like physics and especially biology began to notice that large systems made from simple parts could work together to create surprising and miraculous results. The brain is the most exciting example of this. Although some neurologists will likely disagree, the dynamics of a single neuron are simple. On receiving a pulse of energy from a nearby neuron through its dendrites, it sends a pulse to other neurons through its axon. This signal is then receieved by other neurons. There is also a feedback mechanism that strengthens or weakens connections which tend to fire simultaneously.
No one would look at that and guess that a collection of those interactions would produce human thought. That miracle of complex macrodynamics from a multiplicity of simple microsystems is what Hayek called spontaneous order. Hayek and others believed fervently in the power of spontaneous order to improve peoples lives in the realm of economics. Markets left alone, they said, also have feedback loops which allocate resources in a decentralized way, without any external planning. Hayek called it a fatal conceit to imagine that a planned economy could match a spontaneously ordered economy for efficiency.
During the Goldwater/Reagan revolution, this became the justification for opposing government interference in almost any form. Any top-down tweaking by government moves the economy away from the spontaneous order, which is assumed to be the most efficient possible. It was also a convenient defense against the primary ideological foe of the United Statesthe Soviet Union. To those of the Austrian school, the economic failure of the Soviet Union was definitive proof of Hayeks idea.
But on closer examination, the assumption that spontaneous order is always elegant or beneficial seems to come from nowhere. As we look at other examples, we find spontaneous order is, indeed, powerful, but sometimes to our detriment. Spontaneous order can be fatal. A herd of cattle can be thought of as a complex system made of simple parts. We could describe the behavior of cows quite simply: Move toward grass; avoid obstacles. But, spurred by the wrong external stimulus, those simple dynamics can cause a stampede as one cow starts to run enticing others to run to get out of its way. Here, the order that arises spontaneously is certainly unexpected in that it does not follow in a straightforward way from the micro behavior. In this, a herd of cattle is like other examples of spontaneous order--a snowflake or a brain or an ecosystem. But in the case of cows, the macro behavior is not beneficial. Although the microdynamics were about avoiding injury, the resulting stampede can cause cattle to be trampled and k**led.
So, which kind of spontaneous order is our modern economy?
In the 1950s other sciences like physics and espec... (
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better? What about a bank run? What about in creating a universe? How can you tell when a system needs some top-down guidance?