Positive Liberty

Jim Henley writes as follows:

I wondered a very wrong, outside-the-box thing tonight on the ride home, about pork-barrel spending. Is it, from a libertarian perspective, the worst thing in the federal budget? I invite readers and bloggers to explain to me that it is. But, here’s a devil’s advocacy case:

As has been pointed out, there isn’t much of it, depending on how it’s reckoned. $29b in FY 2007 according to Citizens Against Government Waste. Against a budget of $2.5-3 treeellion dollars that’s fiscally insignificant.

In The Constitution of Liberty, Hayek explained that the information that societies need to function effectively is widely scattered among the population. Central planning fails because much of this knowledge is invisible to the planners, and indeed, their plans will tend to destroy it, chiefly by distorting prices.

Whatever you can say about Congressional earmarks, they sure don’t count as central planning. They’re only incidentally “central” and barely “planned.” Hardly anyone knows or cares about a given earmark except the area’s representative and a handful of watchdog groups. Aren’t earmarks the closest the federal budget comes to responding to genuine local knowledge?

The second paragraph is just about right, I think: Earmarked spending is less of a danger than the looming threat from federal entitlement programs. In the end, the money probably won’t be around to pay for these things, and that means one of two choices down the road: 1) higher inflation, which will pay for the benefits but inflate away their value, sinking the economy in the meantime; or 2) higher taxes, which will stall economic growth, ensuring that the Baby Boomers are the last generation ever to enjoy such a lavish retirement party at taxpayer expense.

Earmarks are unfair, corrupt, and ridiculous. The entitlement programs as they’re now set up are all of that — as well as far more dangerous, in a material sense, to our children’s well-being. (This is to say nothing of military spending, which is usually a deadweight loss and often an encouragement to some highly unlibertarian temptations. Necessary, sure, but it should be kept to a minimum.)

But do earmarks approximate local knowledge in the Hayekian sense? I’d say no, and here’s why.

First, an entrepreneur can only be said to have discovered some new local knowledge after he has succeeded in the market. If I think that there is an unmet demand for, say, premium beer in the area of Bowie, Maryland, I may either be right or wrong. Only by testing my hypothesis (perhaps by opening a brewpub) will I ever know the truth.

Consumers are fickle and hard to predict, and every would-be entrepreneur is making a guess about what they want, about how much they want it, and about his own ability to profit from that need. Most new businesses fail, and only the few that succeed have really found a piece of dispersed local knowledge in Hayek’s sense of the term. That they have done so is a tribute to their own insight, but it’s also a reflection of the power of the price system, which allows us to rank our desires, to know the ranked desires of others, and to provide accordingly.

The congressman seeking an earmark isn’t even playing the same game as the entrepreneur. The market never tests his idea, because he never gives it the chance. This alone is reason to be suspicious. Prices are not a consideration, and failure is…. what, exactly? The earmark is certainly a response to a felt need, and the congressman may have correctly intuited the existence of the need, but we will never know if the need was a marketable one, because his hypothesis was never put to the test.

Earmarks aren’t knowledge in the Hayekian sense. What’s worse, they aren’t even local: Most of the people who vote on earmarks are from out of the district anyway and probably know little about local conditions. Also, only a handful of them will even bother to read the bill in the first place.

So… I imagine that some local truth, in the philosophical sense, may sometimes find its way through the earmark process. But if knowledge is “justified true belief,” I’d have to say that the justification is lacking.

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