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January 7, 2008

The Fatal Conceit in Foreign Policy


David R. Henderson

Question: Which Pakistani leader should the U.S. government support?

You wouldn't know it from watching most of the candidates for president, but this is a trick question.

Why is it a trick question? Because it's like asking, "When did you stop beating your wife?" If you try to answer when you stopped, you implicitly admit that you did beat her, even if you didn't. Similarly, if you try to answer which Pakistani leader the U.S. government should support, you imply that the U.S. government should support some Pakistani leader. Here are my answers to each question.

Question: When did you stop beating your wife?

Answer: I've never beaten my wife.

Question: Which Pakistani leader should the U.S. government support?

Answer: The U.S. government should not support any leader in Pakistan. The U.S. government should keep its nose out of other people's affairs. Just as we would object if Pakistani government officials tried to influence U.S. elections, so we should object just as vociferously to the U.S. government trying to influence who runs the Pakistani government.

My objection to the United States trying to run other countries' affairs is only partly a moral one. Let's face it: the people contending to be the head of Pakistan are not nice people who somehow deserve free rein. Even Benazir Bhutto, for whom many are now mourning, was pretty vicious. And, for that matter, most officials in the U.S. government are fairly vicious, too. Look at how easily it came to so many of the candidates for president, Barack Obama included, to say that all options for dealing with various governments of the world are "on the table." By saying this, these candidates were including the possible use of nuclear weapons, even if the weapons were to be used against countries whose governments had not attacked the United States. This strikes me as vicious.

But my biggest objection to supporting a Pakistani leader is a practical one. Even if officials in, or contending to be in, the U.S. government were not vicious (and some of them aren't), they simply don't have enough information to decide correctly, if there is such a thing as "correctly," which person to back. They have what economists call "an information problem." Economists have shown time and again that using information to plan an economy simply doesn't work – and attempting to plan another country's government will fail just as dismally.

The big breakthroughs in thinking about planned economies came from two economists from Austria, Ludwig von Mises and his student Friedrich Hayek. Although it was von Mises who, in 1920, had the original insight about information, Hayek elaborated and added to the argument. In a series of essays in the 1930s and 1940s, Hayek drove the final intellectual nail in the coffin of socialism. He pointed out that even if central planners had pure motives – so that we wouldn't have to worry about their incentives – they simply could not have the information they would need to plan an economy well. In any complex economy, there are at least hundreds of thousands of items, and central planners, having thrown out the free market, cannot know relative supplies and demands for these products. This, wrote Hayek, is precisely what the market tells us. The free market, he argued, works so well because the information that really matters in any economy exists in a decentralized form in the minds of the millions of participants in the market. In his famous 1945 article "The Use of Knowledge in Society," which I have my students work through in every course I teach, Hayek writes:

"Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances. To know of and put to use a machine not fully employed, or somebody's skill which could be better utilized, or to be aware of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques. And the shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the [real] estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differences of commodity prices, are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others." [paragraph H. 9]

The term that modern economists use for Hayek's "knowledge of the particular circumstances of time and place" is "local knowledge."

Hayek goes on to argue that this local knowledge can't possibly be aggregated in the minds of a few central planners, no matter how brilliant. And if the government does not leave people free to act on their own local knowledge, most of it won't be acted on.

Interestingly, some of the economists who had dismissed Hayek and von Mises in the 1940s and for decades after came around to their way of thinking in the late 1980s. Exhibit A is socialist economist Robert Heilbroner, who, in two articles in the New Yorker and one article in my Concise Encyclopedia of Economics (then The Fortune Encyclopedia of Economics), said that von Mises and Hayek were right after all. In a 1989 New Yorker article, Heilbroner wrote:

"Less than 75 years after it officially began, the contest between capitalism and socialism is over: capitalism has won…. Capitalism organizes the material affairs of humankind more satisfactorily than socialism."

And in a 1990 article in the New Yorker, Heilbroner wrote, "It turns out, of course, that Mises was right" about how badly socialism would work. Note his use of the term "of course." And in his 1993 article in my Encyclopedia, Heilbroner leads with the following:

"Socialism – defined as a centrally planned economy in which the government controls all means of production – was the tragic failure of the twentieth century."

Heilbroner went on to write, "In fact, we now know that their [von Mises' and Hayek's] argument was all too prescient."

Although Hayek himself never, as far as I know, applied this thinking to foreign policy, it applies beautifully. Just as central planners can't know how much, and what kinds of, steel to produce, they can't know which leader in a foreign country to support. None of them, even the most brilliant and informed of them, has enough knowledge. The odds are, therefore, that by meddling in those countries' affairs, they will do more harm than good.

The analogy between centrally planning an economy and centrally deciding which official should run a foreign government is not perfect. Analogies seldom are. The main difference is that a government that forswears central planning and leaves individuals free to make their own decisions within a system of property rights will typically end up being the government of a prosperous country. A government that forswears planning other countries' governments, by contrast, will not, by doing so, cause people in that other country to make good choices about their own governments. But the point of the analogy is that a government that refuses to interfere with choices about another country's government will avoid making a bad choice, whereas a government that tries to meddle will almost inevitably make a bad choice.

None of this has stopped many of the U.S. candidates from advocating their own pet choices. On Dec. 27, the day Benazir Bhutto was assassinated, Democratic candidate Bill Richardson issued a press release in which he stated that Musharraf, the current head of Pakistan's government, "must go." Richardson, like most of the candidates, with the refreshing exception of Ron Paul, has what Hayek called in the central planning context a "fatal conceit." He somehow thinks he is informed enough to decide that Musharraf should resign. I'm not asserting that Musharraf shouldn't resign. I simply don't know enough to make that assertion – and neither does Richardson.

I wrote above that even the most brilliant and informed officials are unlikely to make good choices when choosing the heads of other countries' governments. But my case is even stronger than that because there is nothing in the competition for political office that causes the most brilliant and informed to do well. Hillary Clinton, for example, one of the two main contenders for the Democratic nomination for president, showed abysmal ignorance of the Pakistani political system recently. In a Dec. 28 interview with CNN's Wolf Blitzer, Clinton stated, "If President Musharraf wishes to stand for election, then he should abide by the same rules that every other candidate will have to follow." But Clinton was mistaken, as anyone who has followed Pakistan's news closely would know. The Jan. 8 elections to which she was referring are not to choose Pakistan's president, but to choose its parliament. Clinton repeated the same mistake two days later in an ABC interview with George Stephanopoulos. She stated of Musharraf and the Jan. 8 elections, "He could be the only person on the ballot." So, even with two days to learn more, Clinton was still in the dark. And remember that this is not some underfunded fringe candidate but, rather, the best-funded candidate in the whole pack. Which means that no one in her large staff corrected her mistake. Indeed, the Dec. 28 transcript from which I quoted was issued by her very own staff. And she presumes to tell people in other countries how to act? Give me a break.

Fortunately, there is one candidate for president who is humble enough to recognize that neither he nor anyone else can make good choices for Pakistan. That man is Ron Paul. One of his best moments in the whole campaign was when MSNBC's David Shuster asked him what he would do about Pakistan. Candidate Paul made it clear that the U.S. government should stay out. Paul argued that the U.S. government should neither subsidize nor bomb Pakistan. Paul, moreover, may well be the only candidate who has read Hayek. I believe that Hayek, had he thought about foreign policy, would have been proud.

Copyright © 2008 by David R. Henderson. Requests for permission to reprint should be directed to the author or Antiwar.com.

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David R. Henderson is a research fellow with the Hoover Institution and an associate professor of economics in the Graduate School of Business and Public Policy at the Naval Postgraduate School. He is author of The Joy of Freedom: An Economist’s Odyssey and co-author, with Charles L. Hooper, of Making Great Decisions in Business and Life (Chicago Park Press.) His latest book is The Concise Encyclopedia of Economics (Liberty Fund, 2008.)

He has appeared on The O’Reilly Factor, the Jim Lehrer Newshour, CNN, and C-SPAN. He has had over 100 articles published in Fortune, the Wall Street Journal, Red Herring, Barron’s, National Review, Reason, the Los Angeles Times, USA Today, and the Christian Science Monitor. He has also testified before the House Ways and Means Committee, the Senate Armed Services Committee, and the Senate Committee on Labor and Human Resources. Visit his Web site.

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