Unexpectedly Intriguing!
October 4, 2005

Perhaps the single best commentary ever on the subject of politicians and bureaucrats and how, because they lack the proper incentives, they're not looking out for you, recently appeared at Mark Steckbeck's The Liberal Order. The key questions are asked in the introduction (emphasis mine):

As a society we have a coordination problem: How are resources allocated such that the results best improve the human condition? In other words, how can we devise a system that makes the most people the happiest? Without delving into the philosophical aspects of this question, especially with respect to utilitarianism versus rights, the coordination problem is essentially an information problem and an incentive problem.

The information problem arises because it is decentralized, and consequently no one individual or group of individuals has the information necessary to discern what people actually want and who can provide it at the least possible cost. In other words, how can we coordinate the efforts of heterogeneous individuals with disparate tastes and talents, the knowledge of which is not available to any individual or group of individuals? Who produces what and who gets what?

The incentive problem arises because even if there existed an omniscient individual with the relevant information required to make such precise calculations, what incentive does he have to get it right? Why should we believe that he’ll serve the public’s interest and not simply his own?

Read the rest....

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