73. What is The Knowledge Problem?

Governments like to claim they know enough to be able to control and plan out entire economies. But with so many individual actors contributing to the economy, it is impossible for one central body to have enough information to make informed decisions. Economist F.A. Hayek explained this conundrum with what if called “the knowledge problem.

Links:

Terms:

  • Humility: modesty about one’s status or accomplishments
  • Hubris: excessive pride or self-confidence.

 

Here’s a transcript of our conversation:

 

Brittany: Hi, Connor.

Connor: Hey, Brittany.

Brittany: So, I don’t know about you, but when I make a decision, I always try to have as much information as I possibly can so that I can make a deform or informed decision. Now, when I’m making the decision for me, that’s pretty easy because I can say, you know, I prefer this, these are my preferences, this is what I’m looking for, this is what I like. So really, I am the best person to make a decision for me, because if you, Connor, were to make a decision for me not knowing all my favorite likes or my dislikes or all those things, you really couldn’t make an accurate decision for me. Do you think that’s fair to say?

Connor: I think that’s fair to say. Yeah.

Brittany: Okay. Well, let me kind of expand, on why I bring this up. It’s funny to me that a lot of governments think that they can control or they can plan economies, but it’s silly because they don’t have the knowledge, right? We talked in a previous episode about how we are the economy, that the interactions we do with each other, you know, commerce exchanging money for a good or service that is the economy. Now, the government thinking they can plan or they can control it, that would mean that they would have to know what each of us wants, what each of us is thinking at all times, and that is just impossible. In fact, it’s what economists fa Hyatt called the Knowledge problem. So what are your thoughts on that, Connor?

Connor: I, think that, makes a lot of sense because I think about how I feel when other people try and boss me around or, even give me recommendations like, Hey, I think you’ll like this restaurant. And then I go to the restaurant, I’m like,

Brittany: you hate it,

Connor: Yeah. What do they think? I would like this. And so those people don’t know me as well as I know myself. They’re, well meaning, right? They’re trying to be helpful or, whatever, but it just shows that they lack all the knowledge. You know, even like gift giving, right? You might get a gift, and the other person is trying their best based on the limited knowledge that they have to be like, oh, I think you’d like this, right? but those decisions, sometimes you get that gift and you kind of smile and you’re like, thanks. And then you sell it on eBay.

Brittany: That happened to me in my office last year. We did a gift exchange, and you could tell I won’t, I won’t say who the person was, did not do any research on me at all. Got me something I would never use. And you just kind of smile and say, thank you,

Connor: And we will link to that person’s profile on our show notes page. So, but you know, again, these are fun examples where people are well, meaning they’re trying to, you know, give a recommendation. You’ll, like, they’re trying to give a gift you’ll enjoy, but they, they don’t have enough knowledge about you. and so, you know, making those decisions is hard. This is an interesting question, Brittany, to, I know we’re gonna get into kinda the government in a moment, but to think about in the context of parents and children.

Brittany: Ooh.

Connor: Because, you know, sometimes the parents know better than the child about the child because, you know, especially during the first several years, kids aren’t really self-aware. whereas the parent has had a lot more knowledge about that child’s interests and their behaviors and things like that. So I think like for the first while maybe until like, you know, the early teens, the parent actually has the best knowledge about the child because that includes kind of, you know, those early years and, things like that where the kid, there you know, brains aren’t fully developed. Maybe they’re not, self-aware. Of course, all the kids listening are now are like, I’m self-aware, if I were to tell my son this, he’d be like, I know myself better than you do. but then as you get to be like maybe preteen and certainly teen, you know that the kids are starting to have a lot of their own experiences outside of the home. They’re developing interests that the parents either don’t understand or don’t care about or don’t know about. and so then the kids start to have more knowledge about their own lives, and that starts to shift where they, start to be the ones as they, go through their teen years of maybe making better decisions for themselves. Obviously, if they’re big decisions, they still lack a lot of knowledge about the world, you know, about how to open a bank account and things like that. So they still need help, obviously. but it’s an interesting question for, us to consider about with kids about, how the knowledge problem applies to, kids about their own lives.

Brittany: Well, can, the thing about the knowledge problem is when we think about a problem, we think of things with solutions. My question would be, can the knowledge problem ever be solved? Is there an answer to it? And I don’t think there is. There’s been interesting hypotheses. In fact, I wrote one of them, but I kind of disagree with it now, that the hashtag helped solve the knowledge problem, because you could go somewhere online. The hashtag is that it used to be called a pound sign when we were kids. Now it’s a number sign, or now it’s a hashtag. so you could, you know, you can search for things on Twitter. That became a huge thing for social media where you could type in, you know, tiran protests, for example, something that happened in 2008, and you could be directed to all the information in one spot. Now, that is a very small, isolated example of some solutions. But, but I don’t believe that when Hayek wrote about this, that he thought there could be a solution. Cause I think there’s just simply too much information for any person or even a group of people to have enough information. I don’t know what you think, but that, that’s my thought anyway.

Connor: Yeah, and I kind of think, what we’ve talked about before with like Frederick Bastiat with that which is seen, and that which is not seen, that even if you see all this information on, say, the internet or social media in front of you about, you know, the Tehran protest or whatever it is, there’s still so much more to the story, right? There’s still so many other perspectives, and there’s other takes and other information from people who are experiencing that or whatever, that that one person can’t consume all that content. One person can’t know all the things about even one incident. It just doesn’t work. And so, you know, that’s why I think it’s important for us to understand that knowledge is dispersed, right? Everyone has little bits of, knowledge about something that they’ve observed or experienced or learned or discovered, and all that bits of knowledge, you know, it can be brought together. we can share it together on Wikipedia, right? Or we can, talk in an office conference room together, or in the school cafeteria or whatever, it is. And we can, we can bring all those bits of knowledge together to have, you know, shared learning and, you know, an increase in knowledge because we’re all kind of compiling that information. But to think that any one person can still know all that, even about one issue, let alone eight issues, or 23 or everything. and, yet there are people who attempt to act as if they have the knowledge, or maybe they just don’t care whether they have the knowledge or not. And they’re, you know, I’m talking about like central planners who try and make decisions for other people’s lives, people in government who try and control the economy and order people around. And, you know, I think of the case, we talked a while back about the Texas governor, when Covid was at the height of, kind of at the beginning of everything.

Brittany: Is that Abbott? Is he the governor?

Connor: Yeah, Abbott. And so he issued the, shut order, right? Businesses are closed. And so then there was the woman who owned a salon, and so she decided to open anyway, so then she gets arrested, thrown in jail. And Governor Abbot was like, oh, I didn’t intend for that to happen, right? Like, I didn’t want anyone going to jail over this. And then he issued a new order that removed the jail time. But here’s, you know, a politician who made an order, made an action, and he didn’t apparently know, you know, that someone could be thrown in jail for this. He didn’t know that someone would fight and resist the order. people can’t really be controlled like that. Everyone has their own little bits of knowledge and, and that knowledge is often kind of, like molded maybe is the word, with like our own, with their own like bias and our own perspective. You know you and I may kind of study the same facts, think of like, you know, masks with covid. There are people who study the data and they’re like, okay, I don’t need to wear a mask. You know, things are generally okay. And then there are other people who read the same data and based on their perspective, they’re like, everyone has to wear a mask. We need a mask mandate. And so even when we have the same bits of knowledge, they’re totally different decisions as well. So I, think the knowledge problem actually is, you know, compounded or made even worse when we’re talking about people in the government trying to control others because they lack, you know, the knowledge about what other people are gonna do or what should be done in that case.

Brittany: You remind me of a good word that I think would be important to define. That’s hubris. And that is, I think I said that right, Hubers, where it’s like excessive pride or self-confidence. And every time I think of the knowledge problem, and I think of the officials and the, you know, the government politicians who think that they know better, who think that they’re going to outsmart, you know, thousands and thousands of years of, the world proving otherwise, they just have so much hubris, right? They have this belief that they, that somehow they’re going to defy all this, that they’re gonna be, you know, smarter than everything else that has ever come before them. So I think it’s really interesting to keep in mind. I think it’s also important to keep in mind, you mentioned parents and kids in our own lives, right? I know one thing, there’s a psychologist, I guess you’d call him, but he is more than that. Jordan Peterson, who I love, who reminds people, not even just politicians, activists trying to control the economy. He gives advice to 18-year-olds. And he says, you know, don’t be fixing up the economy 18-year-olds. You don’t understand anything about the economy. It’s a massive, complex machine beyond anyone’s comprehension or understanding. And it kind of reminded me of activists. And we see a lot of people who, who might think they know what’s best for another person, and they don’t because they, like you said, with the avid example, they just don’t know somebody else’s very unique, individual circumstances. They can’t guess that. So it’s important to remember that you don’t have all the information.

Connor: Yeah. And, that no one does, right? This is why Plan central planning fails. and the Roader Tuttletwins book, you know, we shared the kind of a silly example of a road being built. And these central planners wanted to build a road in a particular place, but they could not contemplate. They, could not foresee all of the different effects that would come as a result of building that road. They didn’t have that knowledge. They could not foresee, what would happen. And so then, you know, Mr. Sanchez loses his farm, and then the local dairy goes outta business, and then all these homes go up for sale, and then Lala’s shut down. There’s all this trickle effect because someone tried to control other people based on limited information. This is why the economy has to be free. This is why free markets are important so that people can make decisions for their own lives when someone else tries to make a decision for your life. And when they lack information about you. So here we’re kind of setting aside the parent example. Cause parents typically have information about their kids, but if, you know, your next-door neighbor comes over and says, Hey, I’ve planned your summer camp for you, and then I’m gonna have you do these activities, and then you’re gonna go do this, that, and the other, you’re gonna be like, well, wait, what? You don’t know me. You don’t know what I wanna do, and I don’t wanna do that. And, that’s how it is with the government. you know, there’s resistance, there’s frustration. I think about even my experience with school growing up, that was, that was kind of a planned economy in a sense, a planned process. And I was, you know, we talk about in the education vacation book, the conveyor belt, you know, everyone kind of gets on there and they advance from, you know, first grade through, all the way through high school, and everyone, you know, has to do the same thing and be graded the same way and learn the same stuff. And, you know, there’s resistance to that. I think there’s problems with that because the school board or whoever it is deciding on, you know, what every student ought to learn, they don’t know all the individual children. They don’t know their interests or their challenge. So a lot of kids struggle, right? Some kids drop out, and some kids even commit suicide, tragically enough. Very sad. There are, there are kids who really struggle with that process because a small group of people are trying to control the actions of many different people. It doesn’t work. I mean, this is why we talk about, and in that book, education, vacation, right? Like planting the seed, giving that seed, the resources it needs to thrive. And, and it’ll look different. Every plant, every seed, you know, is gonna look different, gonna grow differently. individuality is so important. And when we have a system that is planned for everyone, the people in charge don’t have all the knowledge of how that plan needs to look. And so they plan something very simple or clumsy or whatever, and that ends up not working for a lot of people, it ends up causing a lot of problems. So, this is interesting, Brittany, to think about like how the knowledge problem applies, not only to the economy but even like, especially to our own lives. What are, what’s a final parting thought you’d like to share on the Issues?

Brittany: Just that, I think I say this in every episode, as much as I can highlight, when I can say like, oh, the government thinks that it knows what’s best for me. I think it’s also important to notice when you’re doing the same thing, right? And I don’t wanna call it being bossy, that’s a little bit different, but I know that sometimes even on things I advocate for, I tend to forget that there are other people that might think differently, and they might have very good reasons for having another perspective. So I think that’s important to realize when we are doing this kind of stuff as well.

Connor: And so, the opposite, perhaps, the opposite word or the anny, there’s a fun word that is

Brittany: A fun word.

Connor: Synonyms, which are, you know, words that are similar, and there’s Antonyms which are opposite words. So the Antonym, or the opposite of hubris, I think would be humility.

Brittany: Ooh. Yep.

Connor: Right? And so exactly what you were just talking about, Britney, remembering that other people have their own, you know, perspectives and lives and knowledge, and you don’t have knowledge about them. We need and I struggle with the same thing. I think we all do. We need to be humble enough to know that we don’t know everything. We, we don’t know what’s best for other people. We should kind of live and let live, let other people, you know, live how they want to, and they should respect us all the same. So fun topic, good kind of takeaway thing for us to think about. Thanks always Brittany for chatting. Guys, make sure you are subscribed, to Tuttletwins.com/podcast. Share it with a friend, and Brittany will talk to you later.

Brittany: Talk to you later.

 

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