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My wife is probably not the only person out there who is far more terrified of flying in an airplane than she is driving in a car. Now some of this terror has to do with a fear of heights or being locked in an enclosed space, and there is no “right” or “wrong” feeling to have about those sorts of things. I tend to feel them too. But if your concern about flying is that you’re not really in the mood to meet your maker, and you therefore prefer to drive in cars, I’d suggest that you are irrational. Of course this is not news to most of you – over 30,000 Americans per year perish in automobile accidents and more than an order of magnitude more are injured in car accidents. Per passenger mile traveled and making all of the demographic and other adjustments you could possibly want to make, there simply is no way to come to a conclusion that driving is safer than flying.

We’re not here of course to debate whether fears of flying, in spite of the accident data, are irrational. Not at all. But let’s consider a typical (i.e. my wife) response to this sort of commentary. “Yeah, yeah, I get that, but at least when I am in a car I AM DRIVING AND IN CONTROL, and in a plane I am at the mercy of the pilot … or a computer … and gravity!” Again I respect that. We have a human tendency to desire control, which manifests itself in all kinds of other emotions. This need for control leads most of us (probably me included) to infer desires, intentions and goals when none exist. It may result in folks thinking that anything that is sufficiently complex and hard to understand MUST have been designed either all or in part, by some smart being or group of beings. But of course economics teaches us (as does bio, chemistry, physics, etc.) that complex phenomena do not have to have a designer, in fact it is highly unlikely that they have a planner. The distribution of income is one such example. It is a simple seeming idea. Think about it. Different people have different incomes, and the relationship each has to the others is something that concerns folks. Income comes from jobs, inherited wealth or pure luck. Some people have better jobs. Some people are less lucky than others. What’s so complex about that?

Well … what’s so complex is that the distribution of income is not actually chosen or designed. It emerged. And it emerged not just from thousands of different decisions any particular person makes, but it emerges from a lifetime of different decisions (and flips of the coin) that billions of people make – we’re talking pentillions of scenarios here. And while many of the decisions we all make are conscious, the outcome of all of these pentillions of decisions, each interacting with one another, is a distribution of income that no one could have predicted with much certainty at the outset. No one chose the distribution of income, despite the rhetoric of Team Reebok and Team Nike. No one. And given the complex origins of the distribution of income, and the myriad unforeseen (and foreseen) ways that billions of people will respond to different incentives, it is virtually impossible to do too much to the distribution of income. It is virtually (not entirely) beyond our control. Yet our predisposition to want control, or to see design where none such design exists, makes it extremely difficult for us to accept this idea.

As a result, the tendency to want control, and the tendency to see design or want design where none exists, naturally leads to a suspicion of many emergent phenomenon, but particularly of what emerges in a “market” when millions of self-interested buyers and sellers are just trying to do the best that they can for themselves. So perhaps economists ought to spend a lot more time helping people get over their fear of flying instead of teaching about the way incentives impact behavior. People may simply not be cut out to “get it.” Or for those that get it, it may seem so obvious that they nonetheless overlook how interesting or impressive the entire thing is. In future writing we will say more about these emergent phenomena. One major criticism I have of “folks on my side” (I HATE having to talk like that) is that they often suggest indirectly perhaps that anything that emerges cannot be tweaked, or that anything that emerges must be “good.” But that is not at all the key insight about markets or what I am talking about above. And indeed, I believe that in many instances market “supporters” do more to harm the “cause” of markets than its opponents do. But that’s for another day.

4 Responses to “Planes, Trains, Automobiles and the Market”

  1. Harry says:

    Just billions, Wintercow? How many zeroes do we have to add, for a multi-billion-person world for the trade decisions made every hour by free or unfree people?

    One of my philosophy professors said there were limitations on the size of computers, and everybody agreed in class that it would take IBM a building the size of Texas to house all those transistors and cable harnesses, and all of the water pouring over Niagra Falls to cool that one terabyte computer. How naive were we. Two decades later we slide-rule users would have Pentium computers, with two gigabytes of memory and enough RAM to corner the market for interest rate futures, as LTCM did, with their expert algorithms and formulae. Until they failed, that is.

    Maybe every trade, every economic transaction, maybe every career involves some prediction of the future. I trade my corn for a plow, assuming I have enough corn, and assuming I will have enough money to buy gas to run my tractor to plow the field and afford the seed and fertilizer, and that there will be rain, which may be predicted. I can be a scientific, businesslike farmer, use GM seeds, and use a computer to manage the business and spit out Forms 940. 1065, 1040, and Schedules A, B, D, E, F, K, and K-1, and account for disbursements and income. I can get short-term weather forecasts on cable TV, and long-term forecasts from the EPA and the IPCC, who have special access to Cray computers the size of Switzerland.

    I, as WC, am an optimist, and base this optimism on the empirical, historical, record, and not on the power of wise men to figure out what is good. I may be wrong, but I think at root the problem is both epistemological and moral.

  2. Harry says:

    Sorry, WC, I somehow missed your reference to Pentillions. My question about Zeroes was to agree with your epistemological point, which I humbly concede was made by Hayek and others of whom I am surely ignorant.

  3. RIT_Rich says:

    Excellent points that I agree with. Yes, some on “our side” tend to miss the point and as a result create a false “caricature” of markets in a rush to shower everything with nicety. Econ professors, and pretty much every social science profession, however, has in its interest to propagate “control”, just as all humans do. Simply figuring out what goes on is not enough, not since once you’ve done so the next logical question in people’s minds, is “so what do you do with it now that you know?” Knowledge for its own sake has very little value.

    But ultimately, something you said gives me “hope” that all this effort is mostly wasted anyway: we humans just aren’t programmed to “get” economics. A few anomalies pop up, of course, but most of us just don’t get it.

    I don’t really know what to make of all this, but I am amazed at just how strangely we humans operate. I am reminded of a recent experience (well, last week) when I had to grade about 100 case analyses for our MBA students. I sat through their class, given by a top-10 MBA professor, and they all “seemed” to “get” the very simple and basic insight in thinking that the professor was trying to get at. Very simple principles on how to deal with huge complexity in thought, reinforced in case after case. Simple, but none of the students could get there on their own prior to the class.

    Great, I thought to myself. “We” made a real contribution to these students who are/will become business leaders. Test day comes, and I’m reading through their essays. Obviously, what do I see? Very few “got it”. 1 person out of 100 got a full score, so obviously, only 1% really “got it” (and I’m not saying that was being taught was the Word of God, just that one had to “get” was was the point). I think, most just “couldn’t” get it. The pre-programmed “need for control” overtook most of them and biased their answers in whichever direction they thought they retained more control (the last question asked them whether the focal firm in the case should diversify into a new market or not)

    I don’t know what the meaning of all this is, or its implications, but what you said is really interesting. I think it may be a good behavioral experiment to compare and contrast, somehow, what students “say and behave” in class vs. what decisions they actually make when forced to make a decision, and what sort of biases are present. Although I’m sure there’s a million studies that do something similar, and I’m sure they point out this “futility”.

  4. Harry says:

    This is off topic, but there is a golf course in Boca Raton, Ocean Breeze, that is nicknamed, “Planes, Trains, and Automobiles,” because it is bordered by I-95, the Boca general aviation airport, and the (high-speed!) light rail. The fairways are so-so (no water from Lake Ochickobee), but the greens are as good as Seminole or anywhere, and a round is relatively cheap. If only the EPA or the UN would give a few carbon credits for the electric cart, you might be able to play for free. Use food stamps for lunch, too.

    Included with the greens fee are balls for the range.

    Is this a great world, or what?

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