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Wednesday, June 07, 2006

Spontaneous Order

I thought that this article by economist Daniel Klein was a nice followup to Bret's post about the superiority of self-organizing systems. Excerpts below:

At a roller rink you can see something that holds insights into great questions of politics and society.

"How are 100 people supposed to skate around the arena without guidance or direction? Each skater traces out a pattern, and the patterns must mesh so skaters avoid injury. That's a complex problem. It would require smart leadership. But it won't get solved! The arena will be a scene of collision, injury, and stagnation. Who will pay for that?!"

Intuition leads us to think that complex problems require complex, deliberate solutions. In a roller rink, the social good depends on getting the patterns to mesh. But no one is minding that good. As your friend describes the business idea, not even the owner intends to look after it. How can the social good be achieved if no one is looking after it?

Suppose you and I step into roller-skates and join the other skaters on the floor of the rink. In skating, I do not aim to solve the big problem of coordinating all the skaters. I do not try to get all 100 patterns to mesh. I show common courtesy, but basically I am out for myself. I want to have fun, and so certainly don't want to get hurt. Looking out for myself, I promote my interest in avoiding collision with you.

An important quality of collision is mutuality. If I collide with you, then you collide with me. And if I don't collide with you, you don't collide with me. In promoting my interest in avoiding collision with you, I also promote your interest in avoiding collision with me.

The key to social order at the roller rink is this coincidence of interest. I do not intend to promote your interest. I am not necessarily even aware of it. Still, by looking out for myself I am to that extent also looking out for you. My actions promote your interest.

Skating on the floor of the roller rink is an example of what Friedrich Hayek called spontaneous order. The process is beneficial and orderly, but also spontaneous. No one plans or directs the overall order. Decision making is left to the individual skater. It is decentralized.

The contrast is centralized decision making. Again, intuition tells us that the only way the complex social good can be achieved is by central planning. Yet Hayek tells us that sometimes another way it can work is "decentral" planning. He tells us, in fact, that, often, decentral planning is the only way it can work.

Suppose the social good on the floor of the roller rink were entrusted to central planning. The rink owner appoints a really smart, really nice guy to look out for the social good. He hires a man with the reputation of a saint, and with two PhDs from Yale, one in Civil Engineering and one in Ethics. This smart saint stands in the organ booth, holds a bullhorn up to his mouth, and calls out directions: "You in the blue jacket, speed up and veer to the left." "You in the black overalls, I want you to slow down and move toward the inside." And so on.

The results would be terrible. The smart saint could not come close to achieve the brisk dynamic order that spontaneous skating achieves. The main reason he could not is that he lacks knowledge of individual conditions. Using his Yale learning, he looks closely and does his best. But he has 100 skaters to watch, and the conditions of each are changing moment by moment. The planner's college knowledge is useless in informing him of the particular conditions of your situation. The planner tries to apply engineering principles, but each skater has principles of motion all his own: Do I feel like going faster? Am I losing my balance? Can I handle this turn? Do I have to go to the bathroom? Am I content to follow the planner's directions?

Your local conditions—your opportunities, constraints, and aspirations—are best known by you. No one else comes close. College knowledge is no substitute for what Hayek called local knowledge.

Moreover, even if somehow the smart saint from Yale has all the local knowledge of the individual skaters, what would he do with it? How would he interpret it? How would he integrate it? And if he came up with orders for how to direct our skating, how would he communicate those orders to 100 people simultaneously?

Being smart and saintly, the planner would recognize his limitations and just slow things down. To prevent collisions, he would have to impose regimentation. Skating would be slow and simple. Skaters would be bored. Moreover, they would not find the joy and dignity that come from making one's own course.

On the floor of the roller rink, the social good can only be achieved by spontaneous order. As Hayek explained, the case for leaving action spontaneous is stronger the more complex social affairs are, because greater complexity only exacerbates the planner's knowledge problems. When the situation is simple, central planning can succeed. If there were just four skaters on the floor of the rink, central planning might not be so bad. But with 100 skaters, it is preposterous.

If, besides being smart and saintly, the planner were also wise, he would beseech the rink owner to relieve him of his assigned task. He would renounce central planning. He would recommend spontaneous order.

The principles find direct application in economics. Just as we want to discourage collisions, we want to encourage voluntary exchange. In both cases, the key is mutuality. Gains from trade are mutual, giving rise to coincidence of interest: In promoting my interest in gaining in a voluntary exchange with you, I also promote your interest in gaining in a voluntary exchange with me. You would not enter into the exchange if you did not stand to gain.

Once again, actors buzz about spontaneously to advance their own interest, but in the process advancing the social good. As merchants, we garner the honest dollar by serving our customers—that is, by serving society. As consumers, we obtain stuff by rewarding suppliers for services rendered.

Again, if someone were to presume to plan the economy, the result would be disaster. The social patterns in an economy are fabulously complex, making decentral planning all the more necessary.

In economics, the substance of "spontaneous" is liberty. Liberty means freedom from others messing with your stuff, including yourself, your person. When the government tells you that you can't enter certain contracts, can't use your property in certain ways, and can't keep 35 percent of your earnings, it treads on your liberty. It is making affairs less spontaneous and more centrally directed or controlled.

It sounds self-centered—freedom from others messing with your stuff. But the principle would go for everyone, so it also requires you not to mess with others' stuff. Liberty implies not only security and freedom in ownership, but duties to respect ownership by others.

But more importantly, we live in a world of mutualities. I want others not to mess with my stuff so that I can use my stuff to best participate in mutual relationships. The point is not self-centeredness; it is to center control over stuff in the owner, so that action draws on local conditions and advances mutual betterment. The bonds of mutual relationships form the vast network of society, and when its members are individually empowered and motivated to advance those bonds, we have a society that is well cared for.

Spontaneous-order principles argue against full-fledged central planning, but do they condemn all incursions on liberty? The key is coincidence of interest. In some activities, such as polluting the air, maybe there isn't coincidence of interest. Maybe there is conflict of interest. In cases like that there is less of a case for spontaneous arrangements.

Likewise, in the roller rink, there are occasions for simple rules, such as signaling to skaters when the direction for skating is to be reversed, or when the floor is open only to ladies, or only to couples. These rules are largely self-enforcing.

But in the great roller rink of human society, many government restrictions are more like the central planner imposing foolish restrictions on ordinary skating. Spontaneous-order principles ought to have more purchase than they do.

The principle of spontaneity, of liberty, is not an all-or-nothing proposition. But the principles of local knowledge, coincidence of interest, and spontaneous adaptation have much more power than is generally recognized. People have a hard time understanding how spontaneous order works, or even that it exists. At a roller rink, spontaneous order happens before our very eyes. But in the great rink of society, each of us is immersed deep within the spontaneous order, focused on our own particular situation. Each has no window on the whole, not even a glimpse. Although economics cannot make the whole actually visible to us, it can help us see the principles at work.

Jonathan Swift said that vision is the art of seeing things invisible. In that sense, economics gives us vision.


Bret said...

The roller skating rink is really a nice example of an easily understandable complex system. Peoples' life decisions move at a slower pace than reacting while skating, but there's a heck of a lot more people in an economy.

You're on a roll with your last few posts!

Duck said...

Another great post Howard, I agree with Bret. This quote from the article is interesting: "Intuition leads us to think that complex problems require complex, deliberate solutions." True, but at the same time almost all people with any idea of what a skating rink is would intutibely conclude that a cenrally controlled, deliberate solution to the problem of keeping order is definitely the wrong approach. So why do people have such diametrically opposed intuitions to how complex problems are solved.

One possible explanation is that most people would not look on a skating rink as a "problem" to be solved. Navigating through a crowded walkway or rink or public space is one of those innate skills that we don't need to think about. The realization that such a system is indeed highly complex, and that solving it through a centrally engineered control mechanism would be very difficult, just never occurs to them. And so using examples like this one to dispel people of the other "intuition" that complex problems require systematically engineered solutions is a very productive way to educate people about economics, and politics for that matter. It is a lightbulb moment. But even saying that, the other intuition does not die easily. The lack of control, of centralized accountability inherent to such approaches makes people insecure. It is much more comforting to be told that there are trained experts working on the problem. The idea that there is order in chaos is one of the hardest, most counterintuitive ideas to grasp.

Hey Skipper said...

The realization that such a system is indeed highly complex, and that solving it through a centrally engineered control mechanism would be very difficult, just never occurs to them.

There's something else that never occurs to them. There is absolutely no fundamental difference between a roller rink, and an economy. All systems with a large number of mutual interactions are like a roller rink.

Since that never occurs to them, they never get to the next question, which is: how many is "large?" Surprisingly few. Even a system as small and simple as planets orbiting around a sun is impossible to model with certainty after the number of planets exceeds (IIRC) three. For our solar system, this means it is impossible to know something as simple as its stability.

If the roller rink consisted of 300 skaters, it would take something like the life of the universe to calculate the interactions between them all.

Is it ironic that neither the left, nor their ideo/theological mirror images on the right, appear able to grasp self-organized complexity?