Private Governance, Not State Capacity

"Around this time I began exploring corners of economics not touched in my graduate education, just out of curiosity. I don’t remember how I happened upon F.A. Hayek’s paper “The Use of Knowledge in Society,” but it’s as close to an intellectual lightning strike as I’ve ever experienced. His intuitive notion of markets as information-processing networks capable of accounting for vastly more knowledge than could ever be handed to a central planner gave me the first satisfying explanation of why top-down progressive policies just didn’t seem to work.

I was also doing some reading on complexity economics, first introduced to me by Eric Beinhocker’s “The Origin of Wealth.” I’ve never gotten deep into the technical details of the field but on an intuitive level it perfectly reinforced Hayek’s ideas of dispersed knowledge. It also emphasized the economy as something not in equilibrium but rather evolving. Forget the idealized static equilibrium of “perfect competition,” but also forget the idea that government can make it that way without distorting markets’ capacity to process information and evolve. Markets aren’t perfect, they’re essential."