Matthew Continetti provides a good Hayekian understanding of the dispersed information and complexity of an economy.
Fighting a recession is not the same thing as fighting a war. The U.S. military is a hierarchical organization in which orders are dispersed through a top-down command structure. Every soldier has an assignment, with every assignment comes orders, and if a soldier does not follow his orders, he’s in a lot of trouble.
The economy is different. It is not a closed system like an armored cavalry regiment, where everything (and everyone) has a place. The economy is open and dynamic, the agglomeration of billions of individual consumers and producers and investors. An army belongs to a particular nation, but today’s economy is global: The high price of Japanese money lowers the cost of German exports, which depresses American manufacturing, which increases demand for Chinese imports, and so on. An army has officers who process and analyze the available information, then plot strategy accordingly. It is impossible to do this in an economy. There is too much information for a single mind, or a group of minds, to comprehend. And there is no way to know for sure which strategies work and which do not—or whether a strategy had any effect in the first place. An army fights and destroys an enemy. But who is the economic enemy and how does one “defeat” them? When Obama said “our troops are the steel in our ship of state,” he rightly implied that he, as commander in chief, is the ship’s pilot. But the economy is not a ship. The economy has no captain.
The equivalence between recession and war is what’s gotten Obama and the Democrats into so much trouble. Liberals like the president and the congressional leadership honestly believe that they can command the economy to recover. By pushing and pulling the correct monetary and fiscal policy levers, the Democrats say, government can manipulate aggregate demand and bring back jobs. By redistributing wealth and regulating the insurance market, the Democrats promise, Americans can achieve universal health care while reducing health spending. By delegating authority to unelected bodies and issuing hundreds of new rules, the Democrats believe, regulators can eliminate credit bubbles and financial crises.
But it’s not that simple. The economy and society are too complex. Expert knowledge is too limited. The science of economics is too primitive. Ordinary human beings do not respond like soldiers to government’s commands. Nor should they respond to government this way.
The economy is more like nested hierarchies but getting flatter all the time. Most corporations, from small to large, have hierarchies but they are dynamic. They adjust to the world around them.