Just as leaders of the Group of Seven and European Union officials were preparing for a June 8-9 gathering that, given controversial U.S. tariff announcements, promised to be challenging, President Trump unexpectedly asked, “Why are we having a meeting without Russia? We have a world to run … We should have Russia at the negotiating table.”
A world to run? Is it possible that seven or even eight intelligent-but-ultimately-ordinary mortals, meeting for two days in Canada, could figure out a way to run the world, reach an agreement, and still have time for photo ops?
Or, as President Trump was perhaps suggesting, might it take a lot more people and much more than two days? After all, there are billions of unique and purposeful individuals transacting in countless markets across the global economy — far too many economic cats to herd into a master planner’s bag. Indeed, the G-7 leaders’ failed agreement itself demonstrated how hard it is to get just seven cats in a bag.
In 1988, Nobel Laureate F.A. Hayek wrote about powerful politicians’ desire to run the world. To yield greater human flourishing, the thinking goes, we must put the brightest and best (read: themselves and those of their picking) in control of a nation’s, or even the world’s, economy. Hayek referred to this political yearning as a “fatal conceit.” As a scholar, he welcomed the theory that a small number of people might “run the world,” but was overwhelmed by deadly historic outcomes when governments attempted to do just that.
As the most famous quote from Hayek’s The Fatal Conceit goes, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
The accumulated data tell us that nations where freedom is greatest for individuals to pursue their own dreams, without first getting government approval but always subject to rules of law, are the very nations that systematically enjoy the deepest and broadest prosperity. The paradox is obvious: The greater the use of command and control by central authorities to make things better, the more likely it is that life gets worse.
Of course, the chief difficulty is found in gathering the immense amount of knowledge required to run the world, or even just one small part of it. An enormous amount of knowledge is gathered and processed spontaneously and quietly by markets and market participants.
For example, no single person has to know how to make a smartphone and all of its components and how to coordinate the production and distribution of parts worldwide for it to be built. Consider the Apple iPhone’s story, which was documented in a fascinating 2016 study by Edward Humes.
Humes tells the story one piece at a time. The phone’s home button begins in Hunan province, China, where Lens Technologies, Ltd, fashions sapphire crystal into the button cover. The button then travels 550 miles to Jiangsu province where another firm, LY Technology, bonds the crystal to a trim ring. The paired components are then shipped to Taiwan where a Dutch firm weds the ring to a chip imported from Shanghai.
As specialization and division of labor dictate, the assembly is then shipped back and forth to Japan, Taiwan, and Shanghai again as various finishing steps are completed by different companies. Meanwhile, the iPhone’s German-produced barometric sensor crosses the globe and enters the production process, as does glass from Kentucky and power amplifiers produced in California, Massachusetts, Colorado, North Carolina, and Pennsylvania.
In total, according to Humes, the component parts together travel 160,000 miles in their journey to become a completed phone that then is shipped to a global destination. And this is just one model!
Is there an iPhone coordinating office located in some government agency that handles, or could handle, every small detail of this? No. Is there an iPhone czar who figures all this out and designs the smooth operating supply chain from the top-down? No. The coordination is done spontaneously by markets where price signals communicate ups and downs in the process.
Can you imagine the G-7 or White House taking over and improving iPhone production? What about aluminum? Steel? Automobiles? Canadian timber products? To believe a group of national leaders, or any single leader, can effectively replace the global market process is to engage in the fatal conceit.
In order to run the world, the G-7 will need more than Russia. They will need an uncoordinated market process guided by a predictable legal framework.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson University College of Business & Behavioral Science, and author of the new report “The Economic Situation, June 2018.”
