Arnold Kling, speaking of the credit crisis and the bailout plans in America, writes:
What I call the “suits vs. geeks divide” is the discrepancy between knowledge and power. Knowledge today is increasingly dispersed. Power was already too concentrated in the private sector, with CEO’s not understanding their own businesses.
But the knowledge-power discrepancy in the private sector is nothing compared to what exists in the public sector. What do Congressmen understand about the budgets and laws that they are voting on? What do the regulators understand about the consequences of their rulings?
We got into this crisis because power was overly concentrated relative to knowledge. What has been going on for the past several months is more consolidation of power. This is bound to make things worse. Just as Nixon’s bureaucrats did not have the knowledge to go along with the power they took when they instituted wage and price controls, the Fed and the Treasury cannot possibly have knowledge that is proportional to the power they currently exercise in financial markets.
I often disagree with Arnold’s views, but I found myself nodding to this – it’s a fair concern. I’ve wondered before about democracy versus hierarchy and optimal power structures. I would note, however, that Arnold’s ideal of the distribution of power in proportion to knowledge seems both unlikely and, quite possibly, undesirable. If the aggregation of output is highly non-linear thanks to overlapping externalities, then a hierarchy of power may be desirable, provided at least that the structure still allows the (partial) aggregation of information.