Arnold Kling is one of my favorite bloggers. I had the good fortune to have lunch with him once, though I don’t think I made a particularly strong impression. Anyway, I’d been looking forward to reading his book for a long time.
The argument of the book is relatively easy to summarize. Kling believes that knowledge is becoming more diffuse while political power is becoming more concentrated. He views this situation unfavorably – power, according to Kling (at least implicitly), should be exercised in proportion to knowledge. At the least, he believes that people should pay more attention to the distributions of knowledge and power. Here he is in his own words:
When knowledge is highly concentrated, power can be used effectively to make decisions that achieve intended results. On the other hand, when knowledge is dispersed, concentrated power can produce a brittle system in which mistakes are made frequently and corrected only with difficulty. With dispersed knowledge, decentralized systems, notably markets, are likely to be more robust than centralized organizations, such as large corporations or governments. I believe that the relationship between knowledge and power currently favors decentralized systems.
I unreservedly agree with Kling’s argument with respect to knowledge. Knowledge is becoming more complex and diffuse. Kling focuses on the financial industry. Knowledge has become more specialized, and therefore more diffuse. Kling also repeatedly cites the example of the internet as a inherently diffuse source of knowledge.
Unfortunately, with respect to power, I have some disagreements with Kling. Let’s take his favorite example of TARP. Under TARP, Congress allocated close to a trillion dollars to buy "troubled assets" (my favorite term from the financial crisis) from failing banks. Kling uses this example to show how much power Congressmen have – they can spend trillions!!
But, a closer look at TARP reveals who really had the power. Congress was essentially blackmailed by the financial bureaucracy into passing TARP. Did Congress want to destroy the global financial system? Of course not. So, they only had one choice – pass TARP. The financial bureaucracy told Congress to dance and Congress did. There was clearly a crisis, did Congress have any better ideas? Of course not – please don’t be ridiculous.
Once passed, what did TARP actually do? In short, it gave a trillion dollars to the bureaucracy to spend as it saw fit. The bureaucracy had changed its mind by the time TARP passed. Instead of investing in "troubled assets" the bureaucracy now wanted to invest directly in what we might call "troubled banks." Nothing in the bill prevented bureaucrats from totally changing how the money was spent (a good indication of who was really in charge). TARP was therefore immediately used to inject capital into banks and into auto companies in a decision that could only make sense to the bureaucracy (if the plebes don’t like bank bailouts, maybe they’ll be happier if we bailout some plebe companies, and who’s more plebe than GM?).
So, if I’m right, it’s overly-simplistic to describe what we see as a concentration of power. I admit that in some ways power is more concentrated – someone is clearly exercising a huge amount of power. But who and how? If we don’t know, are they really that powerful? The exercise of power is also not particularly direct. TARP was – perhaps more than anything else – an unorganized mess. Whoever was exercising power was doing so in an incredibly haphazard and disorganized way. I think these facts – that we don’t really know who is exercising power and they don’t seem to be able to exercise it very directly or effectively – are as salient as the fact that the power has become more concentrated.
Ok, let’s move on to how I view power and return to the divide in a minute. We need to explain how power has gotten more concentrated, less direct, and more anonymous. Power obviously requires decision-making and I believe the decision-making process that has been adopted by the government and other large organizations is broken. Only by analyzing the decision-making process can we explain everything that we’re trying to explain. Here is Moldbug’s explanation of how the government makes decisions (in my experience, the framework works just as well for any large organization – like large financial institutions):
Within USG [the US government], here are the preferred sources of policy, ranked in order of rough precedence.
#1: the law. A USG employee is always on extremely solid ground when his actions are dictated by the majesty of the law. He has no choice at all. Therefore, he cannot possibly be accused of any personal turpitude, and nor is he responsible for any suboptimal outcome. Fiat justitia, ruat coelum. Sorry, bub, it’s the law. He just works here. Of course, anything good that happens in his vicinity will redound to his credit. With the law – you can’t lose.
#2: science. The ordering of #1 and #2 are a matter of taste, as the two hardly ever conflict these days. Indeed, when science is available, if you read the law it will generally say: follow science. And #2 enjoys all the fine benefits previously described under #1.
#3: public opinion. USG is, of course, a democracy. Sometimes it is helpful, in future-proofing one’s ass-covering, to know not just what public opinion is today, but what it will be tomorrow. Ask a journalist – that’s his job. Of course, when today’s public opinion conflicts with science or the law, it is the role of the brave civil servant to defy it. And of the journalist to mend it.
#4: a committee. Sadly, some decisions appear for which #1, #2 and #3 produce no clear answer at all. In this case, the only remedy is to gather as many "stakeholders" as possible in the same room. After all, too few cooks spoil the broth, they say.
#5: personal authority. This is sometimes sufficient to order pens. But usually not.
Note that the whole framework is designed to ensure that only in the direst of circumstances does someone actually have to take responsibility for making a decision. This is to be avoided at all costs!
Using the framework, we can see how power could be anonymous and ineffective while still becoming more concentrated. Let’s stick with TARP. Congressmen, like everyone else, don’t want to exercise responsibility, so they consult the law, which doesn’t help. Next they consult science. Fortunately, the financial bureaucracy is staffed with many economics PhDs who will be happy to scientifically demonstrate why not bailing out the banks will cause ruin.
The specialists can use "science" and who is a Congressman to question science? Science demands $700 billion dollars! So Congress wrote the check. (Notice that science trumps public opinion).
I believe the decision-making framework provides a better picture of how power is exercised. Congressmen have only ornamental power, since the only way they could exercise their power comes through the use of accountability, which they shun. Instead, they’ve outsourced their power to anyone who seems able to ground a decision-making process in law or science. These anonymous wielders of power are really in control, but their mechanism of control is unwieldy. Thus, though power has become more concentrated, it has also become anonymous and ineffective.