Review of “Unchecked and Unbalanced” by Arnold Kling

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.


13 Responses to Review of “Unchecked and Unbalanced” by Arnold Kling

  1. tenkev says:

    Good post. Government jobs must leave alot of time for reading. Three book reviews in not alot of time.

  2. Handle says:

    “Spend money to maintain a body of trained and ready professional experts so that, when a crisis occurs, you can write a blank check of money and authority to those experts to deal with it” is a decent summary of how a good portion of our government works these days. In that way, TARP isn’t much different than the military response to 9/11, or State’s fiasco foul-up of the whole Egypt situation. On the other hand, what’s the alternative? The government’s “society insurance” role is like that of any organization which has to have risk-management specialists – when the shit hits the fan, these people become the boss.

    Of course politicians, including in the Executive, don’t have any clue as to the details of what might be required to deal with these sorts of situations. They just have to hope they can provide some generic “wisdom” and guidance, and abstract principles of judgment as to how to balance competing values, and the experts, civilian or military, will respect those concerns and limitations as they go about executing their technocratic duties.

    Obviously, they won’t. Discretion is Dictatorship.

  3. james wilson says:

    Von Hayek–“The extended order (capitalism), is transcendent–that which far surpasses the reach of our understanding, wishes and purposes, and sense of perception. It incorporates and generates knowledge which no individual brain and no single organization could posses or invent.”

    When American government took over a vast array of functions beyond its original design directly following a century of explosive capitalist advance, it took over what could not be understood. In place of an uneasy but steady creative destruction under abstract rules of conduct, we undertook to regulate what we cannot understand. It is easier to defend bad theory because it is our own cleverness, and harder to defend the invisible hand, because it is invisible.

    • Foseti says:

      In reality I’m probably more sympathetic to regulators that it would seem from reading my writing. For the reasons you mention, I think we have an impossible task.

      • pentagonpensioner says:

        Your positive bias towards regulators and regulation will be held in memory to filter your views in the future. “When American government took over a vast array of functions beyond its original design” should be a caution flag to lead us to less federal intrusiveness. And more informed regulations? Oh well.

  4. Handle says:

    Thought you might like this koan of a thought: I was discussing this notion of the “flight from accountability and individual responsibility” with a friend whose interests are more of things aesthetic than governmental. She said

    “This is one of the reasons why there is so little good art these days. The is too much ability in Modern Art to essentially commit a fraud of real achievement, since no one can really say whether the artist have failed or succeeded. The abstract, bizarre and purposefully-ugly forms are such that it is as if they were designed to defy the very possibility of criticism.

    “In fact, it’s the opposite, it’s designed to criticize the critic – to intimidate them from judgment for fear of being scolded as “not getting it”, a sure sign of ignorance and low class status, and exile from the the culture elite.

    “Modern art is just another manifestation of the flight from accountability – the evasion of the responsibility of the artist to make something beautiful.”

  5. Bruce Charlton says:

    I find it hard to discuss such matters without liberal use of scare quotes: “knoweldge”, “power”, “the law”, “science and so on.

    The scare quotes are necessary because social institutions have changed *so much* that none of these things are what they were a few decades ago.

    Once you take into account all the scare quotes we have understood nothing, explained nothing, modelled nothing…

    They are bureaucratic shells containing… nothing but bureuacracy; linked with all the other bureaucracies (and let’s not forget “the media” and “education”).

    The only thing that differs between the different branches of this single bureaucratic web is the fake label affixed, the flavor of dishonest rhetoric, the *brand*.

    • PRCalDude says:

      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.

      I have a huge issue with this. Knowledge propagates over the internet, but anti-knowledge propagates better. There’s always the “last mile” problem with knowledge – it’s dependent upon the end user being intelligent and mentally stable. Also, everyone views knowledge through their own presuppositions and biases.

      We have an increase in available knowledge, perhaps, but I see no increase in common sense or level-headed thinking – quite the opposite. I see an ever-accelerating increase in lunacy, PC, groupthink, and intellectual terrorism. Recent psychological surveys show that we’re crazier than ever and obviously PC codes are growing exponentially.

      Not having read Kling’s book, it sounds like he’s repeating a popular meme, to wit, “If such-and-such technology had existed, such-and-such dictatorship would never have come to power.”

  6. Gian says:

    Two counter-examples
    1) Declaration and energetic pursuit of war: has not the conduct of war essentially determined by elected govt? Does not the president decides if to pursue a war (i.e no war after provocations in 1990’s vs wars after 9/11

    2) Health Reform: The permanent Govt was same in 2007 and 2009. But the elected Govt had blocked Health Care reforms earlier but decided to pursue in 2009. You can not say that it is the Permanent Govt that caused Health Care reforms.

    • Steve Johnson says:

      Both quite flawed.

      Re 1.

      After 9/11 (to vastly simplify) Bush wanted to invade some country and the country wanted to invade somewhere as well. The defense bureaucracy was ready to invade Iraq and at least in part convinced that it was necessary so the debate became about whether or not USG should invade Iraq. There wasn’t a debate about invading Egypt or Saudi Arabia, was there? The bureaucracy set the terms of the debate then left it up for plebiscite. Of course, the bureaucracy that decided to invade Iraq had plenty of influence over the debate through giving press briefings to reporters like Judith Miller, interviews for news programs, etc. Who was on the “other” side? No one really – Iraq wasn’t really a client of the State Department – therefore there was no bureaucracy set up to perform the task of not invading Iraq. Most of the rest of the anti-American leaders of the world have a bureaucracy dedicated to ensuring they aren’t invaded.

      Re 2.

      The bill that was passed was written by the permanent government with items inserted by the elected government. The bill is actually a set of suggestions to the permanent government of how to set up a set of rules around, well, something or other that has to do with people buying health care. Or something like that. Note that the actual items inserted by elected officials are quite specific – money goes to district x. All congress had the ability to do was not pass this bill. It probably couldn’t even write a bill if it tried. Even then, the bills that pass are actually just suggestions to the permanent government on what the law should say.

      Congress has veto power over new demands from the bureaucracy. That’s about it.

      The bureaucracy has the media on its side continually working to convince people that whatever the bureaucracy wants is good and right. Those people vote. They only have to vote for the bureaucracy one time for the changes it wants to be permanently made.

  7. DW says:

    Interesting review. And on google’s front page for reviews of this book. Well done.

    One quibble on your focus: just because bureaucrats shun individual responsibility doesn’t mean collectively they don’t grasp for power beyond their knowledge.

    I think Kling would focus on their collective powers.

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