When Central Is Essential

Aug 28 2012 @ 9:55am

Monica Potts outlines five things that governments do better than the disaggregated masses. She thinks risk-management is one of them:

Health insurance works best, and is cheapest, when we spread risk out over as many people as possible, which is why every wealthy country but ours has decided to spread risk out over its entire populace…. [And k]eeping the federal government in charge of disaster relief spreads risk out over the entire country, and ensures that victims in poor states—basically every state in Tornado Alley—get as much help as residents of wealthier states would.

Meanwhile, economist Glen Weyl views changes in technology as leveling the playing field between central governments and free markets:

In his famous 1945 article, "The Use of Knowledge in Society," F. A. Hayek argued that despite their inequity and inefficiency, free markets were necessary in order to allow the incorporation of information held by dispersed individuals into social decisions.  No central planner could hope to collect and process all the information necessary for social decisions; only markets allowed and provided the incentives for disaggregated information processing.  Yet, increasingly, information technology is leading individuals to delegate their most "private" decisions to automated processing systems. … While these information systems are [currently] mostly nongovernmental, they are sufficiently centralized that it is increasingly hard to see how dispersed information poses the challenge it once did to centralized planning.