The response to the pandemic: A Hayekian view
26 August 2020
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Economic Theory
25 June 2024
https://iea.org.uk/wp-content/uploads/2020/08/A-Hayekian-View.pdf
Summary
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- Socio-economic systems should be understood as ‘complex’ phenomena that cannot effectively be controlled or managed through central planning. In general, markets and other decentralised governance mechanisms that rely on competition and signalling are better placed to facilitate learning and adaptation in conditions of complexity.
- Pandemics such as the new coronavirus are also complex systems that interact in often unpredictable ways with socio-economic processes.
- Markets and decentralised governance mechanisms may not be able to coordinate an effective pandemic response owing to high transaction costs. However, the complexity of the interactions between socioeconomic processes and the coronavirus means that policy-makers may lack the knowledge to discern which interventions will address the health and economic dimensions of the pandemic at a tolerable cost.
- Expectations for public responses to the pandemic should, therefore, be modest and should recognise that to a large extent the complexity of the policy challenge will mean that successful responses may owe as much to accident as to design.
- That government action, however clumsy, may be necessary in ‘emergency situations’ does not mean that such action should continue to substitute for markets when the emergency has passed. On the contrary, the difficulties that governments face in responding to the coronavirus could be multiplied if attempts to plan economic activity became the norm in the post-pandemic age.
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