The Invasion of the Imaginary Knaves

Our lives are full of what I call Imaginary Knaves. These are the folks who are responsible for the global financial crisis. They are also responsible for keeping the electric car and solar power from being viable technological phenomena, making poor people poor, preventing international development from happening, and causing whatever other important bad thing that keeps happening.

This may be difficult for us to admit, but the Imaginary Knaves are just that: imaginary.

It is tempting for us to believe that the world would be a happy, smiling, prosperous, peaceful place if it weren't for those Knaves who keep us from attaining all that our species is capable of. However, in my view, no such Knaves really exist.

Where does that leave us? If there is no such thing as "Big Business" or "Big Oil"or "Big Farming" or "Big Government," then what is going on?

In my view, the world is a collection of people and their various desires and perspectives. That includes all of us. We know us pretty well, because we are us! So we know that a few of us are saints and a few of us are sinners, but the rest of us are people with occasionally competing needs and imperfect moral performance. (That is, most of the time, we're reasonably ethical, but we are all far from being perfect.)

What this means in an every-day sense is that no matter how destructive, say, bank bailouts are, it is not exactly the intention of investment bankers to empty the public finance coffers and stick us all with the bill.

No really, think about it. Consider what might be going on in an investment banker's head. I submit that it is far less likely that these guys are thinking "MOO HOO HA HA HAAAA!!" than it is that they are basically trying to do a good job in a highly stressful and competitive industry. You can probably imagine that the investment banker who best protects his shareholders' interests and his company's bottom line is going to feel best about the job he's done. Naturally, if that means negotiated a big corporate bail-out, then why wouldn't an investment banker do it?

To appreciate this, you have to keep two things in mind:

(1) No one individual is responsible for the environment in which he/she operates. If corporate bailouts and corrupt politics are how a given industry operates, that is certainly a problem; but it is not the fault of one individual, or a small group of conspirators.

(2) Society's needs are not better served by a lone dissident. If one SVP at an auto-company refuses a government bailout or subsidy, he will get laughed out of the office and/or fired. The auto-company itself, however, continues on, business-as-usual.

The Point
What this indicates to me is that most of our social problems reflect poorly designed institutions, not the evils of conspiratorial Knaves. Hayek famously wrote that the worst rise to the top in modern welfare states; they have every incentive to do so. But of course, the worst never really think that they're the worst. They think everyone else is the worst. The worst think they're doing the right thing.

The solution, as I see it, is to impose strict limits on the institutions that impact our lives. Limit the size and scope of government, limit the number of rules in the company handbook, limit the number of demands you place on your significant other.

The bigger and broader an institution gets, the more it tends to fail. This is an intuitive result expressed first by the age-old aphorism, "The bigger they are, the harder they fall." Freedom doesn't just give us the benefit of more control over our lives, it also makes our institutions more dynamic to the few needs they must satisfy.