Size, Scope, and Fragility
Complex control of a complex system is a recipe for confusion at best, catastrophe at worst. Complex control adds, not subtracts, from the Knightian uncertainty problem. The US constitution is four pages long. The recently-tabled Dodd Bill on US financial sector reform is 1,336 pages long. Which do you imagine will have the more lasting impact on behaviour.
It is a long speech, but worth reading in its entirety. He describes a financial system that became more fragile as banks became larger and more complex. He describes the issue as “neurological”–humans lack the ability to manage such large, complex systems. He does not invoke Hayek, but he easily could.
I believe that the same holds for government. Our government has become more fragile as power has become more concentrated at the center and the scope of government has increased.
This fragility of tumescent government is what many otherwise thoughtful commentators fail to notice. They think that we can solve our problems with a value-added tax (VAT) or with a fiscal reform commission.
Instead, I believe that the problem is structural. American government will not be stable and sustainable until it is broken up and most of its functions are devolved, so that spending decisions are decentralized. A robust society would have more public goods delivered by the voluntary associations that Tocqueville noticed were characteristic of America. These associations are much more numerous and diverse than our governmental units.
This thesis would suggest that China is fragile. It may do very well for a time, but it will be subject to sudden and catastrophic failure. On the other hand, Europe remains highly federalized. At the moment, it appears to me that the fate of individual European countries is less tied to any central authority than the fate of individual American states. Sweden is somewhat insulated from mistakes made in Athens or Brussels; Maine is not so well insulated from mistakes made in Sacramento or Washington.