“Crony capitalism necessarily fails because it thwarts the emergence of knowledge”

Prices cc

Opacity is the enemy of real wealth creation. When businesses and other special interests collude to obscure price signals for their own self-interest the overall economy suffers. In order for an economy to work as it should, prices (real prices) must be discovered. A top down crony economy thwarts this price discovery and so it becomes increasingly unstable. Incorrect information compounds incorrect information until collapse.

Detroit is what this country is headed toward in microcosm. Crony interests long gamed the city government for themselves. Over time the local economy made less and less sense, because no one knew the real price of anything within the city government. Prices (especially wages and benefits for city workers) were manipulated until finally the city system came crashing down.

The USA in contrast to Detroit can just print more money to pay its bills, and this is what it has done. However it looks like the bond vigilantes might be saddling the horses and reality might be on the Autumn wind.

Sooner or later real prices are discovered. The question is whether one wants to learn what they are relatively painlessly in a free economy, or whether one wants learn what prices really are in a giant crash in a highly manipulated (typically crony) economy.

(From Forbes)

“That capitalism is chiefly a knowledge system, rather than an incentive system. After all, when the Neanderthal in his cave had the same set of physical appetites and natural resources that we have today — the difference between our lives and the lives of Stone Age penury is the growth of knowledge, which is a process of learning which depends on falsifiable experiments. A great result of the research in Knowledge and Power is that crony capitalism necessarily fails because it thwarts the emergence of knowledge. Knowledge comes from experiments that can either succeed or fail. If they’re guaranteed ahead of time, information theory tells us that they cannot yield real profit; any profit they yield is extorted from the rest of us.”

Click here for the article.