Uses of Ignorance; G. Hagedorn

740 THE FREEMAN December do tends to help the poor. The spending of the rich gives employ ment to the poor. But the saving of the rich, and their investment of these savings in the means of production, gives just as much em ployment, and in addition makes that employment constantly more productive and more highly paid, while it also constantly increases and cheapens the production of necessities and amenities for the masses. The rich should of course be directly charitable in the conventional sense, to people who be cause of illness, disability, or other misfortune cannot take employ ment or earn enough. Conventional forms of private charity should constantly be extended. But the most effective charity on the part of the rich is to live simply, to avoid extravagance and ostenta tious display, and to save and in vest so as to provide more people with increasingly productive jobs, and to provide the masses with an ever-greater abundance of the necessities and amenities of life.

t) GEORGE HAGEDORN-------------------~---. Uses of Ignorance SOME TIME AGO in Washington, this writer gave a talk at a meet ing of fellow economists, in which a somewhat unusual course of ac tion was suggested. I will state it at this point and ask you to re strain your initial indignation. My recommendation was this: Business economists ought, at this stage of history, to seize aggresMr. Hagedorn is Vice-President and Chief Econ omist of the National Association of Manufac turers. This column appeared in NAM Reports, September 7, 1970. sively all opportunities for assert ing the1:r own ignorance. I start from the premise that economists have a vast fund of ig norance to exploit. There are im portant items of factual informa tion we do not have, there are critical relationships we do not understand, and there are poten tialities for the future that we are not aware of. Economists are generally well aware of the limitations of their knowledge. And they do not ordi1970 USES OF IGNORANCE 741 narily conceal it from the non economists with whom they deal.

But their statements of their own ignorance tend to be apologetic confessions, whereas my recom mendation is that they should be aggressive assertions. The inability of economists to know certain important things is itself a fact of great significance. We economists are probably the people best qualified to analyze the implications, for company ac tion and for government policy, of our own ignorance. We should strive to make our lack of knowl edge a part of the positive con tent of decision-making, rather than a sad apologetic footnote to it. This is what I mean by an ag gressive assertion of ignorance. I have in past writings occa sionally ventured the opinion that much of the economic forecasting that is done in the ordinary way is not only useless but harmful. Decision-making is an inescapable necessity in business operations, but forecasting is not. Any deci-, sion has to be made in the light of relevant facts which are known, but also in recognition of what is unknown and perhaps unknow·· able. The worst thing the econ·· omist can do for the decision-· maker is to obscure the line be·· tween what is known and what is unknown.

This is almost exactly what is done in the customary procedures of forecasting. The economist, fully aware of his own limita tions, feels obliged simply "to do the best he can" in providing fore casts of anything his principals want forecasted. Especially in Political Affairs I also believe that a more ag gressi ve assertion by economists of ignorance is desirable in the formulation of national economic policies. The fine-tuning approach to monetary and fiscal policy would, of course, be fully justified if our knowledge of the changing economic situation were always complete. But if our explanations of the limitations in our knowl edge are apologetic, rather than aggressive, we are not likely to deter policy makers from the fine tuning approach. An aggressive assertion of our ignorance, and an analytic explo ration of its consequences, leads howeve'r to a rej ection of the fine tuning approach altogether. The decision-making strategy which takes full account of ignorance leads in the direction of maintain ing a relatively steady posture in fiscal and monetary policy.

National policy in regard to the balance of payments is a prime example of how an ,aggressive assertion of ignorance can be of great help. I speak feelingly on 742 THE FREEMAN December this subject because my own fund of ignorance on it is so large. Furthermore, I am proud of the fact that I came by my ignorance the hard way - through long study which revealed that most of what I knew about the balance of pay ments wasn't so. An aggressive assertion of ignorance on the "balance of payments problem" (whatever that may be) would have led to better national policy decisions in that area than we have in fact had. Unknowable in Principle, Unworkable in Practice One logical reaction from econ omists to my emphasis on igno rance may be to advocate more and bigger programs of research to fill in the knowledge gaps. I don't mean to argue against this approach but I do have reserva tions about its fruitfulness. Much of what we would like to know is, I think, not only unknown in prac tice but unknowable in principle.

The reason I say this is that Wisdom and the Law there seems to me to be an in herent contradiction in the belief that we ever can know certain things. For example, if we ever became able to predict the large and sudden changes in the inven tory situation that are occasional ly recorded, they would cease to happen. Perhaps what is needed in eco nomics is an equivalent of the Heisenberg principle of uncer tainty in physics. This kind of precise definition of what we can know and can't know would, I believe, be a most notable contri bution to our science and a most helpful guide to practitioners of our art. All this shouldn't be too shock ing and it may even be trite. If economists really knew what they are supposed (by others and some times by themselves) to know, there would be a good case for a centrally planned economy. We can save society from that fate by asserting our ignorance aggres sively. ~ IDEAS ON LIBERTY IF CIRCUMSPECTION and caution are a part of wisdom when we work only upon inanimate matter, surely they become a part of duty too, when the subject of our demolition and construction is not brick and timber but sentient beings .... The true lawgiver ought to have a heart full of sensibility. He ought to love and respect his kind, and to fear himself.

EDMUND BURKE, Reflections on the Revolution in France (1790) CLARENCE B. CARSON Throttling the Bailroads The Grip of the Unions GOVERNMENT throttled the rail roads in three ways mainly. In the first place, restrictive regula tion took away crucial managerial authority from the railroads and vested it in the Interstate Com merce Commission. This was sup plemented, in turn, by various legislative inhibitions of general application. In the second place, government subsidized and other wise privileged competitive means of transport. In the third place, government fostered the organi zation of railway unions and aided them in various ways in circum scribing and hamstringing the use Dr. Carson is a frequent contributor to THE FREEMAN and other journals and the author of several books, his latest being The War on the Poor (Arlington House, 1969). He is Chairman of the Social Science Department at Okaloosa-Walton College in Florida.