Cost Benefit Analysis - A Tool In The Hands of A Planned Economy

It should seem common sense that something is wrong with an economic order when it is plagued with inflation and blunts in innovation. Hayek writes in Use of Knowledge,

prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan

What is chiefly wrong with health care? To what shall we owe its sickening inflation and its frailty of innovation. When we perform cost benefit analysis we take macrostatistical values that may or may not apply to our population of interest. We then assess their impact on a subjective score of quality of life determine through surveys. Then we crunch those numbers through a simulator through which we input prices. Mind you we assume these prices will not fluctuate through our 10 year horizon. Then we finally discover that magical incremental cost effectiveness ratio. This number tells us that introduction of a medication, procedure or diagnostic test is worthy of its cost. We use these methods to allocate resources on behalf of the whole. We decide what medications are right for others given our estimation of their quality of life. This is none other than a planned economy.

Democracy Is No Safeguard For Free Markets

Hayek writes in True Individualism “[Reason] is a product of an acute consciousness of the limitations of the individual mind which induces an attitude of humility toward the impersonal and anonymous social processes by which individuals help to create things greater than they know, while the latter is the product of an exaggerated belief in the powers of individual reason and of a consequent contempt for anything which has not been consciously designed by it or is not fully intelligible to it.”

Here Hayek contrasts reason in the singular and Reason in the aggregate. The anonymous movement of the whole to reason on its own behalf far excels over any one individual. Consequently any individual assuming commanding heights over how the whole distributes its resources elects the economy into destined failure.

We learned in the 20th Century the failure of such economies governed by a single or elite few of individuals. This is due to limits every actor in an economic process bear in assessing the position and direction of markets. Hayek writes in Use of Knowledge In Society, “[the economic process is the] problem of the utilization of knowledge which is not given to anyone in its totality.” The failure of single or few individuals commanding market movements rests in this failure of comprehensive knowledge.

What of any sum of individuals commanding the distribution of resources for the whole? What if a majority in a democratic process voted to command the distribution of resources for the whole?

More members deciding the fate of markets likely bears more knowledge as a whole than the single or elite group. However, history shows that the parliamentary or legislative process embodies individuals who lack relevant knowledge regarding the market process.

A democratic process is just as prone to market assessment errors as dictators and elite governing bodies. Markets fail to be markets when individuals either in singular, minority, and majority take rein of the commanding heights of the economy on behalf of the whole.