Friedrich A. Hayek was awarded the Nobel Prize in Economics on December 11th, 1974. On this occasion, he gave the now famous lecture “The Pretence of Knowledge.” To mark the 50th anniversary, sociologist, psychologist and political scientist Erich Weede, Professor Emeritus at the University of Bonn, takes up Hayek’s thoughts and shows the relevance with regard to current developments.
Nothing is more dangerous than a claim to know, if one still suffers from ignorance. Unjustified claims to knowledge are the worst, if they come from scientists. Their job is the pursuit of knowledge. They are paid for it. But scientists are not immune to the pretence of knowledge. The best examples are climate scientists during the Cold War. In those days, some of them claimed that we were headed for a new ice age. Some even suggested that the nuclear superpowers should drop nuclear bombs on the poles in order to prevent or at least slow down the arrival of the coming ice age. Assuming that climate scientists know better now, we should be happy that no world government existed in those days. The superpowers were sufficiently hostile to each other that they did not even consider joint action against the coming ice age. Although claims to knowledge tend to be much better supported by evidence in the natural sciences than in the social sciences, climate science might still belong to the weaker sciences and be more vulnerable to exaggerated claims to knowledge than other sciences.
According to the insights of Karl Popper, one should keep in mind that certainty about possession of the truth is beyond human capability. The best men can do is to be aware of human fallibility, to test theories rigorously, to keep in mind the preliminary character of our knowledge, and to encourage debate and criticism of prevailing theories. Unfortunately, politicians demand firm and consensual rather than qualified and tentative answers from scientists. Ultimately, they want to legitimize their policies by getting support and approval from scientists. That is why cooperation between politicians and scientists easily undermines science and promotes the pretence of knowledge. Therefore, the close cooperation between climate scientists and politicians should be of some concern.
National security is another field where the pretence of knowledge is frequent and dangerous. Threats to security require an analysis of other nation’s capabilities as well as of their intentions. It is hard to evaluate fighting capabilities before military action begins. The Russian invasion of the Ukraine in 2022 might serve as an example. Almost certainly, Putin and his military advisors expected less protracted resistance by the Ukrainians than they got. Moreover, Western observers underrated Ukrainian capabilities, too. So far, this war may have resulted in about half a million fatalities.
Whereas analyzing capabilities is difficult and risky, the situation becomes even worse once we look at intentions. Who can confidently read Putin’s mind? Some politicians claim that Western support of Ukrainian defence is essential in order to protect Poland and the Baltic states from Putin’s expansive intentions. Admittedly, it is conceivable that success in the Ukraine will make Putin more aggressive because he regards his Western neighbours as easy prey. But it is equally conceivable that Russian battle losses and his inability to conquer even Charkiw, in spite of its location close to the Russian border, have taught Putin that war is too dangerous. Whatever your views are on this issue, it is hard to imagine that they are well supported and beyond reasonable doubt. Nevertheless, European politicians cannot avoid making decisions about supporting Ukraine or not doing so, and thereby implicitly accept one or the other one of these views.
What economists know that leftist politicians do not
Concerning the big decisions in the economic realm, we are in a somewhat better situation than national security analysts and policy-makers. Although certainty about possession of the truth remains beyond human reach, although the exact instrumental value of economic freedom and property rights for prosperity and economic growth remains debatable, we do know something. Adam Smith has taught us that the hope to acquire property is an important incentive for eliciting work effort. Ludwig von Mises has added that we need private property rights in land, factories, and enterprises for scarcity prices and a rational allocation of resources to apply. Finally, Friedrich August von Hayek added that the exploitation of human knowledge requires decentralized decision-making. Together these arguments imply that central planning is a road to misery.
Forceful efforts to make planning work by neglecting this insight have invariably ended in tragedy and human suffering. The ‘great leap forward’ under Mao Zedong is the worst example, resulting in more than forty million deaths from starvation. The overall number of victims of communist rule in China might be close to sixty million. Although Cambodia is a small country and the numbers of victims cannot compare with China’s, the fraction of the population starved or battered to death under communist rule might be as high as a quarter or even one third. In the Soviet Union, estimates of the number of victims, including Ukrainian peasants starved to death in the early 1930s, vary between a lower bound of twenty and an upper bound of sixty million. Together, this takes the number of fatalities of communism and central planning beyond a hundred million.
Looking at cross-national and econometric studies yields similar evidence. Economic freedom or capitalism is correlated with prosperity and it contributes to higher growth rates. As Hayek pointed out half a century ago, economic freedom in advanced nations even promotes the well-being of those people who still suffer from the denial of freedom by their rulers. Most Chinese who escaped from extreme poverty during the last decades owe it to the advantages of backwardness which include the possibility to acquire Western technology and to imitate foreign business models, as well as access to rich Western markets. In my view, this is rather strong evidence in favour of those branches of economics which are most adverse to central planning and socialism and most favourable to economic freedom, i.e., Austrian and Public Choice Economics.
Whereas central planning under communism is the extreme case of the denial of economic freedom, industrial policy as applied in the West is a more moderate version of the pretence of knowledge or ‘government knows best.’ Preferred instruments of industrial policy-makers include protectionism and subsidies. Protectionism permits policy-makers to neglect comparative advantage. In most less developed countries, capital and skilled labour is scarce. Heavy industry needs lots of capital and skilled labour. Nevertheless, it has frequently been prioritized by governments despite imposing a comparative disadvantage on poor nations.
Subsidies for favoured industries presuppose that government indeed knows better than private entrepreneurs. Theoretically this is an implausible assumption. Why should politicians and administrators, who do not personally suffer the consequences of errors, be more alert to business opportunities than private entrepreneurs, who either benefit from or suffer the consequences of their choices? The more powerful a politician or official is, the easier it becomes not to learn from failure and to continue wasteful policies. Private entrepreneurship and competitive capitalism do not protect us from all kinds of errors, but it is easier to correct lots of private errors than big governmental errors. Subsidies as well as protectionism expand government and promote bureaucratization. As Mises recognized in the 1940s, bureaucrats stick to norms and rules or precedents. They do not promote cost-cutting and innovation.
The trouble with green deals
In spite of the cosy relationships between climate scientists and some Western governments, it is conceivable that mainstream climate scientists are right and that their worry about a heating planet is justified. If this assumption is made, then burning fossil fuels generates a negative externality which justifies government intervention. The economically least harmful ways to do it are either a globally applicable carbon tax or the sale of emission permits. If only some nations do it, but others do not, it promotes the relocation of dirty or fossil fuel burning industries from countries which care about the climate to those who do not.
Of course, it is possible to blunt the incentives for relocation by imposing border adjustment tariffs which penalize those who invite dirty industries. Unfortunately, this promotes protectionism and distributional struggles (or rent-seeking). It easily degenerates into a bureaucratic nightmare. Moreover, it is hard to imagine rich and poor countries agreeing on a global carbon tax or emission permit regime. To improve the chances of a global agreement, one might consider agreement only between some countries and letting poor and small countries free ride. But the very biggest emitters, including China and the United States, have to be part of any meaningful agreement. Even poor India has to be part of it, because it has the largest population and is burning ever more coal. Such an agreement was not forthcoming or likely before Trump’s return to power. Now, the idea is dead. This generates a predicament for Europeans who care more about the climate than others.
Since the EU’s share of global emissions is below 10% and likely to fall over time, collective action at the European level is insufficient. In spite of possessing the third or fourth largest economy in the world, unilateral action by Germany is even less likely to save the climate. The German share of emissions has recently been as low as 1.8%. Nevertheless, our politicians try to protect the climate not only by participating in a EU-wide emission permit regime which does not yet cover all emissions, but also by adding a lot of governmental interventions and regulations in order to reduce emissions: for example, by granting favourable feed-in prices for green energy even at times when too much sun or wind generates a temporary surplus of energy.
Simultaneously, Germany has decided to get out of nuclear energy even before getting out of coal. Since coal is dirty, but nuclear energy is fairly clean (and not volatile as sun and wind are), this is not a reasonable policy. The results of German policy include the highest energy prices among rich countries, increasing burdens of bureaucracy on the economy, and a crisis for German industry. Although the climate benefits of the policy are hardly visible and the costs are destructive, the Scholz-Habeck government pretended to know what has to be done until its end, and a likely Merz-Scholz or Merz-Habeck government after the elections is unlikely to make a significant correction of these policies.
What should be done?
Under the assumption that mainstream scientists are right and that heating of the planet is dangerous as well as human made, something needs to done. Although global collective action remains desirable, both Trump’s return to power and geopolitical rivalry make it ever more unlikely. Another hope is that developed countries do something without waiting for poor countries to contribute. Even rich countries, however, seem incapable of collective action. The pioneering, interventionist, and bureaucratic approach chosen by Germany has been a disaster and is recognized as the dumbest energy policy in the world. It has become a deterrent to doing something about the climate. The only hope that still remains is reliance on technological progress. In the U.S., this has permitted a switch from coal to shale gas, from a very dirty to a less dirty fuel. For decades, France—and, more recently, China—exploited nuclear energy on a massive scale. More generous funding of research on nuclear energy might help to improve it. Promoting critical race theory or gender science does not protect the climate. In contrast to collective action, technological progress benefits from unilateral and decentralized decision-making. It does not require consent or planning by politicians, only funding. It might even benefit from geopolitical rivalry. Researchers and enterprises should compete to find out the cheapest and cleanest way to mass produce energy.
This essay appears courtesy of the Hayek Institute in Vienna.
