Like Marginal Revolution's Slogan (by Don Boudreaux)
A Cafe Hayek reader writes the following to me in an e-mail:
I have no delusions that sliced bread (or the machines and processes for making it commercially profitable) is a world-changing phenomenon. By itself, its contribution to human welfare is small compared to many other innovations and certainly compared to the accumulated innovations over time. But this fact reveals one of the beauties of the decentralized market process. To explain, I reprise here a June 28, 2004 post on the prosperity pool.
The Prosperity Pool
I’m continually impressed by the countless, seemingly daily improvements in the quality and range of goods and services available on the market. I reflected on these improvements yesterday as I watched my seven-year-old son, Thomas, play with plastic “water noodles” in the swimming pool. Water noodles are brightly colored flotation devices shaped like very large pieces of macaroni. They make playing in a pool both more enjoyable and safer for young children.
In fact, think of human material prosperity as being like water contained in a gargantuan swimming pool. The higher the “water” level, the greater is our prosperity. Call it the “prosperity level” in the prosperity pool.
How is this pool filled? Mostly, small drop by small drop. Countless people line the edge of the pool, each dripping in a drop or two of additional “water” – additional prosperity – from time to time. Very few single drops have any noticeable effect on the prosperity level. Had water noodles never been invented and produced, no one would have noticed. Ditto for almost everything else that comes available on the market – new shades of paint color for homes; improved quality of stereo speakers; improved food-freezing techniques; slightly longer-lasting light bulbs; a new fusion cuisine; a more-efficient machine for weaving fabric; improved corkage for wine. The list is practically endless.
A very few drops are large – say, the polio vaccine, and Henry Ford’s innovation for producing automobiles. But almost all drops are tiny. These tiny drops, though, together result in an enormously high level of material prosperity.
Many people want the prosperity level raised noticeably, by one gigantic infusion. Because each of us individually, even large corporations, are small compared to the whole, no one of us can ever really hope to raise the prosperity level noticeably. As a result, too many of us believe that we don’t “change the world” by contributing little drops; we arrogantly want to make a big splash – a move that raises the prosperity level noticeably.
So what do those with a passion to “change the world” do? They naturally call upon government, the one institution that can make a big splash.
To make a big splash, government makes unusually large infusions into the prosperity pool. Unfortunately, because government officials are not directed by market signals, because of public-choice problems, and because the nature of market prosperity is for it to grow decentrally and incrementally, the big splashes that government makes are too often the result of giant boulders bureaucratically tossed into the pool. These boulders often do make big splashes. They often noticeably change the level of the prosperity pool – too often downward. Giant splashes, after all, are rather wild; much of the splash ends up outside of the pool, where it dissolves.
And even if the measured level of the prosperity pool is higher after the big splash, this higher level might well be due to the fact that a large boulder is now in the pool; the volume of prosperity in the pool might be lower.
Of course, maybe I’m all wet.