to “do something” to relieve the suffering, we are inclined to support those efforts, even if we suspect that those efforts will cost us something. Intellectual reasoning might convince us that the government’s proposed efforts won’t work, are too costly, or are otherwise unjustified. But insofar as we think of our nation as our extended family, the planned efforts of the government tap into our small-group norms. These norms, thus activated, are often difficult to overcome by those who wish to make unbiased (“rational”) evaluations of government policies. For better or worse, even the best rational evaluation is often inadequate to overcome the emotional impulse to consciously tend to those among us who we perceive as suffering.
The power of these small-group norms is especially intense when government presents itself—and is portrayed by the media, by academics, and by popular culture—as being the caring and wise leader of our national “family.” In the same way that we would make personal sacrifices to save our children or siblings from economic hardship, “we” as members of the national family, applaud efforts by the leaders of our national family to rescue those among us who have fallen on hard times.
But government policies springing from these small-group norms can be counterproductive. If, for example, government raises tariffs to protect the jobs of domestic wheat farmers, workers in other industries suffer. The reason is that higher tariffs on wheat—by reducing the number of dollars that foreigners earn by selling wheat to us—mean that foreigners will have fewer dollars to use to buy other goods from us (or to invest in our economy). But because these negative effects of the tariff are spread over a large and very diverse number of people, they are more difficult to see than are the benefits of the tariff, which are concentrated on a relatively small, uniform, and easily identified group of people. Being more difficult to see, these negative effects of the tariff don’t trigger our small-group sentiments. Those sentiments, in short, bias us toward supporting policies whose beneficiaries are easily seen and whose victims remain cloaked in the complexities of reality.
Similarly, small-group norms of fairness that work well for determining the distribution of goods and resources within families and among friends are inappropriate for judging the distribution of goods and resources in the larger society. The forces that determine the relative sizes of people’s bundles of material possessions in market economies are far more complex than are the forces that determine the sizes of people’s bundles of resources within small groups.
In small groups, each person’s effort, intent, and simple luck (good and bad) can be observed and taken accurately into account. You know, for example, if your brother’s low income is the result of his bad luck or of his choices. (His low income, incidentally, might be the result of his poor choices— say, he drinks excessively—or the result of choices that are unobjectionable yet that yield only a low income—say, he chooses to earn his living as a street mime because he enjoys that line of work.) And you and others who know your brother can adjust how you treat him based upon your intimate knowledge of his particular circumstances.
In the larger society, in contrast, such personal observation and knowledge are impossible. No one can know every person’s particular circumstances. Nor can we directly observe every person’s contributions to the economy as a whole. The best available means of gauging the size of each person’s contribution to the economy is to measure the monetary earnings he or she amasses in dealing peacefully in the market with customers, suppliers, and competitors.
The norms that we use in small groups are inappropriate for assessing the merits of the size of strangers’ monetary earnings. What appear to us to be this stranger’s unjustly high income and that stranger’s unjustly low income in fact have layers of complex causes that cannot be observed and assessed with the sort of accuracy that we can attain when we observe and assess the justness of how much of a small-group’s resources are claimed by each member of that group.
Another difference between small groups and large groups is important here. In small groups we can know with confidence most of the effects on our small group if we redistribute resources from one person to another—say, if mom and dad give Jane a bigger allowance and Joe a smaller allowance. In large groups, in contrast, we cannot trace out the full effects of redistribution. Because we can’t comprehend all of the countless unseen interconnections and feedback loops that tie together the choices of millions of individuals from around the globe into the particular outcomes in which some individuals’ annual incomes are relatively low while others’ incomes are relatively high, we can’t know the full effects of redistribution policies. Attempts to redistribute incomes in such complex settings risk triggering many negative feedback loops and upsetting productive arrangements that make even poorer those people with the lowest incomes.
Higher income taxes on the rich, for instance, might diminish private investment so much that over time the resulting loss in economic opportunities for the poorest citizens swamp whatever extra income they receive from government’s redistribution policies. Likewise, redistribution might so stymie the incentives of today’s poor people to stay in school or to find and keep jobs that the economic well-being of these people is actually worsened over time by the redistribution policies that are meant to help them.
The argument here is not that these particular negative effects will occur. Rather, the argument is that some unanticipated negative effects will occur if we try to make outcomes of the large group satisfy the sense of justice and fairness that are appropriate for our small groups. The reason is that our knowledge of the relevant details of the large group—our knowledge of the details of what Hayek called “the extended order”—is puny compared to our knowledge of the relevant details of our small groups. If we try to make the outcomes of the large group satisfy the notions of fairness and justice that are appropriate for small groups, we will dampen and distort the impersonal forces of competition and of profit and loss that are necessary in a large economy to allocate resources to uses that are of maximum value to multitudes of people. We will also weaken the obligation people feel to change their jobs and businesses if consumers no longer value the outputs of these jobs and businesses.
Switching back and forth between small-group norms and large-group norms isn’t easy. It’s understandable that many people feel a strong desire to apply small-group norms to the large group. Fortunately, however, for the past two or three centuries enough people in many parts of the world have avoided applying their small-group norms to the larger society and economy—or have avoided doing so at least enough to allow global, industrial, bourgeois capitalism to take root and spread. So it can be done. People can switch back and forth appropriately between small-group norms and large-group norms. Yet media and political commentary daily compound the difficulty of doing so. In the next and final chapter of this book, we will explore the role of ideas and their inevitably dominant role in determining public policies. If our ideas are “good,” they will overcome any sentiments we might have that are destructive to “the extended order.” But if our ideas are “bad,” the consequence will be policies that undermine and destroy the extended order and, along with it, our civilization.