How would Hayek solve climate change?

Disclaimer: this post concerns two things about which I don’t know very much: economics and climate policy. If you’d rather read something I’m supremely qualified to talk about, try this post on rookie errors I’ve made in my machine learning career.

Jimmy Wales, the founder of Wikipedia, created the most valuable product of the 21st century and gave it away for free. I was therefore a little surprised to read that he’s a fan of Friedrich Hayek, the Austrian economist commonly associated with neoliberalism and the Chicago school of economics. In particular, a 1945 piece entitled The Use Of Knowledge in Society reportedly provided the inspiration for Wikipedia’s “wisdom of the crowds” approach to curation. This short essay turned out to be the best thing I read in 2020.

Hayek claims that most economists consider the foundational problem of the field to be roughly “how to best organize an economy where everybody has perfect information and behaves rationally”. There’s a rich tradition of behavioural economists and psychologists challenging the second assumption (rationality), but Hayek’s problem is with the first part (information).

In reality, asserts Hayek, nobody actually has all the information that you’d need to work out the right way to run the economy. In fact, it’s worse than that — most of the information doesn’t even really exist in a “concentrated or integrated form” — it’s locked up in the habits and the reflexes of people doing their jobs.

We need to remember…