Milton and the Knowledge Problem

By S.D. Plissken | August 13, 2018

Milton has a serious knowledge problem: it lacks awareness of the “Local Knowledge Problem.”

A succession of Milton selectmen, town officials, planners, economic developers, as well as much of its population, have been absolutely certain that Milton needs a family restaurant at Exit 17. They have known this, almost as an article of faith, for years. Few question it.

Some might ask how they received this revelation (or why they have persisted in believing it for so very long). Well, they will tell you. The major weight of Milton’s increasingly high property taxes is borne by homeowners. Unaccountably, those taxpayers do not like to bear that burden. So, that tax burden should be shifted onto businesses. Or, at least it could be, if there were only more businesses. Milton needs more businesses.

The business owners’ incentive to line up for this mulcting remains unclear. It might appear that they have none at all. Alternatives, such as reductions in town government or in its budgets (or even just holding the line), easing local regulations, seeking state regulatory relief, etc., are never seriously considered. That would be crazy. Milton just needs more businesses.

There are aesthetic considerations too. Milton deplores just any business venture that might arise through natural market processes. (Witness the China Pond and Mi-Te-Jo expansion melodramas). Milton does need more businesses, but they need to be the “right” sorts of businesses.

Restaurants might be good, but franchise restaurants are obviously less so. They do not strike the right tone; they are a bit déclassé. However, a “family” restaurant could work quite nicely. That would be just the “right” sort of business. Absolutely. Milton needs a family restaurant business at Exit 17. No doubt at all. The town government knows what is best for Milton.

But it does not know. It could never know – that would be impossible – because of the “Local Knowledge Problem.”

Professor F.A. Hayek (1899-1992) of the London School of Economics (and winner of the Nobel Prize in Economics) published “The Use of Knowledge in Society” (often called the “Local Knowledge Problem”) in the American Economic Review in September 1945. His article was rated recently as among the most important 20 papers of the last 100 years. In it, Hayek explained why central planning is all nonsense.

The knowledge required for economic planning is imperfect, transitory, and widely dispersed among many actors. No board, commission, or committee of individuals could ever hope to assemble enough for an optimal solution (and perhaps not even enough for a poor one). It is impossible for them to do so. The necessary knowledge resides temporarily – the situation is ever changing – in the array of all market participants. (Nowadays, it might be said that the necessary knowledge and information is “Crowd Sourced”).

As one proceeds north from Milton along NH Route 16, the results of successful decisions based upon such dispersed local knowledge may be seen readily. There are three gas station convenience stores, two restaurants, a trading post, an auto parts store, a sugar house, a Kung Fu dojo, a garden center, a motel, a farmers’ & crafters’ market, a stove museum, and a fish farm. There are also quite a few home-based businesses. In season, there are several farm stands.

All of these businesses were created without benefit of central planning, through market processes. Their entrepreneurs took a chance, based upon their own intuition and local knowledge. They invested their own capital (available in part due to lower taxes), resources, and effort in those concerns. Bravo! They have satisfied market demand, and done so with no cost, risk, or loss to taxpayers if they fail to thrive.

Milton’s central planners have their thumb on the scale in “knowing” that Milton needs a family restaurant. Without adequate knowledge, which they can never have, it is their own preferences they put forward in defiance of market desires. That can garner only imperfect results at best and likely “it will all end in tears.” (Remember the most recent strong preference failure of this sort: the landfill?).

Why should it not be that an electric car-charging station, farmers’ market, sheep farm, meadery, dojo, cell-tower, billboard, or things not yet imagined arises at Exit 17? Why is a family restaurant necessarily the optimal solution? How can planners know that? (A free market might even prefer that location remains as it is). Obviously, they cannot.

Yes, there is a sort of arrogance to it all. Milton and its taxpayers are not part of some SimCity game.

Of course, there is also the additional hurdle of water and sewer facilities. The proposed Exit 17 location lies beyond the town water network. (Exit 18 is even further beyond the Pale). It has been estimated that it would cost at least $1 million to extend those services out to the desired restaurant site. That is daunting. But, wait. BOS Vice-chairwoman Hutchings revealed recently that the $1 million figure is an underestimate. In fact, it would cost much more than that, vastly more. (And government estimates usually need to be tripled to approach real-world accuracy).

Tax reductions would allow business growth. But that implies an attendant government reduction. Town government sees no benefit in reducing itself: such a proposal lacks appeal. Impossible. Put such notions aside.

The Exit 17 family restaurant must remain an article of faith. Government planners know it.

Meanwhile, the Stop, Drops & Rolls coffee shop closed this week. Its proprietor seeks to sell both the business and the property. “We just can’t generate the customers to continue to stay open.”

References:

Hayek, Friedrich A. (1945, September). The Use of Knowledge in Society. Retrieved from fee.org/articles/the-use-of-knowledge-in-society/

Stop, Drops & Roll. (2018, August 6). It Is a Sad Day Today. Retrieved from www.facebook.com/StopDropsandRoll/

Wikipedia. (2018, August 13). Friedrich Hayek. Retrieved from en.wikipedia.org/wiki/Friedrich_Hayek

Wikipedia. (2017, June 20). Local Knowledge Problem. Retrieved from en.wikipedia.org/wiki/Local_Knowledge_Problem

Wikipedia. (2018, August 3). SimCity. Retrieved from en.wikipedia.org/wiki/SimCity

Electra, Dorian. (2010, December 20). I’m in Love with Friedrich Hayek. Retrieved from www.youtube.com/watch?v=Arbfem4BohA