As John Stuart Mill said, back in the 19th century, "even if a government were superior in intelligence and knowledge to any single individual in the nation, it must be inferior to all the individuals of the nation taken together."
People competing with each other, and being forced to make mutual accommodations with each other in the marketplace, are operating in a trial and error process.
Human beings are going to make errors in any kind of economic or political system. The question is: Which kind of system punishes errors more quickly, and more effectively, in terms of forcing errors to be corrected?
A market economy with many competitors has incentives and constraints that are the opposite of those in a government monopoly.
Anyone familiar with the economic history of businesses knows that their mistakes have been common and large. But red ink on the bottom line lets them know that they are going to have to shape up or shut down.
Government agencies face no such constraint. The Federal Reserve can keep making the same mistakes in the next hundred years that it made in its first hundred years. Or it can make new and bigger mistakes.
Nor is the Federal Reserve unique. The same thing applies to the Congressional Budget Office and to government agencies on down to the local DMV.
Elected politicians not only can keep making the same mistakes. They have every incentive to deny that they made a mistake in the first place, since such an admission can end their careers.
That is why these prophets can lead to our losses.
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