Why Governments Can't Pick Winners

Why Governments Can't Pick Winners

They told you the government is here to help. To invest in the future. To pick the winners and guide the economy toward a brighter, more prosperous tomorrow. It sounds nice, doesn't it? It’s also complete and utter bullshit.

Every time a politician stands at a podium and announces a new multi-billion dollar "investment" in some "innovative" company, you should feel your wallet getting lighter and your bullshit detector screaming. Remember Solyndra? The solar panel company that received a $535 million loan guarantee from the U.S. government before going spectacularly bankrupt? Or how about the Concorde, the supersonic jet that was a technological marvel and a commercial disaster, propped up for decades by the British and French governments?

These aren't just isolated mistakes. They are inevitable consequences of a fundamentally flawed idea: that a small group of people, no matter how smart or well-intentioned, can effectively allocate resources for an entire society. They can't. And the reason they can't has nothing to do with politics, ideology, or intelligence. It has to do with the fundamental laws of the universe.

The Problem: The Fatal Conceit

Most people believe that with enough data, enough experts, and enough computing power, we can centrally plan an economy. That we can predict which technologies will succeed, which industries will grow, and which companies will innovate. This is what economist F.A. Hayek called the "fatal conceit." It’s the idea that a planner can know more than the collective knowledge of the entire system.

Think about it. You, right now, have a unique set of knowledge. You know your local market, your skills, your needs, your desires. So do I. So does every single person on this planet. The market is the aggregate of all that distributed knowledge, a massively parallel processing system that is constantly adapting and evolving. A central planner, by definition, is a bottleneck. They are a single, serial processor trying to do the work of billions.

They gather reports, they create models, they make projections. But they are always working with incomplete, outdated information. The world is a far-from-equilibrium system, constantly in flux. By the time the five-year plan is printed, the world has already moved on. It’s like trying to navigate a hurricane by looking at a weather map from last week.

The Application: Forward-Looking People vs. Backward-Looking People

This brings us to the human element. In any system, you have two types of people: Forward-Looking People (FLPs) and Backward-Looking People (BLPs). FLPs are the adapters, the innovators, the entrepreneurs. They are the ones who see the arrow of time and flow with it. They embrace change, they take risks, they learn from failure. They are the engine of economic evolution.

BLPs, on the other hand, resist change. They are the incumbents, the monopolists, the bureaucrats. They want to preserve the status quo because it benefits them. They are the ones who lobby the government for subsidies, for bailouts, for regulations that protect them from competition. They are trying to stop the arrow of time, to create a closed system where they can be king forever.

When the government picks winners, it is, by definition, siding with the BLPs. It is using the coercive power of the state to protect an established player from the forces of creative destruction. It is subsidizing the past at the expense of the future. It is taking money from you, the taxpayer, and giving it to a company that could not survive on its own in the open market. It is a recipe for stagnation.

I saw this firsthand in the cannabis industry. When legalization started, you had two camps. The BLPs were the old-school growers who had been operating illegally for decades. They wanted to keep the system closed, with limited licenses and high barriers to entry. They lobbied local governments, trying to recreate the same scarcity model they were used to. They were trying to stop the arrow of time.

The FLPs were the entrepreneurs, the innovators, the ones who saw the massive potential of a legal, open market. They weren't afraid of competition; they welcomed it. They were developing new products, new brands, new technologies. They were the ones building the future. I can tell you from personal experience, the early days were a constant battle between these two mindsets. The markets that are thriving today are the ones where the FLPs won, where the government got out of the way and let the system self-organize. The markets that are struggling are the ones where the BLPs managed to capture the regulators and create a closed, stagnant system.

This isn't just about cannabis; it's about everything. It's about the taxi medallions versus Uber. It's about the hotel industry versus Airbnb. It's about the record labels versus Spotify. In every case, the BLPs use the government to try and stop the future. And in every case, they eventually fail. You can't fight thermodynamics. It's a losing battle.

Think of your own body’s master regulatory system, the endocannabinoid system. It doesn’t pick winners. It doesn’t tell your cells what to do. It facilitates communication. It helps your body adapt to stress and maintain homeostasis—a dynamic, not static, balance. It is a decentralized, adaptive network. The government should be more like the endocannabinoid system and less like a clumsy brain surgeon trying to perform open-heart surgery.

The Takeaway: How to flow

So what’s the takeaway? Are we doomed to watch our tax dollars get flushed down the toilet of failed government projects forever? Not necessarily. The first step is to understand the principle. Stop believing the fairy tale of the benevolent, omniscient planner.

1. Trust the process of self-organization. The market is smarter than any individual or committee. Let it work.
2. Embrace failure. Failure is not a bug; it’s a feature. It’s how a complex system learns and adapts.
3. Be a Forward-Looking Person. Adapt, innovate, and welcome change. Don’t try to preserve the past; create the future.
4. Demand decentralization. The more we can distribute power and decision-making, the more resilient and adaptive our society will be.

Stop looking for a savior on a white horse. The hero isn’t coming. You are the hero. You, and everyone else, participating in the grand, chaotic, beautiful dance of the free market. The government’s job is not to lead the dance, but to maintain the dance floor: enforce contracts, protect property rights, and then get the hell out of the way.

It’s time to stop trying to pick the winners. It’s time to let the winners emerge. It’s time to stop fighting the universe.