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Source link: http://archive.mises.org/3642/committees-set-rates-better-than-individuals/

Committees Set Rates Better Than Individuals

May 27, 2005 by

So, here’s a study from the Bank of England in which the setting of interest rates by a notional central bank for a modelled economy is found to be consistently better when done by committees than when done by lone members of these committees.

It tempts one to propose an extended experiment with bigger committees. In fact, the committees could be expanded to include everyone who might want to loan or borrow money, but be limited to people who were setting rates with and for their own money.

If this worked out promisingly (at least within the modelled economy), perhaps the central bank could be done away with entirely, with people setting rates not for the bank, but for their own transactions. And the model economy could be dispensed with in favor of what this really would be: a market.

{ 3 comments }

Horatio May 28, 2005 at 8:20 am

Priceless. I knew exactly where this was leading.

Jim King May 29, 2005 at 4:20 pm

I disagree with Mr Rounds. If the social security bonds issued by the Federal government are no good then our entire economy is in grave trouble. He should understand that these bonds are issued to the people of America , not the United States and these bonds are a contract between the Federal government and the people. If they are not backed by full faith and crdit of the United States, then it is just as easy to declare that none of the bonds issued by the United States have any value and if that is construed as the case, the government defaults on millions of dollars worth of bonds held by private citizens and the word and issuance of the Federal government has no value. Just hearing this kind of talk prompts me to sell all my government bonds and securities and invest elsewhere. If this turns into a deluge of selling all across America, the Federal government will be in serious trouble. Mr Rounds should thisk these things through before he makes such risky statements. Social Security has never been a welfare program and that is an insult to all the people who have worked a lifetime paying into it and an insult to both those paying into it now and those recieving benefits now. It is a self paying retirement investment program, not a welfare program of any kind. If congress, at its whim attempts to dismantle it, you will see a whole new congress next year. Think the Republicans have gone to far to save themselves already. I think next election will reveal what the American people think of these efforts to defeat Social Security and many other programs. I think the people have seen enough of the Republicans and are trending back to the Democrats. That is probably the reason many Republicans are backing away from the Bush policies. They know they are rapidly becoming an endangered species. Watch a new Democeatic tide sweep into Congress next election. You heard it here first!

Brent Nelson May 30, 2005 at 5:20 pm

Bookies as a group are better (on average) at predicting many events,
such as who will be elected pontiff. According to this paper, that
means we should let the bookies pick the next pope.

Of course! Of course, given a math problem, groups of students will
perform better on average than individual students will perform on
average. Because only the dullest student would be unable to grasp
the correct answer when someone in their group explains it to them.
As long as someone in the group knows the answer, and the majority
of the rest have just enough understanding to follow the logic, the
group will vote the correct answer more often.

But that’s a given mathematical formula with a given target answer.
Are they really suggesting that an individual central banker is so
likely to screw up a mechanical calculation that he needs a buddy
system to do the math? Yes, heaven help us, they are!

The experiment shows nothing about how the calculation relates to
real life. It has nothing to do with economics. Or even math.
Perform the same experiment with history students: Make them
name the kings of France or something. The average score of the
groups will be better than the average of individual students. It
signifies nothing.

Prizes are given for the correct calculation. That utterly fails
to make the students entrepreneurs. It adds no validity to the
conclusion: That *all decisions should be made by committee*

Well then, we should have a committee vote on what I want for dinner.
I am willing to concede that the committee will score higher on average
as a collective than they do as individuals. It most emphatically
does not make them the best cooks. As long as the authors are set on
“experimenting” on these sorts of things, here are some areas for further
exploration:

  • Are there any costs associated with making decisions by committee?
  • Will committees take more or less time to come up with an answer?
  • Are committees more or less likely to be unable to pick one answer?
  • If they take too long and can’t agree on an answer, what is their
    score, negative a million?
  • If, in the middle of the experiment, the real world deviates from
    the model, making their scores change retroactively, are committees
    more or less likely to continue following the old, incorrect model?

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