Hayek Was Right: Why Cloud Computing Proves the Power of Markets - Megan McArdle - Business - The Atlantic

Why government central planning does not work and why markets, through success, failure, luck and large rewards, creates great leaps in innovation and productivity.....

More generally, innovation appears to be built upon the kind of trial-and-error learning mediated by markets. It requires that we allow people to do things that seem stupid to most informed observers -- even though we know that most of these would-be innovators will in fact fail. This is premised on epistemic humility. We should not unduly restrain experimentation, because we are not sure we are right about very much. In order for such a system to avoid becoming completely undisciplined, however, we must not prop up failed experiments. And in order to induce people to take such risks, we must not unduly restrict huge rewards for success, even as we recognize that luck plays a role in success and failure.

In addition, this success through decentralization and mediated by failure is why regulation of financial institutions through a central government will never work and will only lead to a greater collapse in the future. Government will never be able to predict where the success and failure will come from in the marketplace and with a gigantic safety net for the industry, even failure is rewarded so there is no market incentive to avoid it, just incentive to roll the dice with the riskiest and highest payoff bets.

Hayek Was Right: Why Cloud Computing Proves the Power of Markets - Megan McArdle - Business - The Atlantic