The Included Middle

No text I've ever read offers a name for the vast logical space that lies between the extremes of a hapless dichotomy. They just call it "the excluded middle." They're referring to a type of logical error, one ruled by the assumption that reality must be either this way or that way with no other possibilities.

That type of reasoning has a wide appeal. It works easily in the mind because it narrows the number of alternatives to be dealt with. Knowing that we must, for example, either take flight or turn and fight when confronted by a grizzly bear simplifies the problem. In situations of that sort, it would appear quite reasonable to exclude the middle, which might foolishly include the temptation to reason with the bear. If all the problems in life were that straightforwardly analyzable, the idea that there might exist an excluded middle would never arise.

But then some wise guy -- who has actually had to deal with grizzlies -- tells us that neither fight nor flight will work to our advantage. The bear is bound to win in a fair fight and outrun us if we choose to flee. So what does the guy suggest? (This is a real quote from a guidebook.) "Remain calm. Do not look the bear in the eye, but rather lie down on your belly drawing yourself up into the fetal position with your elbows closely tucked to your side. This may not discourage the bear from attacking, but will surely minimize the damage." There's a picture to show those who may not know what the fetal position looks like.

We have to think about this advice for a while before we catch on, that even if we do the right thing, we may still wind up badly mauled or even dead. The guide doesn't promise us that we will win, only that our chances for survival will be increased by including the middle.

Most of us will never have to face a bear, so the instructions for dealing with bears, taken literally, will not be useful. But when treated as an illustration of the logical errors we encounter when we exclude the middle, the guidance for dealing with bears takes on everyday value.

I mean the word "value" in this sense, that knowledge is always valuable. I qualify value this way because I'm gonna be talking about a dichotomy that most of us are not called upon to resolve but which nevertheless lies inside our heads as one of the "facts" we indirectly deal with on an everyday basis. I'm talking about the dichotomy presented by the choice between a free market economy or a socialist economy. And I'm asking, "Is this really an either-or situation?"

One of the great proponents of free market economics, F. A. Hayek, wrote an extremely good book called The Road to Serfdom. Chapter six of that book is a mini-masterpiece. It deals with the rule of law. After pointing out that the free market serves as an automatic system for setting prices (as opposed to having prices set by canon law or central planners), he describes the almost magical way prices are established in real time. Changes in supply and demand are almost instantaneously reflected in market prices, and these changes happen without there being a formal system to govern the flow of data. Hayek makes the point that this system functions as well as it does precisely because there are no rules governing the establishment of prices. He was saying (in 1944), as clearly as it had ever been said (clearer even than Adam Smith said it 168 years before), that the laws of the land must be crafted in a way that will not interfere with the free flow of price data.

As beautifully as Hayek presents his argument, and as appealing as it is to his kindred spirits, he has given us a clear-cut example of the excluded middle. He is saying, in effect, that either we leave the market alone or we will destroy the system that maximizes our knowledge of the price of things. Hayek does not (in his chapter six) consider that the price of things may not reflect the value of things.

Let me explain what I mean by that. What do prices tell us, other than the relative cost of products? Do they tell us the value of the goods being traded? No. They tell us only what someone is willing to pay for the products. To assume that price reflects real value would be to assume that every buyer (all demand) is rational -- by which I mean fully informed. But there are some people who buy that oily stuff that's plainly labelled " I can't believe it's not Butter" thinking the stuff is really butter. Countless pregnant women bought thalidomide thinking that just because it was being sold by a reliable pharmaceutical firm to relieve morning sickness (which it did, by the way) the stuff would not deform their offspring (which it also did, by the way).

I mention these examples only to illustrate the difference between price and value, and to make the point that just because the system Hayek described works perfectly to maintain a balance between supply and demand (called "price") does not mean the system works perfectly for anything else.

To correct the most noticeable faults of the free market system (which would permit misleading labels and harmful products) the government passes laws and rules that seem at first glance to interfere with the free market. But looked at with keener eyes -- in fact looking at price itself -- we see that the system Hayek described works better when the people representing supply (manufacturers) and the people representing demand (you and me) have better information about the commodities being traded. It would be better, for instance, if that oily stuff were plainly labelled "NOT BUTTER" and if thalidomide were identified as a harmful product. If that sort of information flowed through the system as easily as supply and demand data (note the difference here between "information" and "data") the system would not only still work automatically to set prices but would also work to improve the value of the stuff being bought and sold.

Unfortunately, information about value is not produced by an invisible hand. In matter of fact, the invisible hand's effect on some suppliers urges them to hide the value of their products, to make them seem to have more value than they actually do. Those unscrupulous manufacturers are, after all, guided only by a consideration of their own best interest. To paraphrase Adam Smith, to seek the common good would be to betray the effectiveness of the invisible hand that so perfectly determines the equilibrium between supply and demand.

So, in the excluded middle between the so-called free market and the so-called regulated market there exists the possibility of a mechanism that improves the knowledge base available to buyers and sellers. If the producers of goods become intuitively aware that their sleight-of-hand methods are going to be counter-productive in the marketplace, they will be less likely to seek deceptive methods. And even more obviously, the buyers of goods will be less likely to purchase valueless goods if they are more aware of the actual values of the goods in the market.

But as I said, the information regarding value does not flow as easily as price data. It does not come naturally to know not to run from a grizzly. We have to learn that fact. This natural slowness of flow tilts the system in the direction of ignorance. No matter how efficiently the agencies designed to measure and advertise value work, their output will always lag behind the efforts of suppliers to enhance the blackness of their bottom line.

To argue, as some well-meaning souls do, that the market-tinkering efforts of government violate some sacrosanct ideology, is not only to contribute to the difficulties in moving information through the pipelines, but also to condition the people being served to resist the efforts of the government to come to their assistance.

And of course, there is also the counter-force of ideologists of the so-called radical left, who seeing the benefits of the government's efforts, are prone to fight the bear. They seem to feel that they can make angels of human beings, apparently blind to the problems involved in trying to reason with bears.

Finding the middle ground is not easy when compared either to doing nothing or to doing too much. Neither flight nor fight will work when the problem is like unto a bear.