Everything would be
great if only the government could take over the economy and make it rational:
Last year, the S+P 500 rose by 29%, the NASDAQ by 35%, and the Dow Jones Industrial Average by 22%. Middle-class Americans are increasingly reliant on their 401(k)s and pensions to live comfortably during retirement. Millions of other Americans depend on college-savings funds to help pay for their kids' educations. And even those without a stock portfolio benefit from a vibrant market, which generates profits that are invested in hiring, innovation and salaries while helping move money from unprofitable sectors to more profitable ones.
This chaotic churning of money turns off technocrats. Rather than taking the view that the growing economy is a messy but neutral marketplace where ingenuity and opportunity can create comfort and wealth, they see it as a giant pile of money that should be "invested" in massive, state-mandated social engineering projects. As far as I can tell, both Sanders and Warren are interested in effectively nationalizing large chunks of the health care and energy sectors.
And yet the media continue to cover the Democratic primary debates where such ideas are the currency of the realm as if they were completely normal.
The idea of centralized economic planning is a very seductive one. It just seems to make sense that such planning would lead to more efficiency…less waste…and certainly less unnecessary human suffering than an environment in which millions of decision-makers, many of them in competition with one another, are making their own separate and uncoordinated decisions, resulting in pointless product redundancy, economic cycles driving unemployment, and lots of other bad things.
ReplyDeleteThere is a very interesting book, 'Red Plenty'...part nonfiction history, part novel...focused on the people in the Soviet Union who had to actually try to make the centralized planning system WORK. The book's characters include factory managers, economic planners, mathematicians, computer scientists, and “fixers.”
It's an important and even brilliant work. I reviewed it here:
https://chicagoboyz.net/archives/60918.html
That's a great review. It's tempting to think that the issue is simply one of human incapacity; that the reason we can't make command economies work as well as (or better than) capitalist ones is simply that the economic calculation problem is too complex to solve with the minds and instruments we have. Better information can be made with local information, etc.
ReplyDeleteBut the work identifies another, structural problem. I quote from your review:
Wisdom was to be set where it could be ruthless. Once such a system existed, though, the qualities required to rise in it had much more to do with ruthlessness than with wisdom…(Lenin’s original Bolsheviks) were many of them highly educated people, literate in multiple European languages, learned in the scholastic traditions of Marxism; and they preserved these attributes even as they murdered and lied and tortured and terrorized. They were social scientists who thought principle required them to behave like gangsters. But their successors… [were] gangsters who were only pretending to be social scientists.
Insofar as the system intends to require people at the local level to ignore the preferences they would act upon in a capitalist system, it requires at least the threat of force. That means, as the review says, putting those deemed wiser in positions in which they will have to apply their wisdom forcefully.
Because they will be judged on how effectively they operated in those positions, however, this approach will tend to reward ruthlessness at least as much as wisdom. Over time it will tend to select for those who are a little less wise, provided that they are a little more forceful. In the next generation, this selection bias will repeat.
Eventually it's mostly ruthlessness, whatever wisdom remains. The system is vicious by nature, not by accident.
Yes, and it's that unavoidable viciousness that has to be compared to the viciousness of the "heartless market," before we can conclude whether we've behaving compassionately in handing control of economic decisions to people we fondly hope will prove to be wise and kindly central controllers. There's also the question of which kind of tendency to viciousness is most likely to yield to whatever protective mechanisms we think are likely to be present under each system.
ReplyDeleteThe idea of centralized economic planning is a very seductive one. It just seems to make sense that such planning would lead to more efficiency…less waste…and certainly less unnecessary human suffering....
ReplyDeleteThis, though, is a tiger we're all much better off riding on our own rather than leaving the matter to the lion [sic] tamer in a government's circus.
...that the reason we can't make command economies work as well as (or better than) capitalist ones is simply that the economic calculation problem is too complex to solve with the minds and instruments we have.
We'll get better minds and instruments, of that I have no doubt. The problem, though, is that complexity, not our intelligence or instrumentation. Economics and the factors involved are horribly complex when the analysis is done statically. It really gets bad when dynamic analysis is attempted. A rough rule of thumb with time series analysis, for instance, is that we need 25-50 periods of data in order to extrapolate with any confidence 1 period into the future. That tends to work with physics or biology. However, the economic environment of 50 years ago (or even just 25) is radically different from today's--or next year's--and so is increasingly irrelevant and useless for national economic...planning. And--that instrumentation--the pace of economic evolution is accelerating.
On the matter of Progressive-Democrats' penchant for central planning: real wages have been rising far faster--by much larger per centages--for the bottom rungs than for the top over the last three or so years. The NLMSM and the Progressive-Democrats, when they're not denying this statistic, wholly ignore it. They'd have a much better case, politically, if they pointed out that of course the lower rungs are getting faster-rising wages; they're starting out from a shockingly low level. See why we need to push income/wealth inequality and work to correct outcomes?
But they don't. Ignorance? Incompetence?
Eric Hines
@ Eric Hines - they mostly just don't notice the statistic, because they are sure that it is a temporary blip that does not undermine their theory of what should work. Because poor people are still poorer than rich people, there is always abundant confirmation bias. Look at that guy! He's poor, even though he's a nice guy. And that sumbitch over there is rich, even though he's not a compassionate person and I don't even understand how he makes his money anyway, so it must be shady. They don't use the better argument because they generally aren't paying attention to anything outside their assumptions. It is not calculated, it's obliviousness.
ReplyDeleteRelatedly, and to the OP. They think all this money would have existed anyway. They only vaguely believe in growth. At heart, they think that the nation suffers mostly from a distribution problem. They hold a child's view of a village or communal economy that is not far different from barter.
Liberal economists, who obviously are not that primitive, have a different set of blinders. But mostly liberals have a shockingly oversimplified understanding of how an economy works. People make money and they just don't understand how, so there must be some cheating involved, because they are just as nice people and work at jobs, so money should flow to them equally. It's only fair.
"Eventually it's mostly ruthlessness, whatever wisdom remains. The system is vicious by nature, not by accident."
ReplyDeleteIndeed. It was made evidently clear to me just how true that statement is when I read an essay by Gary Saul Morrison that looked at this very issue, and drew much on Solzhenitzyn. It had quite a powerful effect on me.