Wednesday, November 11, 2009

Why Central Planning Fails

Competition is a "discovery procedure," Nobel-prize-winning economist F. A. Hayek taught. Through the competitive market process, we producers and consumers constantly learn things that force us to adjust our behavior if we are to succeed. Central planners fail for two reasons:

First, knowledge about supply, demand, individual preferences and resource availability is scattered -- much of it never articulated -- throughout society. It is not concentrated in a database where a group of planners can access it.

Second, this "data" is dynamic: It changes without notice. No matter how honorable the central planners' intentions, they will fail because they cannot know the needs and wishes of 300 million different people. And if they somehow did know their needs, they wouldn't know them tomorrow.


~John Stossel

14 Comments:

At 11/11/2009 9:05 AM, Anonymous Anonymous said...

Sorry Mr. Strosel, but three hundred million people don't know their own needs either! (According to all of our major world religions and quite a few of our philosopies, the human mind and it's desires are confused and thus we do not grasp reality correctly.) So it's all just a stab in the dark! (and that would by definition include your libertarian "certainty"as well)

 
At 11/11/2009 9:34 AM, Blogger Paul said...

Obviously, Hayek never crossed paths with Hopeandchange.

 
At 11/11/2009 9:58 AM, Blogger juandos said...

"Sorry Mr. Strosel, but three hundred million people don't know their own needs either!"...

According to whom or what credible source or are you just making it up as you go along?

Are you a theologist too?

Well of course the House Democrats idea of medical/health care is NOT about anything but more control over the citizens...

I mean if the House plan coverage is so good then why the following?

Democratic Leadership Would Not Allow Votes on 11 Amendments Requiring Congressmen to Enroll in Gov’t-Run Health Plan

Its all about stealing more of the wealth created by the citizens...

The bill would slap an 8 percent tax on the payrolls of employers who do not provide health insurance to their workers and pay at least 65 percent of the premiums for an employee who has a family insurance plan and 72.5 percent of the premiums for an employee who has an individual insurance plan. Barton spelled out what he believes will happen if this provision becomes law...

 
At 11/11/2009 11:47 AM, Blogger Paul Snively said...

Anonymous: Sorry Mr. Strosel, but three hundred million people don't know their own needs either! (According to all of our major world religions and quite a few of our philosopies, the human mind and it's desires are confused and thus we do not grasp reality correctly.)

Sorry, Anonymous, but both as a member of one of the world's major religions and someone who writes software for a comparison shopping engine, I can say with a great deal of certainty that you don't know what you're talking about, and to the extent that you're approximately correct, you're contradicting neither Mr. Stossel nor Dr. Hayek, who, again, recognize that pricing is an ongoing discovery process.

 
At 11/11/2009 11:56 AM, Blogger W.E. Heasley, CLU, LUTCF said...

Central Planners attempt to substitute “Schemes” for the Free Market. Schemes are usually very complicated and end up breaking down into a mess. You know, 1990 page Schemes. It should have been “1984” pages.

 
At 11/11/2009 12:15 PM, Anonymous Benny Telling It Like It Is said...

i wonder how many pages are in the Department of Agriculture budget? How much fat? How much in subsidies? How much market distortion?
Why are these topics never addressed?

I like Hayek.

 
At 11/11/2009 3:51 PM, Anonymous Anonymous said...

Central planning is like going into a casino with $1000 and putting it all on one number at a roulette table. You have one chance to be correct and, more often than not, aren't.

Allowing for millions of decisions will generate many paths for success. Some will work and will be copied by others generating growth.

 
At 11/11/2009 8:02 PM, Blogger Size said...

So it's all just a stab in the dark!

Central planning is certainly a stab in the dark. I don't know who is so mighty that they can judge whether I've grasped reality "correctly", but I'm pretty sure I'm better at and more interested in groping around for my preferences than a central planning committee.

In the Soviet Union the factories produced the same miserable raspberry coloured coat every damn year without fail. Yet, every year, a large new surplus was put into storage and the process started all over again the next year. Meanwhile, the clueless consumer figured out a way to make something more stylish, less itchy and less painful on the eyesight. Yet the central planners were never clued in by the ever increasing surpluses of hideous raspberry coloured coats. Go figure. I guess if we're stabbing in the dark, I'd rather not be stabbed by a stranger.

 
At 11/11/2009 11:13 PM, Anonymous Anonymous said...

Anonymous responds: Aristotle (the predominant philospher of the western world) taught that all men seek good, but that they confuse "real" and "apparent" good. His answer to this dilemma is unfortunatly more intellection. (Buddhism does prescribe meditation as a means to quiet the mind and thus see things clearly.) One means of protecting ourselves from individual mental errors is our collective or social nature which causes us to "centrally" plan things for our families, churches, condo associations, cities and nation states. It isn't fool proof but the success record of central social planning far outlives our individual failures. Individual choices are overwelmingly scarred by our faulty greed or desire for leisure, comfort, pleasure, power over other people and approval. (Many of which largely explain the failure of many private business ventures.) Central or group planning isn't so subject to these mental errors or "sins" and is more amenable to group correction.(e.g. Democracy or a Benevolent Dictator...a Philospher King)) The libertarians like Mr. Strossel et. al. being largely influenced in their economic, political and social thought by the NOVELIST Ayn Rand, fail to understand this Aristotelian perspective.

 
At 11/12/2009 1:28 AM, Anonymous Anonymous said...

i wonder how many pages are in the Department of Agriculture budget? How much fat? How much in subsidies?



According to the Environmental Working Group's Farm Subsidy Database, a Washington-based non-profit organization, one of the more prominent recipients of U.S. agricultural subsidies is Senate Minority Whip [Dem.] Dick J. Durbin.

CATO.org

Interesting how every time you turn over a rock you find a Democrat.

 
At 11/12/2009 5:48 AM, Blogger W.E. Heasley, CLU, LUTCF said...

“Anonymous responds: Aristotle………..One means of protecting ourselves from individual mental errors is our collective or social nature which causes us to "centrally" plan things………. Central or group planning isn't so subject to these mental errors or "sins" and is more amenable to group correction.”

Anonymous:

That is quite the philosophical statement. Of course philosophical theory and central planning in practice, as very dissimilar.

All one needs to do is study the Former Soviet Union’s Central Planning, decades and decades of Central Planning, and one will find the best intentions, elaborate schemes, “planning”, etc. failed miserably.

What Anonymous fails to understand is: central planning always fails as regardless of the intricacy, elaborate modeling, planning, etc.: Central Planning always fails to allocate scarce resources to competing ends.

Anonymous, regardless of the Economic Frame Work, the ends are always competing. In the former USSR, in the beginning of the fourth quarter of an annual cycle, the managers of different industries would on their own, outside the Central Planning Frame Work, begin to barter for scarce resources among themselves.

Every year, without fail, the Central Planners would misallocate resources. Some industries would have stock piles of unused items while other Industries would have to halt production as they had no more inputs. Bartering would begin among the managers of the varied industries in an attempt to reallocate scarce resources. Of course Bartering is a highly inefficient system. Hence some resources would be reallocated but most resources sat idle. The result was too many purple marbles and not enough eye glasses.

The allocation of scarce recourses to competing ends is most efficiently done in a Free Market.

Sorry Anonymous. Maybe you should read some philosophy from a fellow named Milton Friedman.

 
At 11/12/2009 2:40 PM, Anonymous gettingrational said...

Aristotle and Freidman converge at the marketplace with the free exchange of ideas and goods. That marketplace is supported by democracies around the world. The followers of Hayak may believe in one-sided free markets but the struggle for free markets is paid for by blood and treasure of the citizens standing up for free exchange -- that is mainly the U.S.

 
At 11/12/2009 2:43 PM, Anonymous gettingrational said...

Hayak is really Hayek: duh on me.

 
At 11/17/2009 3:53 PM, Anonymous Rand said...

Sorry Mr. Strosel, but three hundred million people don't know their own needs either!

Who is more attuned to your personal needs - you or some faceless, distant, paper pushing bureaucrat.

 

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