A fundamental flaw of central planning

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problem of central planning

As you progress deeper in thought about free markets and the state and the moral consequences of both, you begin to see some of the intricacies of how they work.  Prior to this, you were able to see in more and more ways that the state cannot function efficiently, honestly, and productively, but now you can see why there are problems with the state.

The beauty of the free market is that you can apply its principles to essentially any type of decision-making situation.  If left free from coercive forces, a person is able to analyze and choose from any and all available and appropriate methods to solve a problem.  This problem could be something as simple as deciding what to eat for dinner or as complex as a local business polluting your property.  The freedom to be able to solve your own problems does not however guarantee that you’ll find a suitable solution.  You’ll likely make choices that don’t fix what’s bothering you, but if everyone is free, you have the ability to observe others and learn from their mistakes and failures.

This leads us to one of the fundamental flaws of the state.  The central planning necessary in a state eliminates the ability of individuals to have all of their options available to them to solve their own personal problems and the problems of the communities in which they live. 

Let’s say that there is a community of five segments of property.  I own one piece of land, you own another, and there are three other property owners.  In our community, we discover that some sort of pest is digging holes in our lawn and ruining our yards.  Since we’re all neighbors, we discuss the possible sources of the problem as well as ideas to fix the issue.  We all agree that it is likely some sort of small animal causing the damage.  I decide that I am going to build a fence around my property.  You purchase a poison to kill the pests.  The three other people, however, decide to purchase cats that will either kill or scare off the pests.

When I tell the others my plans to build the fence, they tell me that the fence might end up being a waste of time and money if the pest has the ability to climb or dig under the fence.  They also tell you that buying poison could have negative effects on the plants on your property as well as the safety of your children.  They tell us that since they have purchased cats, the problem seems to be going away.  You then agree that the cat is the best way to go and buy one for your property.  I, however, remain stubborn and continue with the fence.

It’s later discovered that the animal causing the problem is a squirrel, making my fence powerless in defending my property.  The cats are working out very well.  At this point, I can either learn from my mistake and your success or I can continue trudging hopelessly along with my decision.  You originally made a potentially bad decision, but through observing and freely working with others, you ended up solving your problem.  You made your own decision for your own life and property.

I also made my own decision about my property and I have to deal with the consequences.  My poor decisions, though, do not have any effects on you.  If my actions are really based on my own self-interest (this concept of self-interest is key), I’ll set aside whatever was preventing me from successfully fulfilling my desires and attempt different solutions.

Later, you find out that I am allergic to cats, which is the reason I didn’t want to go in that direction.  I pursue other solutions and eventually solve my problem.

Let’s apply what happens when a government is involved.  First, imagine that we get together and democratically decide to solve the problem.  The five of us vote on a solution.  The idea to purchase cats wins the vote.  This is actually a suitable solution and it has prevented you from making the mistake of poisoning your children, so the democratic decision has worked for you.  I, on the other hand, am still allergic to cats.  Not only am I being forced to purchase a product that I do not want, I am also being harmed by the decision that was made for me.

The problem of the pest was “solved,” and it may be good for the four of you, but am I to be left in the dust?  I now have to suffer every day with allergies because you made me purchase a cat “for my own good.”  This case is an example of the utilitarian solution: my suffering is justified because everyone else benefits.  That’s fine for you if you’re part of the group that is only benefiting, but what happens when you’re one of the persons whose time, money, and/or happiness is being taken away for the “good” of everyone else?  It’s not so great, is it?

A second government situation is that I am slick enough to convince everyone else that building a fence is the way to go and I appoint myself the coordinator of the project.  I collect money from everyone to build the fences and hire a business to construct them.  The fence, of course, doesn’t work, but I assure you that it just needs some more time to work.  You and the other neighbors start to complain, but I reply back that if you didn’t pressure me and block me from doing things the way I wanted to, I’d be able to do things the right way.  Then I say I need more money to make the fence better and so I collect more to build the fence bigger and, according to me, better.

The fence ends up being a disaster.  Eventually you learn that I own a supply company, and the business that I hired to build the fences was purchasing material from me.  I don’t think I need to explain everything that is wrong with this picture.

This is essentially how a centrally planned system operates.  Whether qualified to make decisions or not, the people in charge collectively try to solve issues for the community and for individuals.  Since people act in their own self-interest, the planners are likely making their decisions so as to benefit themselves in some way.  These benefits could take the form of kickbacks or the desire to control and the thirst for power.  There can even be a genuine want to help people, but there is always a failure in understanding how to truly help them since good intentions do not always end with good results.  Many of us are fooled into believing that government with elements of democracy is “of the people, by the people, for the people,” when in reality it is government of those in power, by those in power, and for those in power.

When the planners are questioned, a number of responses are given.  They’ll claim that they’re the ones in charge, so they are therefore the ones qualified to make the decisions, not you.  The irony here is that many functions of government today are ones that micromanage an individual’s life, and the micromanagers are bureaucrats who will never actually know you or your personal situation and are sitting in an unknown office building somewhere.  How can someone whom you’ve never met know what’s best for you?

Another famous and one of the more annoying defenses of central planning is the “But who will build the roads?” response, or more formally, the logical fallacy of denying the antecedent.  Since government is in charge of building the roads, if you eliminate the government from the picture, you eliminate roads.  This argument is simply nonsense and is really one of the lazier statist arguments out there.  Put another way, the argument is saying that if something’s never been done before, then it is an impossibility.  If this were true, then inventions could never exist.  Imagine telling the Wright brothers that humans couldn’t fly because it’s never been done before or scoffing at Thomas Edison’s idea to create the light bulb.

It’s always the case that a given government project or program needs more time, money, or resources.  “Just give us more time,” they say.  “Social Security is having issues because it’s not being properly funded.”  We need to stop looking at the funding and timing of these programs.  It’s time to look at the actual programs themselves and understand that they won’t work no matter what!

And in this vein, it’s always the fault of someone else that there the proper resources and attention aren’t being received.  The Democrats will complain that the government takeover of the healthcare industry isn’t working because the Republicans were “blocking” legislation.  And the Republicans will complain that the war somewhere overseas was botched because the Democrats didn’t let the Pentagon spend another trillion dollars.

This is what happens when there’s a lack of competition of putting ideas into action.  When one and only one solution is allowed to be enacted, you can never tell how well it actually works because there’s nothing to compare it to.  This helps to perpetuate the idea that the central planners have the right solutions, but there are things outside of their control that prevent them from accomplishing their goals.

Government can then never relinquish control of the things they take over.  Once they allow the free market to work, people will be able to make their own choices for their own lives and will begin to see that it works better than the government.  The realization by people that they don’t need the government is the beginning of the death sentence for the state.  This is the reason why despite the United States being a planned economy, capitalism and free markets are always blamed for any problems that ever occur.  How many times have we heard a politician say “We’ve tried the free markets and look where it brought us?”  And despite adding more regulations to various industries, they’ll spin it to say that issues were caused by market deregulations.  The housing bubble and the bursting of the housing bubble are a perfect example of this.  The markets weren’t deregulated.  The markets were rigged and doomed to failure by actions of the government.

If the state truly wanted the best solutions to be found, they wouldn’t monopolize for themselves the power to try different solutions.

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Marvin Edwards
Guest

Oddly, F. A. Hayek would support the public option (chap 9, “The Road…”) so I’m sure he would love that we have retained the entire private health insurance industry with Obamacare.

The reason for government is not to centrally plan the economy. The reason for government is to “secure these rights”. One of those rights is to purchase health insurance.

Rollo McFloogle
Guest

You’re going to have to give me a specific page/paragraph(s) to back up your claim about Hayek. I don’t remember him advocating for the government to destroy the market with something like the public option in the book.

“The reason for government is not to centrally plan the economy. The reason for government is to “secure these rights”. One of those rights is to purchase health insurance.”

But government, regardless of size, is central planning to one degree or another.

How does a free market restrict one’s right to purchase health insurance…or anything for that matter?

Marvin Edwards
Guest
My pleasure. In Hayek’s “The Road to Serfdom”, Chapter 9 is called Security and Freedom. Hayek describes two different kinds of security. One is to insure the certainty of a given minimal sustenance for everyone. He believes this is valid, The other is to insure a given standard of life in relation to others. He believes this is not valid. Regarding the valid form of security he writes, “There is no reason why in a society which has reached the general level of wealth which ours has attained the first kind of security should not be guaranteed to all without… Read more »
Rollo McFloogle
Guest

And I disagree with Hayek here in his advocating for this sort of safety net (and again, to suggest that he would “love” Obamacare is a bit much considering the rest of the book and considering that his contemporaries reject it) if it involves securing the funds through taxation. Like I said on the other thread, I’m not step for step with Hayek, so I’m not sure why you would even bring him up in the first place when you saw a disagreement in our views.

Marvin Edwards
Guest
Did you see that video a few years ago about Hayek and Keynes? Here’s the link: http://econstories.tv/2010/06/22/fear-the-boom-and-bust/#disqus_thread I love the quotes at the end, especially Hayek’s: “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist.” John Manard Keynes, “The General Theory”. “The curious task of economics is to demonstrate to men how little they really know… Read more »
Rollo McFloogle
Guest

I never said that I’m not influenced by certain economists or schools of thought. I stated that I don’t hinge my beliefs on everything that one or a number of economists say.

Again, if you want to go after my views, read some Murray Rothbard. Understand the action axiom.

Marvin Edwards
Guest

I’ll expect you to represent Murray Rothbard’s views. If you don’t understand his views well enough to explain and defend them, then I don’t want to be placed in the position of having to read him and explain them to you. That’s not fair to me.

Rollo McFloogle
Guest

Fine, so do not accuse me of carrying the water of Hayek, especially in an article when I never specifically mentioned him.

It’s like talking about football and rebutting with “Well in a baseball game, this happens…”

Marvin Edwards
Guest

Well, it was impossible for me to read Hayek without some transformative effects So I credit the dude with making a case that, though difficult to read (both coming to terms with the content and his writing style) it was a worthwhile experience.

And I agree with you that authorities have weight only if their case is strong and true.

Marvin Edwards
Guest
Oh, sorry, forgot to answer the other non-Hayek questions. >> “But government, regardless of size, is central planning to one degree or another. “<>”How does a free market restrict one’s right to purchase health insurance…or anything for that matter?”<< In the free market, whenever one competitor finds a way to beat the prices of the other competitors, the others must either follow his lead or go out of business. Dropping coverage for pre-existing conditions was one such technique. Once you learn of the condition, then if the person changes jobs you can refuse to cover him, causing the employer to… Read more »
Rollo McFloogle
Guest
“In the free market, whenever one competitor finds a way to beat the prices of the other competitors, the others must either follow his lead or go out of business” This is simply not true. “Unregulated competitive techniques that cause harm include child labor, no compensation for on the job injury (just fire him), etc. etc. etc.” Again, this is not true. While they could happen in a free market (and phased out by the market), they’re also perfectly capable of happening with a government, which has been proven to be the case over and over. Heck, the US government… Read more »
Marvin Edwards
Guest
There has never been an “either/or” between government and private enterprise. The free market cannot serve the best interest of all of the players without laws to eliminate the nasty side (fraud, monopoly, product and worker safety, etc). >>”If a business today started to use unsavory labor practices, its competition could advertise that and gain business from the people who dislike those unsavory practices.” << Pipe dream. What's that factory in China that had the problem with worker suicides, Foxconn? And yet we still buy all of the electronics they produce. The idea that the free market regulates itself is… Read more »
Rollo McFloogle
Guest
“There has never been an “either/or” between government and private enterprise. The free market cannot serve the best interest of all of the players without laws to eliminate the nasty side (fraud, monopoly, product and worker safety, etc).” Again, this is simply a false statement. You need to present some evidence. “Pipe dream. What’s that factory in China that had the problem with worker suicides, Foxconn? And yet we still buy all of the electronics they produce.” China has free markets/ Since when? Anyway, you’re ignoring the facts that boycotts happen and that people have a variety of reasons to… Read more »
Marvin Edwards
Guest
Evidence. Okay. Strike One: Are you at all aware that child labor was common in the United States until 1904? I looked it up in Wikipedia. It was not stopped by boycotts, but by state laws. The free market did nothing to eliminate child labor in the U.S. Strike Two: Look up occupational safety in Wikipedia and jump down to History. You’ll find labor unions advocated safety, a government commission was established, its report sparked public outrage, and laws were passed to provide safety inspections. Strike Three: Look up Enron in Wikipedia. The corporation cooked its books to make it… Read more »
Rollo McFloogle
Guest
Strike One: The free market doesn’t act instantaneously and there are many reasons why a market may act a certain way. But anyway, is there anything unethical about child labor in and of itself? What if the children want to work and the parents are cool with it? I’m not saying that’s the way it happened, but it’s a theoretical question worth asking. Strike Two: The formation of unions (or guilds…which have been around forever) are a product of the free market. If the only way a company can hire workers is through a union, then the company would have… Read more »
Marvin Edwards
Guest

Rollo, You asked for evidence and I gave you evidence. You are now trying to explain it away, as if history could have happened differently than it actually did.

Religion tends to do what you just did, discount actual evidence.

Rollo McFloogle
Guest

Where did I state something that is contrary to historical truth or fact?

If you’re going to dispute my claims, use logic and reason to break my points, don’t simply use empty rhetoric.

I could sit here and use logical fallacies and flowery, meaningless language to dispute your points, but I don’t need to.

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[…] Without even arguing against the notion that these “harmless regulations” are in fact means for the state to control the markets and thus the individuals in the markets, attempts of central planning are doomed to failure not because the central planners might be malevolent but because they have no way of predicting the future.  In other words, their knowledge of what the correct next step is or what works best is imperfect.  There is no “test kitchen” present to sift out the good ideas from the bad. […]

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