Tag Archives: Central planning

How Central Planners Corrupted the World, by MN Gordon

A small group of central planners, no matter how bright, cannot hope to plan the lives and interactions of a far larger group of individuals. From MN Gordon at economicprism.com:

The impossible happened in the late-1970s.  Inflation and unemployment simultaneously went vertical.  Leading economists were baffled.  This contradicted their academic training.

The Phillips curve said there’s an inverse relationship between inflation and unemployment.  When unemployment goes down, inflation goes up.  Conversely, when unemployment goes up, inflation goes down.

Economist William Phillips first sketched his curve using wage rates and unemployment data in the UK in the years 1861 to 1957.  The depiction of explicable order was impressive.  And it provided an economic model central planners could use to somehow optimize inflation and unemployment rates through economic intervention.

How could it be, in the late-1970s, that both inflation and unemployment went up in tandem?  According to the Phillips curve they were mutually exclusive.

In reality, the Phillips curve was elegant nonsense.  Like most elegant nonsense, it was right until the precise moment it was wrong.

When unemployment began creeping up in the 1970s the U.S. Treasury, with backing from the Federal Reserve, did what Keynes had told them to do.  They ran deficits to stimulate the economy and spur jobs creation.

Per the tenets of the Phillips curve, with rising unemployment the central planners could have their cake and eat it too.  They could print money without price inflation.

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$250 Billion Fund CIO Blasts Washington’s ‘Soviet-Style’ Central Planning: “Disassociating Demand From Supply In Fundamental Ways”, by Tad Rivelle

The more Washington tries to control the more it screws up. From Tad Rivelle at zerohedge.com:

Back In The US… Back In The USSR

The inefficiencies of that ultimate state planned economy – the former Soviet Union – were eminently lampoonable. One of former President Reagan’s went this way:

A man walks into a Moscow car dealership and hands over his rubles to the car salesman. The beaming salesman exclaims, “Congratulations on buying your new car. I am scheduling it for delivery exactly ten years from today.”

The buyer, suddenly distraught, quizzically probes: “Ten Years?! – well…is that going to be in the morning or the afternoon?”

The salesman, now perplexed, replies: “Comrade – this is ten years from now – what difference does it make if the car is delivered in the morning or the afternoon?”

The buyer raises his voice and shouts, “Well, I have the plumber coming in the morning!”

Notwithstanding employing armies of well-educated central planners, such economies failed in their ability to deliver what consumers needed. Shortages were widespread and endemic. This is all understandable: the planners were being asked to solve for the impossible. The job of the planning bureau was to set prices and production targets. But as every undergraduate student of economics knows, you cannot simultaneously fix both the price and the quantity of anything. The attempt to do so led to a hopelessly tangled and confused system. In contrast, free market economies seek efficiency by respecting individual preferences. When all is working as it should, the “right” price is solved for, and shortages (or surpluses) are rapidly corrected. You are never supposed to go to the store and find empty shelves, or be told that what you want can’t be delivered for months or years.

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How Covid paved the Road to Serfdom, by Rob Sutton

Central planning of any stripe leads to authoritarianism and eventually, totalitarianism. From Rob Sutton at thecritic.co.uk:

Hayek suggested a society which sacrificed liberty for security would gradually submit itself to authoritarian control

Friedrich Hayek’s The Road to Serfdom maintains a near unrivalled influence on the political imagination of conservative and classical liberal thinkers. Published in 1943, at the height of the Keynesian consensus, it elaborated a worldview considered intolerable within academic economics. 

The central thesis of The Road to Serfdom is that descent into tyranny is the ultimate and inevitable trajectory of a society in which the sovereignty of the individual is subverted in the accumulation of economic power by the state. Central planning leads invariably to authoritarianism. Hayek is not timid in making these claims.  

Studying the seemingly disparate political systems which dominated Europe in the run-up to the Second World War (communism, fascism, socialism), Hayek concluded that they each had a common endpoint – the development of a totalitarian state. Despite their contrasting social and economic goals, each necessitated the central consolidation of power and the explicit planning of an economy to achieve those goals.

As such, their distinct political flavours were largely irrelevant to their ultimate destination. Position along the political axis was less important than most commentators predicted. The binary Hayek was interested in, rather than left wing versus right wing, was whether the state uses its authority to promote individual freedom or to restrict it.

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A “Market” Crash Is Baked In–Here’s Why, by Charles Hugh Smith

Centrally planned systems have never worked very well, and in this day and age they don’t work at all. From Charles Hugh Smith at oftwominds.com:

Anyone looking at the hollowed-out, fragile shell of a Fed-managed “market” as a system realizes a crash that runs away from central planning control is already baked in.

The last thing punters and pundits expect is a stock “market” crash, yet a “market” crash is already baked in and here’s why: real markets have internal resilience (they’re anti-fragile, to use Nassim Taleb’s phrase), and central-planning manipulated “markets” don’t.

Few look at markets as obeying systems-level dynamics that have little to do with “news” or conventional metrics. The media makes money by reporting every tiny change in mood, metrics, rumors, etc., as if these drive markets. But we all know that the reality is much simpler: The Federal Reserve is the “market.”

In other words, the “market” is no longer a functioning (real) market; it is a central-planning signaling utility of the Fed and other central banks. This hollowing-out of the real market in favor of a central-planning, top-down controlled “market” destroys the system-level functions of markets.

If you want a refresher on the legitimate functions of a market, please readThe White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good, which explains why all the hundreds of billions of dollars of top-down, central-planning “aid” to impoverished nations has failed, enriching kleptocrats and autocratic regimes while assuaging the guilt of the poverty-pimps in the IMF, UN, and all the philanthro-capitalist foundations.

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The Socialism of the Federal Reserve, by Jacob G. Hornberger

The Federal Reserve is the government’s main monetary super-planner. Whatever such an arrangement is called, it is not capitalism. From Jacob G. Hornberger at fff.org:

The Federal Reserve is the federal entity charged with determining the quantity of money in the American economy. To boost the economy, it expands the money supply. If the economy gets too “overheated,” it slows the rate of increase.

In other words, the Fed is the government’s monetary central planner. It plans the monetary affairs of hundreds of millions of people through monetary manipulation.

Central planning is a core principle of socialism. Central planning rejects the concept of economic liberty and free markets, which rely on the absence of government interference. Instead, it relies on a board of government officials who make economic decisions for hundreds of thousands or millions of people in a top-down, command-and-control manner.

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Surviving Mission Creep, by Tim Price

SLL took its shots at socialism in “The Scourge of Socialism.” It’s an intellectually and morally bankrupt system responsible for the deaths of millions. Tim Price takes shots at an essential component of socialism—central planning—at sovereignman.com:

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

“So there is another reason why Europe isn’t growing and it’s one the central bank can do nothing about. Namely, the 19 governments of the Eurozone and the super-state in Brussels have essentially outlawed it. If you want to know why growth is so tepid just examine the Eurozone’s massive barriers to enterprise and work in the form of taxes, regulation, welfare state extravagance, crony capitalist subsidies and privileges and labour law protectionism.

In a word, the problem is not that private sector credit is too niggardly; it’s that the leviathan state has crushed the ingredients of supply side enterprise and growth. When the state budget consumes 50% of GDP, and its tentacles of regulation and intrusion penetrate most of the rest, the central bank’s printing press is impotent.”
– David Stockman.

The history of economic central planning is not exactly glorious. The Soviet Union’s economy finally collapsed in the late 1980s, but not before over 20 million of its citizens had been murdered. The People’s Republic of China started implementing meaningful economic reforms in 1978, after having terminated the existence of over 45 million of its own people. Central planning in Nazi Germany was admittedly successful in bringing down the domestic unemployment rate, but the success of its wider economic legacy is debatable. Günter Reiman in ‘The Vampire Economy: doing business under Fascism’ highlights the process involved in, for example, a German carmaker of the regime purchasing 5,000 rubber tyres:

The process culminates in the delivery of 1,000 rubber tyres and 4,000 ersatz tyres, albeit after five months.

Ludwig von Mises, in his magnum opus ‘Human Action’, wrote on ‘The impossibility of economic calculation under socialism’:

The paradox of “planning” is that it cannot plan, because of the absence of economic calculation. What is called a planned economy is no economy at all. It is just a system of groping about in the dark. There is no question of a rational choice of means for the best possible attainment of the ultimate ends sought. What is called conscious planning is precisely the elimination of conscious purposive action…

The mathematical economists are almost exclusively intent upon the study of what they call economic equilibrium and the static state. Recourse to the imaginary construction of an evenly rotating economy is, as has been pointed out, an indispensable mental tool of economic reasoning. But it is a grave mistake to consider this auxiliary tool as anything else than an imaginary construction, and to overlook the fact that it has not only no counterpart in reality, but cannot even be thought through consistently to its ultimate logical consequences. The mathematical economist, blinded by the prepossession that economics must be constructed according to the pattern of Newtonian mechanics and is open to treatment by mathematical methods, misconstrues entirely the subject matter of his investigations. He no longer deals with human action but with a soulless mechanism mysteriously actuated by forces not open to further analysis. In the imaginary construction of the evenly rotating economy there is, of course, no room for the entrepreneurial function. Thus the mathematical economist eliminates the entrepreneur from his thought. He has no need for this mover and shaker whose never ceasing intervention prevents the imaginary system from reaching the state of perfect equilibrium and static conditions. He hates the entrepreneur as a disturbing element. The prices of the factors of production, as the mathematical economist sees it, are determined by the intersection of two curves, not by human action.

But Marxist economic theory has other strings to its bow. It has not just murdered tens of millions of people, bankrupted entire nations, and provoked international warfare. It has also provided employment for literally dozens of economists at British universities and newspapers.

To continue reading: Surviving Mission Creep