The Failure of Command Economies

There is a popular misconception that the economic chaos, poverty, wealth inequality, and waste we see all around us every day is the result of free market failure, and that it can be remedied by imposing the right central plan on the economy. In much of the western world, we see governments and their central banks using variations of Keynesian economic theory to "manage" growth, trade, inflation, etc. while they subsidize mega-corporations in a form of neomercantilism and monopoly protectionism all in the name of "free trade" and "free markets." In other countries, governments use the justification of socialist theories to directly dictate production quotas and trade. Oddly enough, I have encountered socialists who declare that both common systems are "capitalism," which makes no sense whatsoever. All economic theories involve capital. The question is whether individuals or the State should dictate its use and exchange.

Free markets and a price system allow individuals to make rational economic calculation in a distributed network. Individuals can take the information from prices to choose how to best satisfy their wants. Producers take information from prices to reallocate production. Investors take information from prices to predict future needs. It is a dynamic and interconnected system that responds as this complex system shifts due to the many factors they cannot possibly calculate directly in a dynamic and interconnected economy.

Regardless of Marxist assertions, this is what most Americans at least think of as "capitalism." It dates back to the likes of Adam Smith and John Locke, and even earlier if we look outside the English sphere to France and Spain or beyond. When government intervenes and colludes with mega-corporations to protect them from competition, subsidize their operations, bail out their failures, manipulate the money supply, restrict trade, set prices, create special contracts, limit liability for harm they have done, etc. it impedes the market dynamic and retards progress, so I am certainly not advocating that kind of market intervention even though it is often lumped under the lazy term of "capitalism" as well.

When government presumes to replace that dynamic and interconnected response with a command economy that only answers to the dictates of a self-professed group of elite experts, the lack of any real actionable information combined with their inherent prejudices guarantees waste, abuse, shortages, and chaos no matter how noble their intentions. The economic calculation problem is real, and yet the instinct of many is to blame the market for the consequences of government intervention. One clear example was the housing bubble and subsequent collapse of a decade ago. It was not the result of market failure, but instead the consequence of government policy to manipulate interest rates so false market signals were sent to producers. Low interest rates signal a surplus of saved wealth that people would like to spend on large investments and durable goods like homes. The boom felt like a strong economy, but it was a proverbial house built on shifting sand rather than on a solid foundation.

In response to the problems of the status quo, some people have advocated ideas known as "The Venus Project" or "The Zeitgeist Movement." Their assertion is that if we remove the human equation of government greed and instead install an AI central planner for the economy, we can harness production to the point where human labor is no longer necessary, or at least better managed than it is today. However, even if we set aside the principle of GIGO and the unavoidable fallibility of programmers, it's still not a simple mathematical equation. The economy is a dynamic system of innumerable variables and interconnections. You can't computerize it or automate it, because you cannot gather all the necessary information to even maintain the status quo, much less correct it according to your designs or predict future needs. Whether a committee of humans or a computer bank, a planner has no true knowledge of what others want or need beyond the most basic of generalizations, much less how they relate things from moment to moment on their respective personal value scales.

Yes, there is chaos in the market, but it is not the disaster that results from the misguided dictates of a self-important central planning committee or a Colossus.If an individual errs in the market, the consequences are limited. If a planner errs, everyone suffers, and the planner's errors are far more probable due to his personal prejudices and lack of information. Innovation is always disruptive to the established system, but this is progress rather than a problem. In any voluntary exchange, both parties benefit, and concentrated wealth for one indivisual jndicates distributed wealth has been provided for manybothers. Choice is freedom, and the market process built on respect for individual rights and informed by the price system promotes choice. The chaos of the market is a drive toward order in an inherently chaotic world of ever-changing circumstances. No central planner can allow choice if his plans are to be imposed, so no would-be planner can ever legitimately claim to promote freedom, no matter how his rhetoric twists words to sound like his truly chaotic totalitarian hell is benevolent care for the masses or an avenue to salvation.