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Political Economy
Centralized government allocates resources badly–regardless of its intentions. The very nature of centralization makes it impossible to collect and compute all the information that is needed. This is as true for any grand scheme of industrial planning as it is for the government-led welfare systems that characterize Europe’s “social model.”
Read the whole thing. (It may require doing a Google News search for “Alberto Mingardi”)
READER COMMENTS
Randy
Mar 27 2012 at 9:07am
“Centralized government allocates resources badly–regardless of its intentions.”
That depends on what we assume to be the objective. It seems quite obvious to me that the objective of any political organization is to allocate resources to it’s members and patrons. Given this assumption, the “government” (the preferred identity of the political organization) can only be seen as extremely effective at allocating resources.
Thomas DeMeo
Mar 27 2012 at 10:25am
I don’t see how anyone can seriously discuss this point of view without explaining how China has succeeded to the extent it has.
BZ
Mar 27 2012 at 12:17pm
Although the public choice folks have a point about the screwed up incentives, what most fascinates me are the knowledge and coordination problems in such planning. I’d love to see more economists studying large and small companies with different management styles to get a better idea of how centralized decision making affects the quality of coordination.
@DeMeo : reason.com did some good articles on this. Basically, the Chinese state became less enthusiastic in its initiatives, and the Chinese people quietly instituted markets in the countryside where they could. The Chinese state also began allowing foreigners who invested in their cities to keep their wicked capitalist profits.
Jonathon Hunt
Mar 27 2012 at 12:22pm
@ Thomas
You’re right; Even China’s GDP per capita (IMF 2011) is just so comparable to the United States. Oh wait…
7. United States (48,147)
90. People’s Republic of China (8,394)
There have been quite a few Austrian economists who are simply waiting for China to implode. You may want to google “Chinese Ghost Towns.”
Jameson Burt
Mar 27 2012 at 4:18pm
Mingardi’s Corollary: Most (macro) economists blunder — regardless of intentions. After all, most (macro) economists work for government (academia, FED, both, …), so are themselves badly allocated resources.
Thomas DeMeo
Mar 27 2012 at 5:10pm
@Jonathon
I agree that China is far behind in per capita GDP and I agree that there may well be major problems down the road that will hurt a lot of people.
That being said, it is ridiculous to argue that what has happened there can be reconciled by simply saying it isn’t really that impressive and will all fall apart soon. It simply doesn’t fit this narrative and it is too big and important an outlier to ignore.
@BZ- I do think that the primary key to the success of the Chinese was just how willing they were to let market driven investors make most of the money. The core problem remains: Why didn’t the massive central planning cause the economy to fall apart by now? There are many factors, but the lack of failure due to central planning remains unexplained.
Xerographica
Mar 27 2012 at 6:58pm
@ Thomas, China has succeeded as much as it has because of my hero Deng Xiaoping.
We know that central planning doesn’t work….yet for some reason economists don’t mention the fact that we have 538 congresspeople allocating a huge chunk of our nation’s resources. I don’t get this. I don’t get why economists scratch their heads about recessions and depressions when we’ve already established that central planning places too many eggs in one basket. A recession/depression is nothing more than a misallocation of substantial resources.
Why do libertarian economists focus on the tax rate or narrowing the scope of government…rather than simply advocating that we decentralize the allocation mechanism by allowing taxpayers to choose which government organizations they give their taxes to? That’s the mystery!
To read about Deng Xiaoping vs Murray Rothbard…check out my post on the Magna Carta Movement.
Gian
Mar 28 2012 at 12:51am
Is China massively centrally planned?
happyjuggler0
Mar 28 2012 at 3:29pm
Thomas,
Imagine a marathon runner with 200 pounds of rocks in a backpack. He may have trouble putting one foot in front of the other, let alone running, and let alone actually finishing the marathon.
Now imagine he takes 100 pounds of rocks out of his backpack, leaving him with *only* 100 pounds of rocks left on his back. He then tries to resume running, and accelerates at a rapid pace compared to his previous pace.
He still has 100 pounds too much on his back. If he shed those extra 100 pounds of rocks left on his back, he would increase his pace even more. He would then have a fighting chance at eventually making it to that 26.2 mile point that many other less-burdened marathon runners reached a long time ago.
This is why China has boomed despite too much central planning. It started at a near zero pace, and then the government started taking burdens off of the backs of Chinese entrepreneurs and foreign investors, and therefore its pace accelerated dramatically.
When government becomes less burdensome, good things happen to economic prosperity.
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