Friedrich Hayek pointed out that a central planner, even a smart benevolent one, can’t possibly know what he would need to know to plan an economy. The needed information exists in the minds of hundreds of millions of people.
Hayek’s was a sophisticated argument. But all over the place we can see examples of government messing up because one government entity doesn’t know, or maybe doesn’t care, what another government entity is doing.
Here are three examples, from the relatively trivial to the more serious.
Canadian Election Speeches
On Monday, October 21, C-SPAN patched in the feed of the Canadian Broadcasting Corporation (CBC). I watched a few hours of election results and then got tired and went to bed. I turned on the TV in the bedroom because I wanted to see what the two major players, Justin Trudeau and Andrew Scheer, would say in their speeches to supporters. I gave up after a third player, Jagmeet Singh, head of the socialist-leaning New Democratic Party, gave a speech that went on and on. What did he think this was: the Academy Awards?
My fellow Canadian Matt Bufton, executive director of the Ottawa-based Institute for Liberal Studies, told me later that he watched it also. He pointed out that they all spoke at the same time. He commented, “Three men who can’t manage not to speak at the same time have strong opinions on how the lives of 37 million people should be structured.” Well said.
Firefighting in California
Here is Eric Boehm of Reason’s Hit and Run blog writing about California fires last November:
About 200 inmates are among the thousands of firefighters still doing battle with the massive wildfire that has destroyed the town of Paradise, California, and killed at least 31 people.
Once they are released from prison, however, most of them will be prohibited from joining the fire crews that they currently work alongside. It’s a cruel irony that demonstrates just how difficult life can be for the formerly incarcerated—even those with needed, practical skills—who continue to be punished long after they have paid their debt to society, and bad policy that effectively prevents the state from calling upon well-trained, experienced firefighters when wildfires erupt.
So it’s alright to pay them almost bupkis to fight a fire while they’re prisoners but heaven help us if someone contemplates hiring them as firefighters once they’ve served their sentences.
Many people think of government as a fine tuned central planner. It’s not. It’s different people with different plans that are often contradictory.
U.S. vs. U.S.
Syrian militias armed by different parts of the U.S. war machine have begun to fight each other on the plains between the besieged city of Aleppo and the Turkish border, highlighting how little control U.S. intelligence officers and military planners have over the groups they have financed and trained in the bitter five-year-old civil war.
The fighting has intensified over the last two months, as CIA-armed units and Pentagon-armed ones have repeatedly shot at each other while maneuvering through contested territory on the northern outskirts of Aleppo, U.S. officials and rebel leaders have confirmed.
In mid-February, a CIA-armed militia called Fursan al Haq, or Knights of Righteousness, was run out of the town of Marea, about 20 miles north of Aleppo, by Pentagon-backed Syrian Democratic Forces moving in from Kurdish-controlled areas to the east.
This is from Nabih Bulos, W.J. Hennigan, and Brian Bennett, “In Syria, militias armed by the Pentagon fight those armed by the CIA,” Los Angeles Times, March 27, 2016.
And more recently:
Footage showing members of Turkey’s mercenary “national army” executing Kurdish captives as they led the Turkish invasion of northern Syria touched off a national outrage, provoking US government officials, pundits and major politicians to rage against their brutality.
In the Washington Post, a US official condemned the militias as a “crazy and unreliable.” Another official called them “thugs and bandits and pirates that should be wiped off the face of the earth.” Meanwhile, former Secretary of State Hillary Clinton described the scene as a “sickening horror,” blaming President Donald Trump exclusively for the atrocities.
But the fighters involved in the atrocities in northern Syria were not just random tribesmen assembled into an ad hoc army. In fact, many were former members of the Free Syrian Army, the force once armed by the CIA and Pentagon and branded as “moderate rebels.” This disturbing context was conveniently omitted from the breathless denunciations of US officials and Western pundits.
According to a research paper published this October by the pro-government Turkish think tank SETA, “Out of the 28 factions [in the Turkish mercenary force], 21 were previously supported by the United States, three of them via the Pentagon’s program to combat DAESH. Eighteen of these factions were supplied by the CIA via the MOM Operations Room in Turkey, a joint intelligence operation room of the ‘Friends of Syria’ to support the armed opposition. Fourteen factions of the 28 were also recipients of the U.S.-supplied TOW anti-tank guided missiles.” (A graph by SETA naming the various militias and the type of US support they received is at the end of this article).
This is from Max Blumenthal, “The US has backed 21 of the 28 ‘crazy’ militias leading Turkey’s brutal invasion of northern Syria,” The Gray Zone, October 16, 2019.
READER COMMENTS
Thaomas
Nov 2 2019 at 9:34am
I’m trying to figure out which marginal decision Hyeck’s insight about central planning or Henderson’s discovery of political decision-making imperfection is relevant to. Wold the US have backed fewer crazy militias if the highest marginal tax rate were 1% less?
Alberto
Nov 2 2019 at 2:17pm
I’ve read 25 books on Syria, all written by Syrians or people who extensively spoke to Syrians. The single complaint from those who are being slaughtered is not that the US has armed throat-slitters. It is that nobody has stopped Assad. Some version of “They’re killing us, where are you?” pops up in almost every book.
Take Lybia as a comparison. The death toll is far smaller. Thousands of deaths in Lybia versus hundreds of thousands in Syria. A week in Syria can be deadlier than a a whole year in Lybia, where no dictator with a large air force is left to recklessly bomb civilians. And you didn’t even need to remove Assad. A no-fly zone could have saved at least a hundred thousand people and avoided a few million refugees. The US did successfully in Iraqi Kurdistan
When it comes to government intervention I’m generally as skeptical as professor Henderson. I cut an exception with genocide.
David Henderson
Nov 3 2019 at 11:14am
I’m criticizing foreign intervention as it is, not as you would like it to be.
Dylan
Nov 2 2019 at 4:24pm
I have to say, I’m having trouble seeing how any of these, lamentable as they may be, are really central planning issues? In fact, they all seem like the opposite, what you get with a deliberately uncoordinated approach. I think it is important to be clear that just because you’re under one organization umbrella, that’s not the same as saying you’re centrally planned.
There’s a series of famous “org chart” drawings for each of the big tech companies, and for Microsoft, the picture shows each division pointing guns at every other division (I’d link to it, but that seems to always get my posts sentenced to purgatory). I worked at Microsoft years ago, and at least then, there was more than a grain of truth in that. Microsoft had deliberately created business units and forced them to compete with each other, in hopes of maintaining an entrepreneurial startup kind of spirit in one of the largest companies on the planet. Divisions would purchase basic company services from other divisions within Microsoft (or go to outside providers if that was a better option). The idea of competition and price discovery and all the other advantages of a market economy were at least implicitly seen as a benefit of this approach. And, I’m sure there were big advantages to doing things this way, as opposed to a more centrally planned approach that has been more typical in large companies, but there were big disadvantages too. On the small scale, lots of reinventing the wheel of basic services, and doing it in different ways, so that basic information wasn’t really compatible between divisions. Products would be invented that didn’t really play nicely with other Microsoft products, worsening the customer experience for billions of people. And the level of inefficiencies could be really large, in my short time there in a very junior role, I found that we’d been overspending something like $80K a year on shipping costs and pissing off our customers, because we were shipping things around the world and back again for no good reason, but it wasn’t noticed, because the money was split between different groups that had no reason or incentive to talk to each other, much less work with each other to improve things at the company level, rather than just for their group.
There are huge issues with central planning, and Microsoft might have been right that the benefits of their approach outweighed the drawbacks (although I’ve heard they’ve moved much more to a top down, central plan in the last few years). But the government examples you give feel much more like a Microsoft type problem, than the kinds of problems you see at a company like IBM that was traditionally more top-down focused.
David Henderson
Nov 3 2019 at 11:19am
You write:
But this is the central planner’s problem. The central planner will aways have to delegate and share power. And then we get these kinds of outcomes.
I recommend that you read Red Plenty. See my review of the book here. (Scroll down just before halfway.)
Dylan
Nov 3 2019 at 1:27pm
Professor,
Thanks for the book recommendation, based on your review it does sound like a good read, but I don’t think it gets at the crux of my issue, which is perhaps just one of definition? The way I think of central planning has to do with the approach to decision making. Centrally planned is a system where information is supposed to flow upwards in the organization, and decisions based upon that information flows down. Of course, once you get to even moderate complexity, problems with this approach are going to appear for a whole host of reasons, some of which you elucidate in the review you linked to.
However, none of the examples you give here, seem to arise specifically due to any central planning, but appear to be broader issues of coordination that you have with any large groups of people, no matter the structure. Indeed, if I understand the Canadian example right, none of these are even technically under the same organizational umbrella, instead we have political parties acting independently from one another, with no attempt to try and coordinate or really any incentive to do so. I mean, why would I want my voters to watch a speech of the opposition leader?
But this is the central planner’s problem. The central planner will aways have to delegate and share power. And then we get these kinds of outcomes.
Walmart is centrally planned, and while I’m sure they have their issues, they seem to get on alright. Which shouldn’t be taken as an endorsement for a central planning by government, just an acknowledgement that maybe there is another reason beyond just the decision making process that makes it viable in one context, and problematic in the other.
David Henderson
Nov 4 2019 at 10:55am
You wrote:
Exactly.
You wrote:
Good point. The huge difference is that Walmart is for-profit, privately owned, and subject to market forces. The optimal amount of central planning by for-profit firms was, by the way, a big part of Coase’s discussion in his 1937 article “The Nature of the Firm.”
Dylan
Nov 4 2019 at 11:41am
Professor,
Apologies for the confusion with my previous post. The section you quoted is of course your words. I had intended to use the brown block quote feature to highlight this quote, as you did in your post, but apparently I don’t know how to use this feature.
I’m a big fan of The Theory of the Firm. I’ve done a fair amount of work over the years with so called “virtual companies,” where every function of the company is outsourced to other companies or individuals, and you have at most a very small team that works for the company, and many times one or even zero actual employees. This structure is only possible because technology has drastically reduced transaction costs, so that there is often not much of a difference between doing business internally in a big organization, or working with a dozen much smaller companies to do essentially the same thing. Coordination is still a huge issue though, and maybe even a bigger one than when you’re all under the umbrella of a single company. Even small differences. like trying to standardize on a single platform for communication can become a big challenge.
Your summary of the difference between the government and Walmart are of course correct, but again, I’m unconvinced that these are the factors that make central planning relatively effective in one setting, and ineffective in the other. Instead, these seem like differences that make one type of organization generally more responsive and successful (as measured against internal objectives) than the other. The decision making process they use seems kind of irrelevant.
Jon Murphy
Nov 3 2019 at 12:06pm
On top of Prof. Henderson’s recommendation, I also recommend Managerial Dilemmas by Gary Miller. The book is on hierarchical problems in firms, but the lessons apply broadly. You’ll notice even in highly centralized organizations, there is still the issue of internal coordination. That is an extremely hard problem to overcome.
Internal coordination is not a problem of hierarchy, but rather of knowledge and information.
Dylan
Nov 3 2019 at 1:41pm
Thanks Jon. While I’m not sure if I’ve come across this book before, I have done some reading on the subject, so I’m at least a little familiar with the basic coordination problems, and agree it is a very hard problem to solve, maybe impossible. My only point is that this isn’t a problem limited to central planning, or even internally within the firm, it can be just as hard, sometimes harder, to coordinate among external firms when the information you need is more complicated than what is conveyed purely by price.
And now for an off topic request:
Recently, someone (guessing you?) left a comment on a post here that I think compared the Malthusian view of population growth with the idea that increased population leads to more “great minds” which leads to more innovation, which in turn makes it more likely to improving living standards for everybody (paraphrasing obviously). I was familiar with the general idea before, but this post attributed it to a specific thinker that I was not familiar with. I’ve been trying ever since to find the post again, or else find this economist(?) through an internet search, but without luck. Wondering if this might ring a bell, and if you could help me out with a name?
Jon Murphy
Nov 5 2019 at 2:49pm
Absolutely. That’s one of the major critiques of centralized planning.
That wasn’t me, although I have made this argument before. Unfortunately, I cannot guess who it is off the top of my head.
David Q
Nov 5 2019 at 11:25pm
Dylan asked:
“Recently, someone (guessing you?) left a comment on a post here that I think compared the Malthusian view of population growth with the idea that increased population leads to more ‘great minds’ which leads to more innovation, which in turn makes it more likely to improving living standards for everybody (paraphrasing obviously)”
You may be thinking of “The Ultimate Resource” by Julian Simon.
Dylan
Nov 6 2019 at 6:58am
Thanks David,
I don’t think that was the name that was mentioned, as I’m pretty sure I would have remembered Julian Simon. But that’s probably a good place to start, since if he’s not the originator of the idea, then I’m sure he’ll reference him or her.
robc
Nov 4 2019 at 9:11am
1 unimportant nit: Isn’t this more of a Mises observation than Hayek?
Although Mises probably wasn’t first either.
David Henderson
Nov 4 2019 at 10:51am
You wrote:
I think you’re right. And if so, it’s not unimportant.
You wrote:
I don’t know of anyone before him.
Jon Murphy
Nov 4 2019 at 5:41pm
Adam Smith touches on the idea in Wealth of Nations (page number not given because I am on the road and don’t have my WN handy).
David Seltzer
Nov 5 2019 at 5:43pm
“how little control U.S. intelligence officers and military planners have over the groups they have financed and trained in the bitter five-year-old civil war.” Those who do not learn history are doomed to repeat it.” The 1953 Iranian coup d’état, was the first covert action of the United States to overthrow a foreign government during peacetime. Mosaddegh was displaced by the C.I.A. in favor of the Shah. The company then trained Pahlavi’s murderous secret police, the Savak. Of course, the 1979 revolution followed.
Stewart Bovi
Nov 7 2019 at 12:17pm
I can agree wholeheartedly that central planning, especially in regards to the economy is unreliable. Despite the government being composed of three branches meant to check each other they all more often than not act like a single entity. The reason that central planning often doesn’t work is because it’s unreliable for a single entity to see the full picture, even with thousands of eyes and ears informing it of what is happening. This goes doubly so for economics since it involves so many pieces and intricacies.
Economics, even if only looked at on the scale of a single state, can be very complex. Therefore relying on a single entity to manage the economics of an entire country and do it well is unrealistic. The U.S. government cannot predict at what price points each individual citizen will purchase something or what kind of costs small business face compared to large almost monopoly-like entities. Often when the government intervenes it comes too late and the effects are overreaching, backfire, or simply don’t work at all, such as “temporarily” increasing the tax on gasoline.
I believe that the government should act less like an economy controller and planner and more like a regulator. The government has shown it can’t or won’t understand how frequent mistakes are and that it only cares about what works most of the time, therefore giving more control to smaller scale governments for individual areas is much more realistic, even if not perfect.
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