[ExI] Economic Calculation Debate/was Re: The End of the Future

Dan dan_ust at yahoo.com
Wed Oct 5 14:29:40 UTC 2011

On Wednesday, October 5, 2011 3:39 AM BillK pharos at gmail.com wrote:
> On Tue, Oct 4, 2011 at 11:12 PM, Dan wrote:
>> While I disagree with characterizing your approach with a
>> "religious" one -- and would warn others here to avoid such
>> language as it's merelt the equivalent in this forum of
>> calling some one a jerk and doesn't clear up anything -- one
>> problem is perhaps that Stefano is not familiar with the Mises
>> -Hayek critique of central planning and of the various debates
>> that have taken place on this over the last 90 years or so.
>> (The debaters were not, to inform everyone else here, blissfully
>> unaware of the computational approach. In fact, some in the pro-
>> central planning side in the debate has offered this, time and
>> again, as the solution: computational power will simply increase
>> and the problem with go away.) Dennis, you mgiht be more familiar
>> with Mises, Hayek, etc. and are not explaining all the intermediate
>> steps. Remember, what appears obvious to one person might not only
>> appear not obvious but even absolutely wrong.
> Well, if the debate has been going on since the 1920s, perhaps
> Mises-Hayek got it wrong? Or perhaps their proposals were incomplete,
> or too one-sided?

You'll have to dig into the debate. They weren't debating this problem with people who were already on their side. Mises was debating this with actual socialists and other interested economists, such as Oskar Lange and Otto Neurath. Hayek was debating with later economists and the like. You're making it sound like Mises and Hayek had a brief discussion over drinks at the country club, concluded central planning was a bad idea and ever since their loyal followers and gushing admirers have agreed with them.
Also, actual real world planners, despite all their failures, past and present, are not all fools who never decided to use computers and try new methods. They've done and the record is dismal. Their theoretical supporters, from Lange to Stiglitz (though he's nomally for free markets) have likewise suggested all sorts of technical solutions to this problem -- to no avail. (In my view, they simply miss the problem. In a sense, bad economics is like perpetual motion -- the folks proposing it keep thinking it's merely an engineering problem to be overcome instead of seeing the essential flaw in their thinking.)

> The inefficiencies of many companies making similar widgets and most
> of them going bankrupt are just as obvious as the inefficiencies of
> government. (I avoid the term 'free market' as that is a fiction used
> only by ivory-tower economists).

Um, this misunderstands the problem. Mises, Hayek, etc. are not claiming that firms on a free market are perfect, have perfect information, never fail, or meet some ideal standard of efficiency. They are stating central planning simply can't work. It's not that it's less efficient, but that it simply can't calculate at all -- because the prices for capital goods generated under central planning have nothing to do with and are not anything like real world prices.
All of this does not mean markets are ideal, but rather that they do work. One might draw an analogy -- admittedly, a loose one -- with how science works as a social endeavor: people present theories, test them against data, critique them, and the theories, in general, improve. This process is not perfect. Ex post, one can realize that much effort was expeded in the wrong way -- building or fixing worse theories, ignoring better one, ignoring data, looking for or at the wrong data, and so forth. But I don't think central planning in science would do any better. E.g., a central scientific board might be set up to plan all scientific research, data collection, experiment, and criticism. This approach would soon, in my opinion, be out of touch with reality as the plan came into contact with reality. Since the central board would be making all decisions here, too, they would have to decide when they were wrong.
Rothbard and others, too, have pointed out that large firms do in fact face the same calculation problem. (Partly, this might explain why large corporations, though not exclusively them, seek and lobby for (and often get) government favor to stifle competitors, obtain subsidies, and restrict consumer choices. This helps them to overcome their calculation problem by spreading the costs of it to other parties -- in general, to other firms, consumers, the tax base, or everyone else.)
> The best option seems to be a mix of government for big enterprises
> and small businesses for making widgets. That shares the inefficiency
> and wastage all around.
Mises and others already addressed this. The third way of fascist economics doesn't work as well as free markets and tends to politcize production and consumption. What's more, as we see in today's world -- which is basically fascist in the economic sense -- is the government setting all sorts of economic targets, controlling the banking system, bailing out politically connected firms (surprised? a large firm will have more voters and more people likely to turn against the government, so it will, in general, get more favors than its smaller, less politically astute competitors). government attempting to pick winners (as if it had foresight here better than anyone else*), and so forth.
Why not advocate the same in science? Why not a mix of censorship and open discussion? Why not a mix of, say, the Church, whatever church or maybe a group of them, have some say over restricting areas of inquiry?
* Note: my claim is not that non-government folks are angels, saints, or geniuses at economic forecasting. They are not perfect or of a different species than those in government. But those in government are no better still and face two additions problems: they have little incentive for success or against failure as, for the most part, they can shift costs to others as a matter of routine, and they face information problems that markets solve ex ante -- even if such solutions are not perfect.

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