Central planning isn't bad just because it's bad, there's reasons for its badness. Here's a few -
First, you get people who don't know about a profession trying to dictate to people who do know about it. EX: Hitler and Stalin managing farm production, even though they didn't know anything about farming - agricultural production goes down leading to famines.
Second, you lose the price signal which says what people really want enough to act on, given scarce resources. This leads to a feedback loop where goods priced below the equilibrium have demand far in excess of supply. EX: Everyone would love to buy a subsidized steak instead of a hamburger, so if steak is subsidized to hamburger prices, there'll be shortages and you'll need to impose rationing and coupons and things (which becomes a dual currency system where the coupon/ration becomes the real constraint currency, and then those become blackmarketed until an equilbrium is reached - but only with a lot of hassle).
Third, central planners generally have incentives that diverge widely from the people they're supposed to be planning for - ex, making sure those new centrally planned jobs go to your political supporters. This has happened in the majority of centrally planned economies.
You wouldn't expect a high concentration of wealth to have these same problems. Steve Jobs having central planning ability over Apple, and by extension, over a lot of the high quality glass and semiconductor industries isn't the same as Brezhnev having that power. Jobs, of course, is much more competent at building high end consumer technology than Brezhnev and not prone to make some of the common errors.
Additionally, market discipline means that even if you do get into a situation of Stalin managing Apple (or more realistically, Fiorina managing HP), it doesn't hurt me.
If HP makes crappy computers (or simply too few), I'll buy Lenovo. In contrast, if Stalin makes too little food, I'm hungry.
The entire purpose of corporations in a capitalist society is to get the benefits of central planning (technocratic experts engaging in central planning to achieve results better than free markets) without the harms (nowhere else to turn if the technocratic experts screw up). So far, they seem to be doing a great job of this.
That's only really true if you also support antitrust laws, though (i.e. don't support laissez-faire capitalism). If you end up in a situation with entrenched whole-sector monopolies and high barriers to entry, it becomes much harder to buy an alternative, so the owns-all-computer-manufacturing HP could get away with shitty management for years or decades, and buy up or drive out of business (e.g. through temporary dumping) any nascent competitors.
I don't disagree, but monopolies are generally unstable. HP and Microsoft are hardly dictating terms anymore. Their ability to erect barriers to entry is weak, unless they are getting help from the gov't. See telecoms & utilities.
Antitrust is often ineffective in practice. Sounds great in theory, but it is also a form of central planning. The best the gov't can do, in my opinion, is reduce the barriers to entry that it itself erects. Highly regulated environments, for example, usually protect incumbents.
I agree when it comes to the headline enforcement actions (breakups, etc.), which are done in a pretty haphazard way with questionable effectiveness. But I think the existence of the body of law does discourage the most egregious types of monopoly-protection activities. For example, few companies will do things that look too much like outright dumping, stuff like giving your product away for free for 12 months in order to crush your new startup competitor who's secured 12 months of funding.
That example doesn't bother me too much, though there are plenty of smart folks who would disagree. I don't like IE's dominance, which dates back to exactly what you describe (vs Netscape).
But the outcome is that the Internet became a mass phenomenon. I don't think it would obviously have been so if Netscape and MS charged for browsers. Heck, companies used to charge for TCP/IP stacks. Dumping looks pro-consumer in this context.
In theory, that is indeed an issue with natural monopolies.
In practice, however, the only areas I can think of where actual monopolies exist are areas with government granted monopolies, e.g. telco/cable or patent trolls. I'm sure there are a few natural ones, however.
But you did catch me - I'm not a laissez-faire capitalism purist. I just think it's a pretty good first approximation.
Then again, if Countrywide and Lehman and many others are allowed to make many million fraudulent mortgages, which end up blowing up trillions of dollars of wealth, it really hurts a lot of people. Unregulated markets, and the uses fraudsters can put them to, can really screw over an economy.
a) Mortgage issuers tended to be the victims of fraud, not the perpetrators. The people committing fraud were mostly mortgage brokers and and home borrowers.
(Mortgage issuers are now using fraud to cover up lazy paperwork after the fact, but that's a separate matter.)
b) The mortgage market doesn't even come close to being an "unregulated market". While you can dispute the extent to which the regulators played a role, it's indisputable that the regulators were solidly on the pro-bubble side of the fence.
Confused?
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a)Tell me again, how much money did Angelo Mozilo and Dick Fuld lose due to the mortgage fraud their companies engaged in? Go listen to William K Black on the subject of control fraud, and tell me that the issuers were the victims. Some of the stockholders and bondholders were victims, but the guys who ran the companies made out like bandits.
re
b) "Unregulated" is perhaps an overstatement. Would "substantially less regulated" or "Markets where the regulators regularly turned a blind eye to rampant fraud." work better for you? Greenspan has a lot to answer for, as do the OCC, OTS, and Congress. Go read about the FBI report in 2004 of "rampant mortgage fraud" and the total lack of interest on anybody's part of taking any action on it. Note that they just issued another report that it's still going on.
And if Angelo Mozilo and Dick Fuld hadn't approved of it, Countrywide and Lehman would not have been making liars loans. And if regulators had been doing their jobs, the mortgage brokers originating those loans would have been prosecuted.
So in effect the main problem with the Soviet system was that the wrong managers were in charge? What if they were selected meritocratically, e.g. if the Soviets had put the best scientists in charge of central-planned science/tech companies, instead of party stalwarts? You might argue that that's hard to do, but is that really the only problem with the Soviet system, that they didn't do a good job picking the right technocrats to put in charge of a command economy? Most critiques argue that command economies are inherently inefficient. But if it's really just a matter of doing a better job picking the technocrats to head a command economy, maybe communism can work after all, if it just develops a better assessment method for picking technocrats...
You have read so much on HN about how hard it is for a non-developer to hire a great developer, and how hard it is for an office culture to survive the loss of a great leader. Why do you think any other field is different? How could Stalin dependably hire the world's greatest ag planner if he is not a great ag planner himself, and even if a great planner was chosen, how could he reliably ensure his office remained great after his tenure there?
That's not the only problem, but it's the main practical problem, and a serious one.
Edit: and that's even assuming a qualified person exists to fulfill some of these dreams -- definitely questionable.
This is definitionally backwards. It assumes that it can be known ahead of time who the "best" are.
"Picking better technocrats" is impossible a priori. We don't know who the best are until they have been selected by the market. It's like determining ahead of time what the best species are.
"Best" is not defined, it is discovered. Until then, we don't even know the meaning of the term.
We could define it, if you define what you want your outcomes to be. For example, if we want to scientifically manage steel production in a way that maximizes steel output per given cost, then we need highly skilled statisticians and logistics supply-chain people in charge. Presumably it's possible to develop objective tests for someone's skill at statistics or supply-chain management (that's why we have technical education, right?), and then put those skilled people in charge, rather than someone like Brezhnev. Or, if you want to develop electric cars, then put the country's top engineers on the project, rather than someone who happens to be the brother of the oblast governor's wife.
(I'm not sure I actually believe that. But I'm not sure I believe the market answer either, since on the scale of large companies, there are so many factors involved, that luck and timing more than skill tend to be huge ones determining who ends up in top management positions of successful companies.)
Well, I think that the most objective test is a market. Efficiency only matters if we know what the goal is, and we don't. Why are electric cars the correct outcome, a priori? Our choice of electric cars as a goal is instinctual.
This is why we have ethanol subsidies. We "knew" the right outcome and tried to make it so.
It's worse than that. Many Soviet bureaucrats were very smart people who believed in what try were doing. But "merit" in the context of a system that is just wrong on many levels results in a warped perception of "merit".
> So in effect the main problem with the Soviet system was that the wrong managers were in charge?
Just one of the problems. The other problem is that managers did not have knowledge that is available in a free market, because of what they were expected to make decisions about. If you fix the price of something then it's harder to know its real market value.
Good stuff... TFA would make sense if they said concentration of wealth leads to oligopoly, or highly imperfect competition, or rent-seeking. But those are different from central planning. In the 50s, when a vertically integrated GM or Ford controlled 3% of GDP, that was as close to central planning as we got. But back then, interestingly, wealth and incomes were less concentrated than today. The link between concentration of wealth and the form of industrial organization is not very clear.
In the 50's the managers of GM and other successful companies paid over 90% marginal tax on income. I am sure that had an effect on their decision making process; i.e. Should I pay myself a $1000 bonus and be able to spend less than $90 of it? - or should I re-invest that $1000 in the company?
or should I build an empire with lots of perks for me, and just make sure shareholders do well enough that I don't get fired, and who cares if the company goes down the tubes 20 years after I leave.
First, you get people who don't know about a profession trying to dictate to people who do know about it. EX: Hitler and Stalin managing farm production, even though they didn't know anything about farming - agricultural production goes down leading to famines.
Second, you lose the price signal which says what people really want enough to act on, given scarce resources. This leads to a feedback loop where goods priced below the equilibrium have demand far in excess of supply. EX: Everyone would love to buy a subsidized steak instead of a hamburger, so if steak is subsidized to hamburger prices, there'll be shortages and you'll need to impose rationing and coupons and things (which becomes a dual currency system where the coupon/ration becomes the real constraint currency, and then those become blackmarketed until an equilbrium is reached - but only with a lot of hassle).
Third, central planners generally have incentives that diverge widely from the people they're supposed to be planning for - ex, making sure those new centrally planned jobs go to your political supporters. This has happened in the majority of centrally planned economies.
You wouldn't expect a high concentration of wealth to have these same problems. Steve Jobs having central planning ability over Apple, and by extension, over a lot of the high quality glass and semiconductor industries isn't the same as Brezhnev having that power. Jobs, of course, is much more competent at building high end consumer technology than Brezhnev and not prone to make some of the common errors.