Why Central Planning Fails

Many smart people believe in this most foolish of ideas...

WE ARE still thinking about how so many smart people came to believe things that aren't true, writes Daily Reckoning founder Bill Bonner.

Krugman, Stiglitz, Friedman, Bernanke – all seem to have a simpleton's view of how the world works. They believe they can manipulate the future...and make it better. Not just for themselves, but for everyone. Where did such a silly idea come from?

Aristotelian logic came to dominate Western thought after the Renaissance. It is essentially a forerunner of 'positivism', which is supposedly based on objective conditions and scientific reasoning. 'Give me the facts,' says the positivist, confidently. 'Let me apply my rational brain to them. I will come up with a solution!'

This is fine, if you are building the Eiffel Tower or organizing the next church supper. But positivism falls apart when it is applied to schemes that go beyond the reach of the 'herald's cry'.

That's what Aristotle himself said. He wrongly thought only a small community could work at all. Because only in a small community would all the people share more or less the same information and interests. In a large community, you can't know things in the same direct, personal way. So, it's hard for people to work together in the same way.

In a large community, you have no idea who made your sausage or what they put in it. You have to rely on 'facts' that are no longer verifiable by direct observation or personal acquaintance.

Instead, the central planners' facts usually are nothing more than statistical mush, wishful thinking or theoretical claptrap – like weapons of mass destruction, the unemployment rate, and Übermensch.

Large scale planning fails because the facts upon which it is built are unreliable, frequently completely bogus. Also, it fails because people don't really want it. In a small community, the planners and the people they are planning for are close enough to share the same goals.

In a large community, the planners are a small minority. Usually, the planners have their own agenda...often a hidden one. They may call for more strict law enforcement, while getting campaign contributions from the prison industry. They may seek a cure for cancer, and depend on the pharmaceutical industry for job offers. They want a united Europe...and hope to be its head man.

But though large scale planning provides almost countless opportunities for corruption, it's not the dirty dealing that dooms it. Instead, it is the fact that the planners don't know (or care) what people really want...and don't have the means or the information necessary to achieve it anyway.

As we have already seen, practically all the 'public information' used by central planners is empty and most often misleading. But the problem is much more basic than the quality of the information or the corruption involved.

When we think of what people 'want', we are not really talking about their conscious, stated desires. We are speaking broadly of what they might be able to get...if allowed to do so...given the facts on the ground.

People in Hell may want ice cream; they won't get it. But people will do the best they can with what they have to work with. Large scale central planners can't help them. Partly because they don't know what the conditions in the man's private Hell really are. And partly because they don't have any ice cream.

You might better describe this process of getting as much of what you want as possible as the progress wrought by evolution, where trials and errors result in 'the best we can do'. Not perfect. Not the end of history. Just another step toward a future that is unknowable.

Large scale, central planners fail because they believe three things that aren't true. First, that they know current conditions (wants, desires, hopes, capabilities, resources); that is, that they know the exact and entire present state of the community they are planning for.

Second, that they know where the community ought to go; that is, that they know what the future ought to be. Third, that they are capable of creating the future they want.

None of those things is more than an illusion. Together, they constitute what FA Hayek called 'the fatal conceit, that man is able to shape the world around him according to his wishes'.

As to the first point, central planners cannot actually know current conditions because that would require an infinite amount of information. It would require 'minute knowledge of a thousand particulars which will be learnt by nobody but him who has an interest in knowing them,' wrote Samuel Bailey in 1840.

The planners have nothing like that. Instead, they have a body of public knowledge, which – as we have seen – is nothing more than popular theories, claptrap and statistical guesswork.

As to the second point – that they are blessed with some gift that tells them what the future should be for complete strangers – we pass over it without argument. No one really believes that people in US Congress or the French National Assembly, or in the bureaucracies and think-tanks of these nations, has anything more to guide him than anyone else – which is to say, only his own likes and dislikes, prejudices and fears, and self-serving ambitions.

Of course, each man always does his best, at his own level, to shape his world in a way that pleases him. One will want a fat wife...and likely get one. One will want a fortune...and maybe get it, if he is lucky and diligent.

One will want to spend his time playing golf; that too, may be within his means. Each will try. Each will win...lose...or draw, depending upon the circumstances. And the future will happen.

The central planner steps in to try to impose his own version of the future. Evolution follows its own course, as the plans of individuals and groups succeed or fail. Where evolution is taking us, no one knows.

But the large-scale central planner thinks he knows where it ought to go...and he doesn't mind giving it a shove, disrupting the plans of millions of people in the process. As soon as the smallest bit of time and resources are shanghaied for the central planners' ends rather than those of individual planners, the rate of evolutionary progress slows.

The trials that would have otherwise taken place are postponed or cancelled. The errors that might have been revealed and corrected are not discovered. The future will have to wait.

People are easy to deceive, especially when they only have access to 'public information'. Out of range of the herald's voice, they have no more idea of what is going on than the planners themselves.

They are encouraged to believe that the collective plans are beneficial. Often, they go along with the gag – for decades – even as the evidence of their daily lives contradicts its premises and undermines its promises. That was the story in Russia and China after the communist takeovers, where the planners' extravagant schemes endured 70 and 30 years, respectively.

Not everyone goes along, however. When people resist, the planner sees them as obstacles to his success. Ruthless planners then begin purges, cleansings, regulations, famines, deportations, disappearances, tortures, drone attacks, and mass-murders in order to encourage compliance.

But their plans are wrecked anyway, because not only do they retard the future, they also don't lead to the outcome the planners expect. Typically, the designers argue that the people must make sacrifices but that it will all come right in the end.

'You can't make an omelet without breaking some eggs,' said Lenin. People go along with breaking a few eggs (particularly if they belong to someone else) for a while. Ultimately, the problem is the omelet; it never makes it to the table. And the meal that ultimately does arrive is disgusting.

No 'workers' paradise' ever happens. The War on Drugs (or Poverty...or Crime...or Terror...or Cancer...) ends in a defeat, not a victory. Unemployment does not go down. Or, if any of these grand programs 'succeed'...it does so at a cost that is far out of balance with the reward.

Why do these plans fail? The simple answer is because that's not the way the world works. Life on planet Earth is not so 'rational' that it lends itself to simpleminded, heavy-handed intervention of the naïve social engineer. Bridges are designed. So are houses. And particle accelerators. Economies are not. Neither are real languages. Customs. Markets. Love. Marriages. Children. Or any of the other really important things in life.

Not to overstate our case, however, it is also true that humans can design and achieve a certain kind of future. If the planners at the Pentagon, for example, decided that a nuclear war would be a good thing, they could bring it about. The effects would be huge. And hugely effective.

But this extreme example reveals the only kind of alternative future that the planners are capable of delivering. Large-scale central planning can be effective: that is, by pulverizing the delicate fabric of evolved civilized life.

It is a future that practically no one wants, because it means disrupting the private plans of most of the world's people – for marriage, business, babies, baptisms, hunting trips, shopping, investment and all the other activities of normal life. Stopping those private plans means arresting the particular trials and errors of ordinary people upon whom the civilized future depends.

Not all central planning produces calamities on that scale, of course. But all, to the extent they are effective, are repulsive. The more they achieve the planners' goals, the more they interfere with private goals, and the more they interfere with the progress of the human race.

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