Tom Woods refutes a (possible) straw man:
(2) He thinks private ownership is a form of “central planning.” (This guy has his own show?) Central planning involves (1) the direction of resources in the absence of property rights, or (2) orders handed down to resource owners by non-owners. Neither applies in the case of the ownership and use of a resource owned by someone with legitimate property title.
Keep in mind that Woods is refuting Max Keiser’s utterly asinine assertion that Mises was not an Austrian economist because he didn’t adhere to Mengerian economic principles. Besides being counterfactual, this claim is more generally stupid because Mises is more clearly associated with the Austrian School than Menger. (Note for aspie Austrian schoolers: I’m not suggesting that Menger is not connected with the Austrian school, I’m simply saying that if you mention the Austrian school to anyone, most people who have any familiarity with it are more likely to think of Mises in association with it than Menger. In fact, I’d bet that people are more likely to associate Rothbard and Hayek with the Austrian school than Menger, by virtue of the former two having more fame/notoriety/name recognition.)
Anyhow, the point I’m getting at here is that Woods and Keiser may not be using central planning to mean the same thing. Woods is definitely using the phrase in the political economy sense. I’m not sure how Keiser is using it.
It could be that Keiser is simply making the rather pedantic observation that most people use their property in a somewhat organized fashion. For example, major businesses most certainly engage in a form of central planning when they come up with a new product and attempt to sell it on the market. This is not a political organization, to be sure; however, they are making centralized plans to engage in an activity. Even a basic activity, like mowing one’s lawn, may be considered “centrally planned” if one (say, a father) tells someone else (say, a teenage son) how to go about this task. Again, this is a more pedantic use of the phrase “central planning,” but it is a legitimate one nonetheless, and it may be the definition that Keiser is using. In which case, Woods has accomplished the remarkable task of refuting a straw man.
Of course, Keiser is still wrong about a good number of things regarding the Austrian school (most notably the incredibly bizarre assertion that Mises’ economic beliefs were radically different from Menger’s instead of building on them). Woods would do well to hammer on those things, especially given the amount of confusion and misinformation that could result, instead of muddying the waters by refuting a (possible) straw man and shifting the debate to a technical side point.
I was talking to a preacher buddy of my dad’s a while ago, discussing my future plans, and I told him how I wanted to be an economist. Being a free-market apologist who had the audacity to challenge him on his favorable views of unions (from a historical perspective), he felt compelled to tell me that while he was pro-capitalism, he thought that some restrictions were necessary.
His argument for interfering in the market was based on how God had interfered with the free market under the old law. Specifically, he cited how God required that farmers leave remnants in their fields for the poor to borrow and how God forbade the Israelites from charging their brethren interest on loans). Unfortunately, there are at least three problems with this line of thinking.
First, God presumably possesses more knowledge than any central planner would. This difference is crucial because it means that the Old Testament theocracy is not comparable to any human-devised system. The biggest difference between the two systems would be that the theocratic system would not face near the knowledge constraints that a human system would. As such, God could be reasonably sure of the future and plan accordingly; mere mortals do not have these powers and abilities and thus would not have the ability to plan out an economy.
Second, not even God’s command was enough to ensure compliance with regulations that would work in theory. Time and again, the children of Israel ignored God’s laws. (It should be noted that usury laws and gleanings laws are not the only “economic” laws. Mandatory sacrifices have an economic component, as do the various regulations on commerce and production.) There were multiple times when the Israelites failed to keep God’s commands, which goes to show that even the laws implemented by the Lord of Hosts can be violated. If God’s laws can be violated then how can we expect any different for man’s laws?
Finally, note that some of God’s laws were intended to be signs of the Abrahamic covenant (e.g. dietary restrictions). Also note that some of God’s laws were intended to be signs of the coming Christ (e.g. sacrificial laws). As such, a good portion of God’s interference served a spiritual purpose. Not all laws that interfered with the Israelite economy had spiritual significance, but some did, and it is not always easy to discern between the two (e.g. Lev. 19:19).
At this point, it should be obvious that the argument that God’s interference in the Israelite economy during Old Testament times justifies Man’s interference in any economy today fails because it is an invalid comparison, it neglects to consider how even with God non-compliance with economic statutes was possible, and it fails to consider to consider the spiritual component of some of God’s economic laws, which is also an invalid comparison.
India has long operated a `silo system’ where the financial industry was sought to be broken up into vertical silos associated with regulatory agencies. The word `regulation’ is relatively little understood in India. Instead, there has been a central planning notion of comprehensive `control’ of a given financial firm vesting in a given regulator, so that a somewhat feudal arrangement prevails in each silo.
This is not how an efficient financial system works. As Percy Mistry’s report says, in the future, government needs to to reorganise itself to fit the regulatory requirements of a sophisticated financial system, instead of trying to force financial firms to reorganise themselves to fit the almost accidental regulatory architecture that prevails in India today.
In recent years, many changes in finance have hinged on breaking the strictures of this silo system. Two success stories that come to mind include ETFs on gold and currency futures.
In this setting, we have a big new development in across-silo thinking: an order by SEBI against insurance companies selling mutual-fund-like products without being regulated as mutual funds are. [pdf]
We need the Financial Stability and Development Council (FSDC) yesterday.
June 5th is the birthday of John Maynard Keynes, a brilliant economist whose influential work during the 1930’s changed the course of history. He has had a great deal of influence on generations of economists, including advisers to our current president and congress. It’s too bad he was wrong in virtually all of his innovations.
Keynes is considered the father of macroeconomics, one of the two major divisions of modern mainstream economics. Microeconomics is the description of reality, the study of how people interact and how markets work. Macroeconomics, on the other hand, is the study of how government can efficiently manipulate markets and people.
In the present world, economic reality and truth is largely ignored. The vast body of brilliant intellectuals involved in economics occupy themselves with building and analyzing macro models for government to more easily control the economy. They use their massive mathematical and analytical brainpower to try to develop more clever and complex models to predict the future and show politicians which strings to pull.
It can be clearly seen that the macroeconomists have failed miserably with their interventions to achieve a stable economy and well being for the people. It was a vast experiment over many decades and is a profound and horrible tragedy. All macroeconomists who promoted the interventionist state should be ashamed that they brought this great country to its knees. They should be crawling under a rock in embarrassment. That is not the way of the intellectual, however. The problem, they say, is that they didn’t intervene enough.
All of the macro models and manipulation are built on false premises. The first one is that government intervention can be successful at bringing long term to people in an economy. The second one is that they should intervene, even if success was possible.
Keynes’s conceived that, by measuring and controlling aggregates, such as aggregate demand, total unemployment and gross domestic product, the central planning gurus pulling the strings could make everything coordinate, put everyone to work and advance toward a post scarcity utopia.
The coordination problem is one that central planners have always had to deal with, and the former Soviet Union was one of the clearest examples of the problem and its results. The abolition of voluntary markets and the institution of central planning after the Bolshevik Revolution resulted in mass starvation and deprivation for many millions of people. Lenin was forced by reality to enact the New Economic Program in 1922, the limited reinstitution of markets, to prevent further deaths and possible overthrow of the regime.
Macroeconomics is, in its very essence, the rationalization of central planning. The core fallacy with all of macroeconomics is that data aggregated over a large, diverse area can be used to coordinate the activities in each locality and each transaction between actors in the markets. Each locality in a vast economy has its own peculiarities of weather, geography, demographics, culture and a host of other characteristics. The people each have their own goals, hopes, dreams, advantages and limitations.
It is not possible to impose a uniform solution on 300 million different people over millions of square miles of coastline, mountains, deserts and tundra. The problems and opportunities for small desert communities is vastly different than those of northern metropolitan centers. Macroeconomic policy is necessarily a generic solution to particular problems. The inevitable result is discord, waste and conflict. Because macroeconomics is inherently political, the macro solutions pit one group against another for control of the strings.
This brings us to the second inherent weakness of macroeconomic policy. Even if it was possible to have efficient macro solutions, it is wrong to impose those solutions. A slave owner might become an expert at wringing the most productivity from slaves. That he is able to do so does not mean he should. He should, rather, not enslave them. He should respect their rights and only enter into voluntary trade.
The same applies to national governments. Many people assume that it is a proper role of government to use coercion and confiscation to make people do things that will increase employment, aggregate income, gross domestic product or any other artificial measure. People in a free country, however, are not slaves of the state. Whether a policy will increase GDP or not does not give a politician the right to interfere with the voluntary interaction of market participants.
J.M. Keynes was indeed a brilliant man. Like so many brilliant people today, he was profoundly wrong and arrogant in his wrongness.
Health care has gotten to be one of the top issues of our time. Many people believe that the present system in America is broken. It is too expensive and excludes too many people. The political solution is to move from a highly centrally planned system to one that is even more centrally planned. Government is to be the savior and magically solve all of the problems and make everyone healthy, but that can only happen when it gets big enough, and interferes with the markets on a grand enough scale.
The problem with central planning in health care is the same as the problem for central planning in any other area of our lives. It assumes that the planning body is able to make decisions for hundreds of millions of people and optimize the results. The justification for government provision of health care is wrapped up in morality and rhetorical turns of phrase, as it must be to get around the obvious contradictions and logical incoherence.
Discussions of health economics, even by many PhD economists, often seem to neatly and conveniently avoid any mention of the relationship of prices, supply and demand, the essentials in any economic discussion. In every respect, the provision of health care is an economic issue, similar to the provision of food, shelter, clothing, transportation, and every other need of humanity. There is absolutely nothing special about a doctor doing brain surgery. It is a service that he or she provides, and the market for brain surgery operates according to the same economic laws as the markets for plumbing, catering or transportation services.
Not all discussions of health economics avoid economic principles, however. A growing number of participants acknowledge the tradeoff in the triangle of access, affordability and quality. In a health care system, you can successfully manipulate one or maybe even two of the three, but you can’t manipulate all three at once. You can artificially make health care accessible to everyone and even control prices to make it more affordable. In that case, the quality will inevitably suffer. You can have the highest quality and make it accessible to all, but the society will go bankrupt trying to pay for it. In order to make a high quality health care system with a low overall cost to society, you must necessarily exclude people with expensive problems. The three factors are opposing. You can’t have them all together.
The iron triangle of access, affordability and quality is really just a nod to the relationship of demand, price and supply. In any market, whether for health care or automobiles, manipulation of prices, demand or supply inevitably leads to negative unintended consequences. Health care would benefit a great deal if only people would take economic law into account.
Central planning, in all of its various forms, must, by its very nature, ignore economic law. It must manipulate prices, demand or supply. There are no other tools for central planners to use. Taxes, regulations and other legislative vehicles are merely the methods they choose to impose controls on supply, demand or prices.
If one assumes that all politicians and bureaucrats are actually benevolent and really care about the needs of the citizens, one might believe that the laws and regulations they enact will be beneficial to all of the people. That belief fails on at least two points. The first, most glaring fault is that politicians and bureaucrats are generally not benevolent and don’t care for the rest of us. Their career advancement depends on accumulation of power. Their benevolence falls toward those special interests that give them the highest bang for the buck they take from taxpayers.
The second failing is vastly more important, though much more subtle. Planning by government assumes that individuals don’t plan, or more to the point, that individual’s plans are wrong and don’t count. In reality, only the plans of people count. All that government planning can do is restrict the options for consumers and entrepreneurs and distort the economic environment under which they make their decisions.
The crisis in health care has only been an issue since politicians decided they know better than consumers do. The real solution to the health care crisis is to remove the cause, the severe interference that has distorted the markets for decades. Quality health care will be affordable only when individuals are accountable for their own costs and providers are free to compete on their own terms. Everything else is political whitewash.