Monday, January 12, 2009

Why Centralized Planning is wrong

You have heard much about central economic planning over the last year of the failed Bush administration and will hear even more in the coming months of the Obama presidency.  In both cases they will be wrong and against your best interest.  Here is why.

A free society and a free market requires not just voluntary exchange, but informed voluntary exchange.  In a voluntary exchange, all parties benefit from a transaction.  The role for government is to protect the freedoms of everyone to enter into voluntary exchanges.  Government would work to prevent fraud, it will protect contracts of all kinds.  This enables people to have lawful protection while doing business with another party that they do not personally know.

When Central Planning begins, it accidentally removes many of the fundamental components of free and informed exchange.  Central Economic Planning can attempt to make things "fair" by fixing a price, or fixing a wage.  The price of something in a free market can tell a consumer immediately if it is a good deal.  If the price is too high there may not be a market for it, if it's too low it may lend information about the quality or reliability of the product.  These are decisions that you and I make a thousand times as consumers.

Once "fairness" or "stimulus" has been added to the market, the ability to make an informed decision about an exchange becomes more difficult.  When a price becomes fixed, or more money or credit is allowed into the system, all the information we seek becomes harder to find.

The other piece of the exchange disappears as well.  The "free" part of the exchange goes away with choice.  After an industry has gone under the wisdom of central planning it's not long before the winners and losers in the industry are chosen by bureaucrats rather than consumers.  Protectionist policies, tariffs, regulation and bailouts all lead to a reduction in choice by the consumer.  It isn't long before the consumer loses the freedom to exchange with whomever they wish...after only a few choices remain.

The heart of a free society is the voluntary and informed exchange.  Once a government compromises this then believe me...there are no free markets.  President Obama would do well to ignore central planning and work hard to build a government that enforces fraud and tirelessly protects the rights of people to voluntarily exchange with one another.


Gino said...

"President Obama would do well to ignore central planning and work hard to build a government that enforces fraud and tirelessly protects the rights of people to voluntarily exchange with one another."

he is incapable of such thought, having grown up with the collectivist mindset.

where, anywhere in the past several yrs, has he ever mentioned anything about free markets and choice without being a reference to abortion.

Tracy said...

I agree with you completely that he is about 100% likely to march forward in lock-step with his collectivist sensibilities. After all, like all progressives they are more clever than anyone else and understand how much freedom simple folk like you and I can handle without hurting ourselves.

Though because he has not been in office a single day and because people need to be reminded of what a true free market would look like...I go ahead and pretend that he would be open to such ideas.

Esther said...

You are an idealist and there's nothing wrong with that. I applaud you for writing this post.

Foolio_Displasius said...

All this makes me think about the consumer's dilemma: People want good deals, but must accept a certain level of risk to get them. Decentralization gives people a better shot at finding those deals, but leaves us open to the risk of making bad choices. Centralization swaps our ability to freely bargain-hunt for a theoretical higher standard of "safety." But such a system can only breed graft and corruption, as people turn to "knowing a guy who knows a guy" in order to get the lower prices they want/need.

It would sound a lot more wingnut-ish if it didn't keep happening throughout the history of Western civilization!