#10 Central Planning Wastes Resources and Retards Economic Progress

What Every Debater Should Know... Why economics? If you could only know 10 things... 1. TANSTAAFL 2. Incentives matter 3. "Hazlitt's lesson 4. Ownership promotes responsibility and coorperation 5. Trade creates wealth 6. Profits direct businesses to create wealth 7. Competition increases efficiency and innovation 8. Taxation and regulation discourage production and destroy wealth 9. Political decision-making favors plunder over production 10. Central planning wastes resources and retards economic progress Conclusion Off-Site Link to:   NCPA Debate Central Home Page

#10 Central planning wastes resources and retards economic progress. Human reason has given us enormous control over our environment. The technology that reason has produced helps to feed, clothe, and shelter us from the cold blasts of nature which kept our prehistoric ancestors huddled and half-starved. With the Enlightenment came the faith that nothing was beyond man's ultimate capacity to control if reason was his guide. If science could help us design a better bridge, then why not a better society -one that is organized and planned to suit our needs, instead of one where everyone pursues their own disconnected plans in that bewildering, competitive, uncontrolled game called capitalism? As well as we have done muddling along with nothing but profit and loss to guide us, one might imagine that the messy process of market competition would be better replaced by a consciously designed economic system that is rationally planned. This basic line of reasoning is at the foundation of a great many debate cases, as well as countless real-world proposals for reforming our economy. But as reasonable as its sounds, it is fallacious. In fact it is possibly "The" great economic fallacy of the 20th century; the one that brought us Soviet socialism and German fascism, to say nothing of the untold economic misery of dozens of Third World countries who patterned their policies after socialist governments in Europe. It is also the essential vision behind proposals for comprehensive national health insurance, national industrial policy, social engineering, government-funded scientific research, and all manner of government-business partnerships. The fallacy of central planning, which Nobel Laureate Friedrich Hayek17 called the "fatal conceit," lies in a misunderstanding of the kind of knowledge required to organize the plans of a large number of people into a successful economy (or health care industry, etc.) The knowledge to construct even the simplest item we use -say, a pencil- is known to no individual on earth. It is dispersed among millions of individuals who neither know each other nor are aware of each others' activities. Graphite miners, tool manufacturers, forestry experts, mill designers, paint chemists, rubber growers, truck drivers and machine operators each contribute their specialized knowledge to the production process. No central planner could hope to understand even a fraction of the detailed knowledge needed to guide the construction of a single pencil, much less an industry or an economy. And even if a planner could master this knowledge, how would he go about evaluating which resources should be devoted to which projects in the economy? What would tell him which things are most important or valuable? In a free, competitive market, fluctuating prices signal the value of resources and guide production decisions. If a large chromium mine collapses in Zaire, the American pencil maker is signaled that he needs to substitute paints with non-chromium dyes. How? By the higher price of chromium paint. People with less urgent needs for chromium reduce their consumption without having to know the details -or even that chromium is in the paint they use. Thus, supply and demand generate prices which spontaneously direct resources to the most important uses. Without competitive markets and prices to guide him, the central planner has no way to accurately judge what are efficient uses of resources. The problem of central planning is deeper still when incentives are taken into account. People who gain resources by virtue of their position in "the plan" rather than by better satisfying consumers tend to have a stronger interest in catering to the planner than to the supposed beneficiaries of their work. The collapse of communism is now widely understood to have occurred because of perverse incentives that rewarded corruption and waste, while neglecting even the most pressing needs of the people. Centrally planned government programs in America show the same pathologies. Medicaid clinics, paid by the government according to the number of clients they serve, often churn patients through as quickly as possible. Bureaucratically set prices for many Medicaid services are too low to compensate doctors for the liability risks involved, so these services -including prenatal care- are becoming less and less available18. A pregnant Medicaid patient who is willing to supplement the doctor's reimbursement with her own money to receive prenatal care or a higher quality of service cannot legally do so since this would defeat the purpose of the plan. Similar irrational results can be found in other "rationally planned" government programs. For debaters and extempers the principle to keep in mind is that individuals are generally better able to produce, purchase and provide for themselves what they need than even the best intentioned bureaucrat in a remote office. With economic freedom, society tends to spontaneously order itself to maximize peoples' chances of carrying out their plans successfully. This coordination may seem mysterious -we are trained to believe that where there is order there must be a designing hand that created it. But most of the order and cooperation in a complex society such as our own must be generated in this spontaneous manner, for no designer could ever accomplish the task. 17 See Friedrich A. Hayek, The Fatal Conceit, 1988 18 John Goodman and Gerald Musgrave, Patient Power, 1992, p. 59