The thing is, is that such interventions are so built in and historic, that people forget about them, and think that it’s the free market that is in control of things, and doing a swell job of it. It’s never been a free market, so congratulating the free market on the outcome of providing enough food for everyone is simple ignorance.
Yes, very much so.
And there are several other examples of this, like the Dust Bowl, which is still technically in living memory. People will gladly and willingly create famine and deprivation for years to come if it means a bit more profit today. And almond farming in California is quite likely another.
Not only that, but sometimes the best decision the individual can make depends on doing calculations that would be difficult for MBAs. In my grocery store, at least, some sales items are worse deals than non-sales items, which you can figure out by doing simple math. This seems beyond many people.
I’ll cite one of my favorite books: After the Fact: The Art of Historical Detection by James West Davidson and Mark Lytle. The book is about how historical research is conducted and uses examples from American history to illustrate its points. One of these examples was the Jamestown colony.
And not just on food either. One of the things that we learned from the Great Depression was that we shouldn’t let banks gamble with depositor’s money. For decades, regulations prevented banks from being able to gamble with depositor’s money. As soon as those regulations were relaxed in the name of the free market, banks started gambling with depositor’s money, and shortly thereafter, we had the biggest crash since the Great Depression.
People, if left to themselves, will make short sighted and selfish decisions, and if enough do so, it causes recessions or famines. It is called “hurting the common people” when their freedom to do anything they want is mitigated, but each individual ends up sacrificing just a bit to prevent complete disaster.
Anti-government types never actually point to true free economies as their ideal, as anything close to a true free economy is a disaster that no one would actually want to live under. They just complain about having to live under the restrictions that prevent our economies from turning into those same disasters.
Let’s be fair though, the free market is doing the heavy lifting. It’s the most powerful economic engine we have, and even though it makes sense to adjust something here, and restrict something there, we shouldn’t discount the fact that it’s actually quite a marvelous system.
The free market, being a feedback based system, has no morals, or ethics, it can’t judge outcomes as good or bad for humanity. It will happily throw human lives away as easily as it throws away scrap materials. It depends on humans to see what’s happening and decide that starvation is bad, so we better direct resources towards preventing it.
Yes, but the problem is that there are people who worship the free market, and don’t think that we should adjust something here or restrict something there. They think that all such decisions are political, meant to win votes in key areas, and hurt the common people.
Right, and the flaws of the free market need to be recognized. Sure, there are lots of good things about it, and I don’t say that we throw the whole thing out, almost no one says we should throw the whole thing out (I’m sure there can be some nutpicking to find someone who does). But, if people don’t even recognize that there already is government intervention that is preventing disaster, then they may take an anti-government stance like Reagan’s “9 most terrifying words.”
That’s how we end up with disasters.
Paul Krugman has written about how he teaches a seminar on the economics of the welfare state, and does so by introducing the ideas of John Rawls and Robert Nozick as two opposing value systems.
Simplistically, Rawls argues in his “Theory of Justice” that we should imagine the society we would like to be born into, without reference to knowing your place of birth in that society. So if you decided on a society with huge inequalities, you would most likely be born as a poor person with little opportunity for advancement. Rawls then argues that most would perfer to be born into a society with a substantial safety net - one that would allow people to get ahead, and encourage virtues like hard work and service to others, but with protections for those who would be left behind and left out of society otherwise.
Nozick, as a counterpoint, argues in favor of freedom of choice as the highest organizing principle for society, where people can act as they like without hurting others, and the social organzation promoting the greatest choice is what should be preferred, even if some will be left out or have less than others.
Krugman’s point is that your values will determine, to a large extent, what degree of interference with the “free market” you will encourage in order to get the outcome consistent with those values. He is a free marketer, and believes the market has a role - even a vital role - in getting to those kinds of outcomes in the best way possible - but he’s in favor of a lot of interventions that many free marketers will oppose, simply because of he values a more Rawlsian than Nozickian society.
Most intro economics courses look at the mechanics of economics, which you could think of in terms of the OP’s “fundamental rules”; but in terms of what is most important about the political aspect of economics, it’s very much values-based.
I mean, isn’t that kind of the way science works? My intro chemistry class dealt purely with the mechanics of atoms and molecules, not the ethics of it.
I’m honestly curious as to precisely what event you’re referring to. The famous famine in Virginia was the Starving Time of 1609-1610, which had nothing to do with people growing tobacco instead of food, but had a lot to do with the fact that it wasn’t a self-sustaining colony and was generally run by people way over their heads. Tobacco as an industry there came a few years later.
My ex-girlfriend used to work at a gas station, and she routinely witnessed her manager colluding with the guy on the other corner about price-matching.
Sure - or at least, the way science education works. That last paragraph was my attempt to relate the subthread that had turned into a discussion of values back to the OP.
I think, though, that because the effects of economics have such a visible impact on the world - and can clash with people’s values - that framing the big economic policy questions as questions of values is useful. I mean, there aren’t arguments that chemical poisons should be ingested, so that’s not really a question of values; but you can make an argument against economic policies on a value basis (and also on a mechanism basis, of course; pointing out that the chosen way of achieving a desired end is counterproductive in the same way that you might point out that that chemical someone thought would cure an ailment will actually be harmful).
Saying we will lose 2% of our molecules when we do X is less ethically challenging than saying we will lose 2% of our humans when we do X. The free market is an automated system, it needs no outside controls to work, but it will not automatically correct for human suffering and death.
Humans have done all sorts of terrible things to maximize profits, and without a different set of humans saying “you’re not allowed to do that”, and enforcing it, there’s no reason to think those things wouldn’t continue to happen.
I didn’t communicate very well there. What I meant is that there is not one reason for ‘central planning’, and different central planners have different motives.
Mao’s Great Leap Forward was motivated by a desire to pull his country into the industrial age. He managed to kill 40-50 million people in the attempt. On the other hand, European central planners are trying to solve climate change and intentionally reduce industrial activity. Central planners in the U.S. and Canada seem more fixed on social issues. There’s no one reason for ‘central planning’.
The ‘stupid shit’ they did was to go after the landowner-farmers (the Kulaks) because they thought giant collective farms were more ‘scientific’ and could be managed by central planners more effectively. So they killed and imprisoned a lot of people, took away ownership of the land, and turned it over to ‘the people’ in the form of collective farms.
As it turns out, eliminating the people who know the land and what farming practices work best in the local area, and replacing them with bureaucratic collectives run by party hacks with peasant labor who have no skin in the game is not the big efficienncy win they thought it would be, and farm output plummeted during a period of great weather for harvest. So, they had to plunder the Ukraine of its food to keep Russian citizens from revolting against the government, at the expense of 20-40 million more lives.
Today, the WEF thinks it would be a good idea to kick farmers off their lands and build giant ‘food innovation hubs’ instead. The more things change, the more they stay the same.
Central planners especially hate small businesses, independent farmers, and landowners because they have money and power and can’t be controlled by the central planners. They’d much rather deal with Monsanto and their ilk, who are totaly willing to do the planner’s bidding so long as they are compensated well for it, just like the Russians got rid of the Kulaks because they were competing power centers in villages at the time.
You’re right - the free market would work much better without those government distortions. For example, we’d be producing food on land that now produces corn for ethanol if it weren’t for government subsidy.
New Zealand had one of the best farming systems in the world. Then they elected a government that decided to ‘improve’ agriculture and ‘protect’ the farmers. They did this by heavily subsidizing fertilizer and feed, and by subsidizing farmers by the amount of grazing land they had. They also fixed the price of veal to ‘protect’ the farmers from fluctuating world prices.
Farmers responded by over-fertilizing the land, polluting the rivers. They increased their ‘grazing land’ by putting sheep in places that would have been uneconomic without subsidy. And cheap feed and a guaranteed per-pound price for sheep caused overfeeding, causing a decline in the quality of the meat. New Zealand veal plummeted in demand, and the government resorted to buying the sheep and reducing them to tallow.
Subsidy and government intervention just about destroyed New Zealand agriculture. What saved them was that the government went broke. All subsidies were ended, and farmers screamed that it was the end of the world. What actually happened is that farmers re-learned efficient practices, had to raise their sheep in a competitive global market and used their land more efficiently. New Zealand agriculture rapidly returned to its former glory, and its veal became very desirable again. New Zealand’s farm sector became much healthier without government ‘help’ than with it.
Today, the government is ‘helping’ agriculture in The Netherlands by demanding that nitrogen fertilizer use be reduced by 30-90% depending on region. They think they know better how to run agriculture more efficiently than do the people who have made the tiny Netherlands the #2 food producer in the world and #1 in Europe.
They admit this will put over 1,000 small farmers out of business, but ‘food innovation hubs’ can take their place. Canada wants to do the same thing. If they get their way, expect food shortages. Hopefully not famine. It’s going to depend on how far they go before we throw them all out of office.
Government action certainly does affect agriculture. But you seem to assume that the effect is positive, or even necessary for agriculture to function. I have argued that it is the opposite. Farm subsidies are a perfect case of special interests capturing government moey at the expense of the people. We’d all be better off if they went away.
Where does the vast majority of information in a complex system reside? At the bottom, where the majority of interactions happen. Local knowledge, tacit knowledge, and knowledge gained through daily interactions with other market participants. Also, they have much more knowledge about themselves, their goals and their needs.
Local knowledge is critical. A farmer who has worked the land for decades knows where the rocky soil is, where water flows during storms, what crops the soil will sustain, what supporting infrastructure is nearby (silos, tractor repair, shipping facilities, etc). The farmer knows all kinds of things that are simply invisible to people envisioning a central farming plan or setting crop yield targets or fixing the price of farm goods to a ‘rational’ level.
I used to do software requirements analysis for new products or versions of new products. The product was software used to manage factories and make them more efficient. In our case, we were the ‘central planners’ who had to go into a facility we didn’t know and figure out what the people working there needed from us. This is just a tiny microcosm of the kind of central planning governments do, and we were much, much closer to the people we’d be helping/hurting with our efforts than a government would ever be.
We never got it right. Ever. Figuring out the requirements for something you aren’t part of is incredibly hard. In the early days, the big brains in head office would consult industry professionals or hire consulting firms to come up with requirements (adding another layer of indirection), Prepare a big document, get it signed off by the factory owners (who also didn’t really understand their own processes, or sometimes even the document), then hand the thing off to development teams to build, with them having to work off an abstract requirements list with no real knowledge of the environment they were building for.
It was a giant game of telephone. You are wrong in the beginning, and as you pass the information from level to level in the company it slowly gets distorted until the thing we would build was nearly useless to the people in the plant.
The industry learned. Today, we have realized that we cannot solve other people’s problems from a central office. So what happens now is that we would send the developers themselves to the factory to watch and learn, interview the people actually on the floor and discover what the real processes were (the stuff they learned on the job through experience would modify the plan, and the bosses often didn’t even know).
Even putting us close to the customer didn’t fully work. It turns out that the people doing the work don’t even necessarily know what they need until they try it and see. Things that sound good on paper suck when they hit reality.
Enter Agile. We learned that the smart way to do things is to build the smallest thing that could possibly be of use (the Minimum Viable Product), put it in the factory and let people use it. THEY will decide what works and what doesn’t, not our architects or head office people or even the developers. We learned to continuously build and ship, get more feedback, refactor, ship again, repeat.
The lesson we learned is that you cannot centrally plan software, you can’t architect an entire system by hiring big brains in a head office. It’s too complex, and you don’t have the information. People still try, but the biggest failures in software history came from giant centrally planned projects in a huge waterfall process.
This is also why some of the best, most innovative software has come from small shops with a huge amount of domain knowledge. Our first and most successful process control software was written by process control engineers trying to solve their own problems in their own domain, not by computer scientists in Silicon Valley.
A classic blunder companies often make is to separate their management from the workers doing the things to be managed. A close second is ‘managerialism’, where you hire a Pepsi executive to run a software shop because hey, management is management. In other words, a shift away from bottom-up decision making to central planning.
Central planning is not just a government failing. Boeing moved its management team to Boston, far away from its engineers and engineering. They are reaping the ‘benefits’ of that decision now.
Excellence requires iteration and constant testing against the real world. The market works not because people in private industry are smarter than people in government - it works because there are many people trying many things to solve problems. Many fail, and we get to learn from their failure. Facebook succeeded, but it did so because it rode on the failures of friendster, MySpace, etc. This constant churn of tests against the public is very much like the iteration of Agile programming - you keep trying, learn from failure, and try something else. That’s the magic of the market. The fact that other people are doing the same keeps you in check against being greedy or lazy.
Government, on the other hand, is the opposite. Once a government product or program is put in place it’s nearly impossible to kill. The Wool and Mohair subsidy was put in place because of shortage fears for military uniforms. It stayed in place for decades after the military stopped using wool and mohair. The Rural Electrification Administration kept going for decades after Rural areas were almost completely electrified.
Minitel held back France’s internet adoption for many years because the government wouldn’t kill it when it was obviously obsolete. And when governments mandate something, you never get to run experiments on alternatives to find something better. You can mandate that the government build you faceBook, but you are more likely to get Friendster, and then be unable to try anything else when you don’t like it.
The SLS rocket is a good example. It started life as the Ares-5. Then it was cancelled, but largely resurrected in the Constellation program. That got cancelled again, and it came back to life as SLS. It’s been worked on for decades, and it started out with a mandate to use Shuttle parts and facilities, because politics.
While the government remained fully occupied with a giant white elephant rocket full of 70’s technology, eating tens of billions of dollars, the private space industry started trying all sorts of things - a helicopter-like rocket (the Roton), air-launched rockets (Rutan), 3-D printed rockets (Rocket Lab), rockets flung out of a centrifuge (spinlaunch), and rockets that land back on their tails (SpaceX). Some failed, some are still in development, and one has been an amazing success and cut the cost of space launch by an order of magnitude.
If we only had a centrally planned space program, we’d still be waiting for the 4.5 billion-per-launch SLS, and central planners would be explaining to us how they are the best at this and that private industry can’t compete because you can’t make a profit when it costs billions per launch and there is just no other way. And they’d believe it, despite developing the Friendster of rockets for twenty years.
Do you have an example of a free market causing a famine? Something a little more applicable than an early colony in the 17th century?
Go into any supermarket, and marvel at the fact that you can almost always get exactly what you are looking for, and so can everyone else. COVID caused some bare shelves, which was shocking to a lot of people in the west who were used to just being able to get what they want, whenever they want.
Now think of the millions of people for whom this is also true, and yet we don’t have giant warehouses full of every good to manage this. The goods just appear in the right places in the right quantities for the needs of the specific population in the area. Waste is extremely low.
Now think about the millions of people who need to coordinate their activities to make this happen. Food doesn’t just appear in the right quantity at the right time - the trucks to deliver it are also available in the right quantity at the right time, and the tires for the trucks also. There are exactly enough mechanics to maintain those trucks, and the mechanics have access to all the tools they need. The tool manufacturer has access to steel, which is smelted in just the right quanity to meet the needs of all the people who need steel…
The market does that. Your hypothetical market breakdown where greedy people decide to not meet the needs of consumers doesn’t seem to exist as anything but the odd outlier perhaps.
Now imagine a central planner trying to orchestrate that. Your commissar in some location reports that they are short of tractors. So you order the tractor manufacturer to step up production. But the tractor manufacturer can’t, because they don’t have the tires. So you order more tire manufacture. But that creates a rubber shortage, which affects the supply of shoes… Complex, intertwined systems simply can’t be efficiently managed from the top down.
That was reality in the Soviet Union. Production hampered by lack of parts, gluts of size-8 women’s shoes but shortages of size 7, certain foods not being available, factories sitting idle for lack of supplies, people being forced to work in camps to ramp up production because of a critical shortage, etc.
To the point of the essay “The Use of Knowledge in Society” I posted, imagine you are a central planner, and you are trying to decide how many hammers the country needs. How do you do that? Ask the people? They’ll say yes. Hey, free hammer.
But let’s say they are all perfect Soviet citizens, trying to do the best for all. Hammers are scarce, and everyone’s needs are different. So the question is really whether they need a hammer more than someone else. But how can they know? Maybe they have a hammer but it’s chipped. But their neighbor doesn’t have one at all, and there’s a guy down the street who makes a living with a hammer and doesn’t have one either. They know nothing of each other, so none of them can make a rational decision regarding whether they should get one of the scarce hammers. And so the central planner can’t know either.
This is why the market works. You don’t need the information about who has hammers and what they do with them - you just have to look at the price of a hammer and compare the utility of spending that money on it vs spending it on any of the other things you also need. A carpenter with a broken hammer will make a different decision than the guy with a chipped hammer who doesn’t use it much.
If hammers are scarce enough, the price rises to where the lower-utility bidders drop out of the market, leaving enough hammers for the carpenters or other people with greater need for a hammer. Or competition makes hammers cheaper, and now lower-utility market participants step up and buy more hammers, and economic growth happens. Either way, we wind up making just the amount of hammers we need, balancing off demand for hammers, the price of steel (which itself reflects all the various participants in the steel market and their individual utility functions), etc.
This economic coordination happens because prices contain a huge amount of information created by everyone bidding for goods and services in their own self-interest. That’s why Hayek focused on the use of knowledge in society and pointed out that the information needed to efficiently coordinate economic activity is not available to central planners because it does not exist outside of a market process.
I want to make clear that I’m not talking about laissez-faire or anarchy. I also acknowledge that there are market failures, and that markets can’t function without rules set by governments.
What I am saying is that government regulation should always be for the purpose of enabling market functionality. Governments should not be replacing markets with central planning, and that includes industrial policy, subsidies, nationalization, and other attempts to replace markets with central edicts.
But having government correct for market failures like natural monopolies or externalities is fine, as is having the government settle disputes between market participants and enforce property laws to prevent theft and copyright infringement and the like. The smallest government that achieves these ends is the best government.
How is an example of what I described not applicable to what I was describing?
Markets generally do not cause famines in the same sense that flooding or drought might. Even a command economy is hard pressed to find itself facing famine due to inefficient distribution, rather than low yield.
~Max
An agrarian colony in 17th century pre-industrial America is the example you want to stick with? Against the obvious fact that millions and millions of goods arrive everyday exactly where people want them, in the right quantities? Okay.
It seems to me that if markets caused famines, you could come up with a more recent example. I’ve provided plenty of examples of famines that were caused by central planners just in the past century.