Why central planning fails

 by Bill Bonner 

The Dow is still rising. It rose another 125 points yesterday… hitting a new record high.
Gold is dawdling.
We’re still thinking about how so many smart people came to believe things that aren’t true. 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 was 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 said. He 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 the Übermensch.
Large-scale planning fails because the facts upon which it is built are unreliable, frequently completely bogus.
And it fails because people don’t really want it.

Hidden Agenda

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.

In a large community the planners usually 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 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.

The Fatal Conceit

When you boil it down, 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). In other words, 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 F. A. 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 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 he 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.