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Lumifer comments on Stupid Questions February 2015 - Less Wrong
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Comments (198)
Sigh. Why do you think central planning failed?
I think this discussion would be both more pleasant and more productive (at least for people who are not you) with a higher engagement-to-sneering ratio.
That's not sneering, that's shortcutting. If you wish, I'll unroll.
One of the primary functions of the markets is price discovery. It is really important for the economy that the markets discover prices which then form the basis for future resource allocation.
The classic conceit of the central planner is that he doesn't need to learn the market prices -- he knows better and can allocate resources without all these unfair, chaotic, and messy markets.
In this subthread Jiro feels he doesn't need market prices -- he thinks it would be better if he set fixed prices (or floors or ceilings) based on his perceptions of fairness (see organs) or on what he thinks will be sufficient incentives (see lumber). That looks to me to much like the central planner conceit.
The problem, of course, is that central planning has been shown, empirically, to work badly in real life. The issue then becomes why does Jiro think that his scheme will do much better. Thus the question: why does Jiro thinks central planning has failed and why does he believe that his price manipulation will avoid that fate?
Agreed, Jiro is making this error. They postulates a situation where people pay (they say "willing to pay," but clearly is not talking about consumer surplus) 50, but 20 is enough. What Jiro and readers should wonder is why people are paying so much more than necessary to get what they want, and how Jiro knows this but the people in the actual situation do not.
Not exactly. The assertion is that you dont have to go all the way to equilibrium to capture most of the benefit while preventing most of the repugnant results of equilibrium.
Did not interpret it as such, but perhaps because offered interpretation makes little sense.
Market approaches equilibrium by progressively adding marginal suppliers (whether suppliers really enter in sequential fashion irrelevant; is point about opportunity cost). Marginal suppliers are suppliers least interested in providing service; means they have better alternatives. Basically, for a given price, who more likely to sell organ? Person with better opportunities or person with worse opportunities? Plainly latter. So logically, latter will be "snapped up" by buyers before former (where "before" means relative to equilibrium; is again not temporal point).
Therefore can not move at all toward equilibrium to capture most of benefit without also allowing most of repugnance. Most of producer surplus located where most of repugnance is. To get benefit without repugnance, would need price floor, i.e. would need to prevent movement to equilibrium. Goal would be to select portion of sellers closest to equilibrium point, not farthest from it.
Let me, correspondingly, unpack the motivation behind my comment a little.
There is a continuum running all the way from "completely free unregulated markets" to "totalitarian central state determines what will be made and what it will cost". It looks to me as if Jiro was proposing some regulation and you responded by saying that totalitarian central planning has a bad track record. That doesn't seem altogether reasonable.
Further, when you say "central planning failed" you're working with a rather small sample and one with a bunch of confounding factors. Consider the USSR, for example. It had central planning, its people were rather poor, and in the end it collapsed. But, also: those people were always much poorer per capita than, say, those of the USA or Western Europe; the USSR spent decades locked in economic and (indirect) military conflict with a much better-resourced opponent; it had not only central planning but outright totalitarianism with some rather crazed leaders. Maybe the primary reason why the USSR wasn't a roaring economic success was that central planning is inferior to free markets, but I don't think we have enough evidence to make that claim with a lot of confidence.
To be precise, he was proposing price fixing.
No, I did not -- the word "totalitarian" is a gratuitous addition by you.
Oh, but I do think we have more than enough evidence (have you looked at China, for example?). I don't think that claiming "we don't know yet" is a reasonable position -- this question has been settled.
It doesn't seem that way to me. What has failed is a bunch of totalitarian communist countries with central planning. How do you know it is better to characterize that situation as "central planning has failed" than as "totalitarian central planning has failed"?
Point me to an explanation of how it has been settled and how rival explanations for the observations have been dealt with?
This question has only been widely debated in the economics literature for the last, what, 70 years?
I think this discussion would be both more pleasant and more productive (at least for people who are not you) with a higher engagement-to-sneering ratio.
I am not particularly interested in engagement with the equivalent of flat-earth theories. At least not until I see some empirical evidence in their favour.
Something widely debated in the economics literature over 70 years is the equivalent of a flat-earth theory? OK, then.
(I do wonder whether we're at cross purposes somehow, though -- whether one of us has misunderstood what specific claim(s) the other is making. My reply to economy elsewhere in this thread may clarify.)
See page 7 two paragraphs above part IV. Note that opportunities to improve market does not suggest any amount of central planning in any way desirable. Has been academic consensus since 70s that markets > central planning. And consensus also is that when market doesn't work well, figure out ways to make it work well. Central planning not good alternative.
Thanks!
It doesn't look to me as if this addresses the question I thought Lumifer and I were arguing about, though: namely, whether we know that the collapse of the communist economies of the USSR and its satellites shows that central planning is a bad idea. (See notes 3 and 4 below.)
Maskin's lecture says that theoretical economic analysis has led economists to believe that in an idealized situation (in particular, with no monopoly/monopsony power and no externalities) free markets are in some sense optimal. OK, fine (but see note 2 below), but that's a quite separate question from what conclusions we can draw from the alleged fact that "central planning failed" (see note 1 below).
... I find that there are a bunch of other largely separate things I need to say.
Note 1: For all I know, there may indeed be overwhelming evidence that the late-20th-century failures of communist states were largely the result of economic catastrophe caused solely by central planning. But Maskin's lecture doesn't appear to contain or point at anything resembling such evidence.
Note 2: I would be more completely convinced by a consensus of academic economists if there were more sign of mechanisms by which academic economists' opinions could be strongly constrained by reality. I don't doubt the correctness of the mathematical manipulations, but how applicable those are to actual economies is another matter. (I take it we can agree that it's possible for consensus within an academic field to be quite disconnected from reality; consider e.g. the theology of any religion you don't follow. I think economics is better off than theology in this respect, but it seems to fall some way short of, say, chemistry.) Having said which, I am in fact perfectly happy to accept the economists' consensus that markets generally do a much better job of price-setting than central planning, and at no point in this discussion have I said (or intended to imply) otherwise.
Note 3: It's possible that I have misunderstood Lumifer's comment "Sigh. Why do you think central planning failed?" -- which I take to mean something like "Gee, Jiro, you're being stupid. It's common knowledge that the communist USSR and its satellites collapsed because their economies were wrecked by central planning, and if you understood that you'd see that what you're proposing would be disastrous for the same reasons".
Note 4: So far as I can see, what Jiro was suggesting really isn't very much like the "central planning" of (e.g.) the USSR. S/he proposed interference with prices only in cases where sellers are desperate (having in mind goods that people normally wouldn't sell unless desperate) which may or may not be a good idea but has basically nothing to do with the question of markets versus central planning (versus anything else) for "normal" price-setting.