= 27d567bc2d48d9f40e9ccc20ea370b15)
gjm comments on Stupid Questions February 2015 - Less Wrong
You are viewing a comment permalink. View the original post to see all comments and the full post content.
= 783df68a0f980790206b9ea87794c5b6)
Loading…= b715d02e85f7b3b4ae65ca3d3e450868)
Subscribe to RSS Feed
Powered by Reddit
= f037147d6e6c911a85753b9abdedda8d)
You are viewing a comment permalink. View the original post to see all comments and the full post content.
Comments (198)
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.)
There are two lines of argument here.
The first one is theoretical. The advantages and disadvantages of central planning have been argued about in the literature for many decades. That was driven mainly by two factors: ideology and the paucity of empirical data.
XX century was, generally speaking, the time of human hubris in the social sphere. Reason and skill would rearrange the society and create a perfect one, not this messy outgrowth of chaotic history and suspect human motivations. The left, in particular, ran with this idea very far, paving its way with corpses for much of the way. Central planning is a necessary component of this grand plan to arrange the society properly and as such it was massively promoted by the left, with some success.
On the other hand, in early XX century central planning was mostly untested, and by the middle of the century there wasn't much data (and that was skewed by ideology) plus there were exciting developments in the area of linear programming and so there was hope that maths would provide that perfect solution to the allocation problem. In the 50s and the 60s that wasn't an outrageous claim -- maybe yes, maybe no, let's see how it works out.
But nowadays the bastions of the left have collapsed and we DO know how it works out. The debate is basically over and central planning has lost quite thoroughly. I doubt there's anyone other than committed marxists who still sing its praises.
The other line of argument, the one I actually had in mind, is purely empirical and does not rely on the opinions of economists.
We had a bunch of countries attempt central planning. It turned out to work really badly. We had another bunch of countries go with the markets. They turned out to work really well. There are no cases of central planning being noticeably successful. There are many cases of market-driven economies being noticeably successful. At the moment all the rich and free countries have market economies. Countries which stick with central planning are countries like Cuba and North Korea.
How much empirical evidence do you need? Please update already.
~50 years, from the publishing of Mises' Socialism until...whenever people just gave up in 70s....
Yes, flat earth comparison too strong. Many brilliant economists of the 20th century made great strides in economics working on this question. And frankly is much easier to prove earth round than markets > central planning.
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.
Specifically, what Lumifer quoted end of:
So intended to address question of central planning --> bad economy? rather than bad economy --> central planning bad? Maskin's lecture speaks to that point. But unimportant.
Maskin, like most economists, confuses efficiency with efficacy. I cited him just to indicate that academic economists are very confident that markets > central planning. (Hurwicz shared Nobel with Maskin in 2007.)
Academic economists' preference for markets more to do with observation than math. Adam Smith didn't know what linear programming is. Wasn't until the advent of mathematical tools that central planning could even be conceived of as feasible. The spread of markets is associated with rising prosperity, peacefulness, and civilized behavior. Economists had been observing and theorizing about this fact long before they had the math they do today. Qualitative reasoning combined with observation are basis for most of support for markets, not formalized quantitative models.
Lumifer's approach not my own, but Jiro's suggestion to interfere with prices based on their own judgment violates long and uncontroversial position in economics: Thou Shalt Not Substitute Thine Own Judgment For Market Prices. Violating that rule writ large is not a bad summary of central planning. Lumifer's reaction understandable, albeit perhaps not commendable.
Why markets work and central planning doesn't is very complicated, difficult subject; in some ways economists' understanding of this question is quite primitive. Work on this subject myself (right now in fact; this is pleasant distraction). Am working on sequence of articles that, among other things, should indicate why economists have this consensus in favor of markets.