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What
Every Debater Should Know About Economics
#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 available.18 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
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