Economics Discussion Thread

[The Portland Territory]

That's not evil nor necessarily greedy, that's economic survival. What's wrong with showing how great your product is? As for firing people and not taking their families into consideration, well, it's an us vs. them situation. Not a happy one but in order to make sure that your own family eats, a business owner may need to lay someone off. And if the employee was good, hopefully help find him another job.

You're right, those things are necessary for economic survival (in capitalism). Which is one of the reasons why I advocate a system in which those things would NOT be necessary for economic survival.

If capitalism requires people to do bad things in order to survive, that's an argument against capitalism.

Ok, so tell me this then. Why would people still want to work in communism?

[Taihei Tengoku]

@Constantinopolis

I read earlier in this thread that you don't believe the misallocation of resources under central planning was necessarily a structural issue. How, then, would you respond to Mises' socialist calculation argument?

Ah, I wrote a paper on this once! Let me see if I can summarize my points.

First, Mises' argument relies on a non-falsifiable assertion that there is some kind of information that is revealed by market prices but which central planners cannot learn. He doesn't actually provide any evidence that this is the case. He simply asserts it. And in fact, since the information is question is by definition something that is only revealed by market prices and cannot be learned any other way, his argument isn't merely without evidence, it is actually non-falsifiable. It is by definition impossible to prove that such information exists, because if we could find it, then central planners could find it too. We pretty much just have to take Mises' word for it that there is something that market prices reveal that cannot be learned any other way.

Second, there is the fact that Mises was arguing from the perspective of an extremely idealized vision of capitalism, where all markets are free and competitive and no prices are distorted in any way. It is necessary to make this assumption in order to argue that capitalism is definitely superior to socialism in allocating resources. Without this assumption, in the real world, both capitalism and socialism have various inefficiencies, and one isn't systematically more efficient than the other. Between real capitalism and real socialism, either one could be more efficient, depending on circumstances.

Third, Mises' claim that socialist planners would have no idea how to allocate resources in the absence of prices is laughable. You don't need detailed information or calculation to dismiss totally outrageous and insane allocations (e.g. "let's devote all our resources to a combination of duck farms and contemporary theater!"). Basic common sense is enough to restrict potential allocations from infinity down to at least a bounded set of some kind. And then other methods can reduce the number of options further. Socialist planners would always have at least some idea of how to allocate resources, even if Mises was right about everything. Which leads back to the second point above: Let's grant that socialism would be inefficient to some extent; that doesn't necessarily mean it has to be more inefficient than really-existing capitalism.

Fourth, to the extent that the argument becomes one about the complexity of socialist calculation - which is not actually what Mises was saying, but is what many people imagine when they hear the words "socialist calculation" - modern computers render this argument obsolete. Already by the late 1980s, computers had advanced enough to make the "input-output matrix" method of socialist calculation actually feasible. Considering the sort of capabilities we have in the present day, socialist calculation would be downright easy.

USSR was good at making main battle tanks and nothing else, GOSPLAN is the classic Misesian planner

[Hydesland]

Central planners are terrible at allocating resources, example #1293294239:

https://papers.ssrn.com/sol3/papers.cfm ... id=3075015

This paper estimates the short- and long-term effects of Mao Zedong’s economic radicalism in the Great Leap Forward. In 1957, Mao wishfully proposed grain yield targets for several geographic regions in China which were unrealistic but yet strictly implemented in 1958. Exploiting the geographic nature of this radical policy, our study applies a spatial regression discontinuity design to investigate the causal effects of Mao’s agricultural radicalism on the great famine during 1959-61 and long-term economic development. We find strong evidence that the unrealistic yield targets led to excessive death tolls during 1959-61, and further analysis shows that yield targets induced the inflation of grain output figures and excessive procurement. We also find that Mao’s radical policy caused serious deterioration in human capital accumulation and slower economic development in the policy-affected regions decades after the death of Mao.

The calculation problem is devastating to central planning, and no it's not just a few fringe ideologues like Mises who push it.

[Constantinopolis]

You're right, those things are necessary for economic survival (in capitalism). Which is one of the reasons why I advocate a system in which those things would NOT be necessary for economic survival.

If capitalism requires people to do bad things in order to survive, that's an argument against capitalism.

Ok, so tell me this then. Why would people still want to work in communism?

[assuming you are referring to a socialist planned economy]

Because they get paid for it, and their payment is directly proportional to how much they work. In other words, the motivation for workers under socialism is basically the same as under capitalism.

Socialism does not necessarily aim to change the wage structure of the economy - or not very much, anyway. Socialism aims to change the ownership structure.

Ah, I wrote a paper on this once! Let me see if I can summarize my points.

First, Mises' argument relies on a non-falsifiable assertion that there is some kind of information that is revealed by market prices but which central planners cannot learn. He doesn't actually provide any evidence that this is the case. He simply asserts it. And in fact, since the information is question is by definition something that is only revealed by market prices and cannot be learned any other way, his argument isn't merely without evidence, it is actually non-falsifiable. It is by definition impossible to prove that such information exists, because if we could find it, then central planners could find it too. We pretty much just have to take Mises' word for it that there is something that market prices reveal that cannot be learned any other way.

Second, there is the fact that Mises was arguing from the perspective of an extremely idealized vision of capitalism, where all markets are free and competitive and no prices are distorted in any way. It is necessary to make this assumption in order to argue that capitalism is definitely superior to socialism in allocating resources. Without this assumption, in the real world, both capitalism and socialism have various inefficiencies, and one isn't systematically more efficient than the other. Between real capitalism and real socialism, either one could be more efficient, depending on circumstances.

Third, Mises' claim that socialist planners would have no idea how to allocate resources in the absence of prices is laughable. You don't need detailed information or calculation to dismiss totally outrageous and insane allocations (e.g. "let's devote all our resources to a combination of duck farms and contemporary theater!"). Basic common sense is enough to restrict potential allocations from infinity down to at least a bounded set of some kind. And then other methods can reduce the number of options further. Socialist planners would always have at least some idea of how to allocate resources, even if Mises was right about everything. Which leads back to the second point above: Let's grant that socialism would be inefficient to some extent; that doesn't necessarily mean it has to be more inefficient than really-existing capitalism.

Fourth, to the extent that the argument becomes one about the complexity of socialist calculation - which is not actually what Mises was saying, but is what many people imagine when they hear the words "socialist calculation" - modern computers render this argument obsolete. Already by the late 1980s, computers had advanced enough to make the "input-output matrix" method of socialist calculation actually feasible. Considering the sort of capabilities we have in the present day, socialist calculation would be downright easy.

USSR was good at making main battle tanks and nothing else, GOSPLAN is the classic Misesian planner

You don't even know what Mises' argument was, do you?

A "classic Misesian planner" isn't a planner with bad priorities, who focuses on heavy industry at the expense of consumer goods. A "classic Misesian planner" is a planner who, when faced with multiple different methods of making a product, is unable to determine which method is the most efficient (due to the absence of price signals), and is forced to pick one essentially at random. That was Mises' argument. The argument was that, in the absence of prices, planners would be unable to determine what is more efficient and what is less efficient.

And my counter-arguments are in the quote above.

[The of Japan]

It's obviously the negation of the "ease of doing business"--the kinds of states rounding out the bottom are Venezuela, Cuba, and Zimbabwe.

Actually, the bottom country is Somalia. Somalia: socialist paradise? Socialism is worker control of the means of production, which manifests itself in the form of workplace democracy. Ease of doing business is not directly related to that.

Somalia was socialist, then they collapsed into civil war after fall of Soviet Union

[Constantinopolis]

Central planners are terrible at allocating resources, example #1293294239:

https://papers.ssrn.com/sol3/papers.cfm ... id=3075015

This paper estimates the short- and long-term effects of Mao Zedong’s economic radicalism in the Great Leap Forward. In 1957, Mao wishfully proposed grain yield targets for several geographic regions in China which were unrealistic but yet strictly implemented in 1958. Exploiting the geographic nature of this radical policy, our study applies a spatial regression discontinuity design to investigate the causal effects of Mao’s agricultural radicalism on the great famine during 1959-61 and long-term economic development. We find strong evidence that the unrealistic yield targets led to excessive death tolls during 1959-61, and further analysis shows that yield targets induced the inflation of grain output figures and excessive procurement. We also find that Mao’s radical policy caused serious deterioration in human capital accumulation and slower economic development in the policy-affected regions decades after the death of Mao.

The calculation problem is devastating to central planning, and no it's not just a few fringe ideologues like Mises who push it.

That example isn't even about allocating resources, it's about setting unrealistic goals. In this case, the planners didn't calculate anything wrong, and they made no mistakes in allocation. They simply demanded too much grain.

Seriously, do you guys even pay attention to your own arguments? Or do you just sort of throw together every bad thing that a socialist economy ever did, claim that it's connected to some argument against socialism that someone made at some point, and call it a day?

[The Portland Territory]

Ok, so tell me this then. Why would people still want to work in communism?

[assuming you are referring to a socialist planned economy]

Because they get paid for it, and their payment is directly proportional to how much they work. In other words, the motivation for workers under socialism is basically the same as under capitalism.

Socialism does not necessarily aim to change the wage structure of the economy - or not very much, anyway. Socialism aims to change the ownership structure.

No. I am referring to communism in it's true form: A currency-less society

[Hydesland]

That example isn't even about allocating resources, it's about setting unrealistic goals. In this case, the planners didn't calculate anything wrong, and they made no mistakes in allocation. They simply demanded too much grain.

Excess demand is a misallocation literally by definition.

[The Portland Territory]

I will ask this though, specifically to Constantinople:

If ownership of businesses is public, i.e. there are no sole owners, then how shall it be run? Who will do the executive positions that are required for a business to function properly?

[Constantinopolis]

That example isn't even about allocating resources, it's about setting unrealistic goals. In this case, the planners didn't calculate anything wrong, and they made no mistakes in allocation. They simply demanded too much grain.

Excess demand is a misallocation literally by definition.

Unrealistic grain yield targets in an economic plan are not excess demand in the normal sense of supply and demand, but in any case, the point is that setting the grain quota at unrealistic levels has literally nothing to do with the calculation problem. The calculation problem claims that, given a certain goal X, planners would not be able to calculate what is the most efficient way to achieve that goal.

Your example is one where planners set a bad goal. Whether the goal is good or bad, realistic or unrealistic, has nothing to do with the calculation problem.

[Teluva]

Central planners are terrible at allocating resources, example #1293294239:

https://papers.ssrn.com/sol3/papers.cfm ... id=3075015

This paper estimates the short- and long-term effects of Mao Zedong’s economic radicalism in the Great Leap Forward. In 1957, Mao wishfully proposed grain yield targets for several geographic regions in China which were unrealistic but yet strictly implemented in 1958. Exploiting the geographic nature of this radical policy, our study applies a spatial regression discontinuity design to investigate the causal effects of Mao’s agricultural radicalism on the great famine during 1959-61 and long-term economic development. We find strong evidence that the unrealistic yield targets led to excessive death tolls during 1959-61, and further analysis shows that yield targets induced the inflation of grain output figures and excessive procurement. We also find that Mao’s radical policy caused serious deterioration in human capital accumulation and slower economic development in the policy-affected regions decades after the death of Mao.

The calculation problem is devastating to central planning, and no it's not just a few fringe ideologues like Mises who push it.

That example isn't even about allocating resources, it's about setting unrealistic goals. In this case, the planners didn't calculate anything wrong, and they made no mistakes in allocation. They simply demanded too much grain.

And the cost of this miscalculation only went for the low low price of millions of Ukrainian lives!

[Hydesland]

Excess demand is a misallocation literally by definition.

Unrealistic grain yield targets in an economic plan are not excess demand in the normal sense of supply and demand, but in any case, the point is that setting the grain quota at unrealistic levels has literally nothing to do with the calculation problem. The calculation problem claims that, given a certain goal X, planners would not be able to calculate what is the most efficient way to achieve that goal.

Your example is one where planners set a bad goal.

Targeting too much grain output, causing "excess procurement" and diverting resources away such that it causes e.g. a "deterioration in human capital accumulation" is a misallocation by any standard definition. Your formulation of the calculation problem is one I'm thoroughly unfamiliar with, I've never read it as being contingent on set output goals. The calculation problem, at least for me, is partly about it being unknowable what the "goals" should even be, because it's impossible to accurately survey everyone's preferences if they don't have skin in the game (they *will* lie).

[Constantinopolis]

I will ask this though, specifically to Constantinople:

If ownership of businesses is public, i.e. there are no sole owners, then how shall it be run? Who will do the executive positions that are required for a business to function properly?

In capitalism, large companies are often run by hired managers who ultimately have to answer to the shareholders (i.e. the owners).

In socialism, we could do something similar, except that the "shareholders" would be the people as a whole. In other words, the executive positions would be filled by elected officials. Some socialists argue that these should be officials elected by the population as a whole, or appointed by a government elected by the population as a whole. Other socialists argue that these officials should be elected by the workers in each firm. Various kinds of hybrid options are also possible.

[assuming you are referring to a socialist planned economy]

Because they get paid for it, and their payment is directly proportional to how much they work. In other words, the motivation for workers under socialism is basically the same as under capitalism.

Socialism does not necessarily aim to change the wage structure of the economy - or not very much, anyway. Socialism aims to change the ownership structure.

No. I am referring to communism in it's true form: A currency-less society

Ah, ok, I misunderstood. In that case, the answer is very different.

We make no claims that full communism would be possible today. It wouldn't be. That's why we advocate for socialism first. Full communism would only be possible at some point in the future, once technology has advanced to the point where machines do most of the work for us. In communism, there is indeed no material incentive to work. But the idea is that, by that point, all of the boring, exhausting, or otherwise unpleasant work will be done by machines, and the only work left for humans to do will be creative and interesting. So people will do this work because they enjoy it.

Is that utopian? In a sense, yes. But it's the logical conclusion of increasing automation. We will get to that stage eventually.

[Constantinopolis]

That example isn't even about allocating resources, it's about setting unrealistic goals. In this case, the planners didn't calculate anything wrong, and they made no mistakes in allocation. They simply demanded too much grain.

And the cost of this miscalculation only went for the low low price of millions of Ukrainian lives!

*Chinese.

As I said... You guys don't even pay attention to your own arguments.

Unrealistic grain yield targets in an economic plan are not excess demand in the normal sense of supply and demand, but in any case, the point is that setting the grain quota at unrealistic levels has literally nothing to do with the calculation problem. The calculation problem claims that, given a certain goal X, planners would not be able to calculate what is the most efficient way to achieve that goal.

Your example is one where planners set a bad goal.

Targeting too much grain output, causing "excess procurement" and diverting resources away such that it causes e.g. a "deterioration in human capital accumulation" is a misallocation by any standard definition. Your formulation of the calculation problem is one I'm thoroughly unfamiliar with, I've never read it as being contingent on set output goals. The calculation problem, at least for me, is partly about it being unknowable what the "goals" should even be, because it's impossible to accurately survey everyone's preferences if they don't have skin in the game (they *will* lie).

I got my formulation of the calculation problem from Lavoie and other modern Austrians. They claim this is what Mises and Hayek meant. From my reading, Mises and Hayek themselves are quite ambiguous about precisely what they mean, but if modern Austrians interpret them this way - well, who am I to say they're wrong?

In any case, even with your formulation, the example you gave is an extremely weak one. It doesn't take a complicated survey of everyone's preferences, or some difficult calculation method, to figure out that targeting far higher grain output than in any previous year on record is probably an unrealistic goal that will probably result in catastrophe. This is crass incompetence, not a "calculation problem". An example of a calculation problem would consist of planners making a decision that seems reasonable at first sight but actually turns out to be a great mistake due to some inherent flaw in the way they make decisions. It is not a calculation problem when a dictator sets an insane target that is obviously unrealistic from the start. That's a dictatorship problem. The issue wasn't miscalculation, it was the fact that the country was led by a guy with absolute power who couldn't be questioned or removed when he ordered something stupid.

[Hydesland]

I got my formulation of the calculation problem from Lavoie and other modern Austrians. They claim this is what Mises and Hayek meant. From my reading, Mises and Hayek themselves are quite ambiguous about precisely what they mean, but if modern Austrians interpret them this way - well, who am I to say they're wrong?

I first was introduced to it via Hayek after reading some theory of the firm stuff, but I guess I come to it from a more mainstream rather than Austrian perspective.

In any case, even with your formulation, the example you gave is an extremely weak one. It doesn't take a complicated survey or some difficult calculation method to figure out that targeting far higher grain output than in any previous year on record is probably an unrealistic goal that will probably result in catastrophe. This is crass incompetence, not a "calculation problem". An example of a calculation problem would consist of planners making a decision that seems reasonable at first sight but actually turns out to be a great mistake due to some inherent flaw in the way they make decisions. It is not a calculation problem when a dictator sets an insane target that is obviously unrealistic from the start. That's a dictatorship problem. The issue wasn't miscalculation, it was the fact that the country was led by a guy with absolute power who couldn't be questioned or removed when he ordered something stupid.

With hindsight sure, which begs the question why didn't they see it then? I don't buy that it was because Mao was just a stupid crazy dictator - that doesn't mean him or his advisors would go out of their way to choose the worst outcomes for the sake of it. I don't accept that these people were merely "incompetent" (more-so than any other planner would be), and I don't find that a satisfactory answer.

[Constantinopolis]

In any case, even with your formulation, the example you gave is an extremely weak one. It doesn't take a complicated survey or some difficult calculation method to figure out that targeting far higher grain output than in any previous year on record is probably an unrealistic goal that will probably result in catastrophe. This is crass incompetence, not a "calculation problem". An example of a calculation problem would consist of planners making a decision that seems reasonable at first sight but actually turns out to be a great mistake due to some inherent flaw in the way they make decisions. It is not a calculation problem when a dictator sets an insane target that is obviously unrealistic from the start. That's a dictatorship problem. The issue wasn't miscalculation, it was the fact that the country was led by a guy with absolute power who couldn't be questioned or removed when he ordered something stupid.

With hindsight sure, which begs the question why didn't they see it then? I don't buy that it was because Mao was just a stupid crazy dictator - that doesn't mean him or his advisors would go out of their way to choose the worst outcomes for the sake of it. I don't accept that these people were merely "incompetent" (more-so than any other planner would be), and I don't find that a satisfactory answer.

Maoism in particular has always been extremely optimistic - not to say utopian - about what can be achieved through great revolutionary zeal. I don't think Mao was just a "stupid crazy dictator" in the sense of being unintelligent or insane. I think he genuinely believed that if you ask people to work twice as hard for the sake of the revolution and China's bright future, they will be able to produce unprecedented amounts of grain. I think he really believed that sheer revolutionary fervor can move mountains - and that the peasants had such fervor and would therefore be not only able, but willing and happy to meet the extreme goals he set for them. I think that's the most likely scenario, given Mao's way of thinking.

A more sober-minded leader, with less faith in the power of sheer willpower, wouldn't have made that mistake. And, of course, a more democratic system would have enabled the people to protest and remove Mao from power - or at least enabled the rest of the government to remove him from power without the fear that moving against Mao might cost them their lives.

[Constantinopolis]

Unfortunately I must go offline now, and I won't be back for a day or more. I'm sorry to cut the discussion short. If the thread moves by 10 pages by the time I come back (which it probably will), then it may be best to telegram me if you want to continue a conversation (I mean the plural "you" - anyone reading this).

[Kubumba Tribe]

So, what's happened so far? I don't wanna read no pages

[The Portland Territory]

I will ask this though, specifically to Constantinople:

If ownership of businesses is public, i.e. there are no sole owners, then how shall it be run? Who will do the executive positions that are required for a business to function properly?

In capitalism, large companies are often run by hired managers who ultimately have to answer to the shareholders (i.e. the owners).

In socialism, we could do something similar, except that the "shareholders" would be the people as a whole. In other words, the executive positions would be filled by elected officials. Some socialists argue that these should be officials elected by the population as a whole, or appointed by a government elected by the population as a whole. Other socialists argue that these officials should be elected by the workers in each firm. Various kinds of hybrid options are also possible.

No. I am referring to communism in it's true form: A currency-less society

Ah, ok, I misunderstood. In that case, the answer is very different.

We make no claims that full communism would be possible today. It wouldn't be. That's why we advocate for socialism first. Full communism would only be possible at some point in the future, once technology has advanced to the point where machines do most of the work for us. In communism, there is indeed no material incentive to work. But the idea is that, by that point, all of the boring, exhausting, or otherwise unpleasant work will be done by machines, and the only work left for humans to do will be creative and interesting. So people will do this work because they enjoy it.

Is that utopian? In a sense, yes. But it's the logical conclusion of increasing automation. We will get to that stage eventually.

I see, I see

To your first paragraph, the only reason why managers and owners are obligated to adhere to their shareholders is because they are legally required to. And why should executive positions be filled by common folk? By workers who more or less know insufficiently about the requirements for such a position? Even those who work in let's say a pharmaceutical company know little about marketing or something along those lines. You can't, or rather shouldn't have a company elect their leaders by those who dont know enough about the position

For the second, I remember when I read a lot about Luxury Communism. It's interesting as automation will shake everything up economically, so something new must occur, but why Communism specifically? Why not just have a UBI in a capitalist framework? Or even just a negative income tax?

[Galloism]

The same reason Google and Apple did:

They save money together.

But why would Google want one of their biggest competitors to also save money? That doesnt make sense

Of course it does - if your motive is profit.

Think about it. Let’s suppose you have a plan that makes you earn $500,000 more per year than you do now, as an individual. However, it also makes your neighbor, who you hate, earn 500k more as well. Do you do it?

[The New California Republic]

So, what's happened so far? I don't wanna read no pages.

Line graph spam...so much line graph spam...

[Orostan]

I see, I see

To your first paragraph, the only reason why managers and owners are obligated to adhere to their shareholders is because they are legally required to. And why should executive positions be filled by common folk? By workers who more or less know insufficiently about the requirements for such a position? Even those who work in let's say a pharmaceutical company know little about marketing or something along those lines. You can't, or rather shouldn't have a company elect their leaders by those who dont know enough about the position

For the second, I remember when I read a lot about Luxury Communism. It's interesting as automation will shake everything up economically, so something new must occur, but why Communism specifically? Why not just have a UBI in a capitalist framework? Or even just a negative income tax?

Let us say we have a toaster company. The company has three divisions for the purpose of this discussion. Production, marketing, and sales. If the company was operated cooperatively, those who actually did the producing, did the marketing, and did the selling, would each elect someone from their department to represent them on an executive board. The people in production do not elect the guy from sales/marketing and sales and marketing do not elect the guy from each other.


With regards to your last paragraph, a UBI is impossible to finance. It would require more than the United State's entire budget to give an average income to everyone. And that doesn't factor in the fact that the people receiving the UBI won't be paying taxes. A negative income tax would have the same problem.

[The Portland Territory]

But why would Google want one of their biggest competitors to also save money? That doesnt make sense

Of course it does - if your motive is profit.

Think about it. Let’s suppose you have a plan that makes you earn $500,000 more per year than you do now, as an individual. However, it also makes your neighbor, who you hate, earn 500k more as well. Do you do it?

No. I do it on my own so he has to continue paying more.

[Galloism]

Of course it does - if your motive is profit.

Think about it. Let’s suppose you have a plan that makes you earn $500,000 more per year than you do now, as an individual. However, it also makes your neighbor, who you hate, earn 500k more as well. Do you do it?

No. I do it on my own so he has to continue paying more.

You can't do it on your own. You do it with him or forgo the $500,000.

[The Portland Territory]

No. I do it on my own so he has to continue paying more.

You can't do it on your own. You do it with him or forgo the $500,000.

What are you talking about? If a company wants to cut costs, it can do it on it's own. Reword yourself a bit, I'm not seeing what youre trying to say