The Joy of Central Planning
When thinking of central planning, the things that often spring to mind are the 3- and 5-years plans of the Soviet Union, PRC or any number of Eastern Bloc states in Europe during the cold war. We can think of grey, soulless bureaucrats in a Kafkaesque maze of government offices, or the upstanding Party members in the grey concrete halls of the Ministry of Plenty.
But centrally planned economies are not by any means new, nor are they exclusive hallmarks of communist regimes. Some oft-forgotten examples:
- Park junta and 3rd/4th Republic in South Korea
- Military dictatorships in general, such as Burma (Myanmar)
- Religious autocracies, such as Iran
- Monarchies such as Saudi Arabia
- Any economy during major war (esp. one threatening existence of nation – see most participants of WWII, though arguably the United States was least at risk)
- Dictatorships in general (Gadaffi’s Libya, Hussein’s Iraq, Mubarak’s Egypt)
- Joseph and the Pharaoh, collecting and storing 20% of the grain and foodstuffs during plenty, for redistribution / sale during the subsequent years of famine and drought
The United States is most often held up as the shining example of a ‘market economy’ or a ‘free market’ – where objective, impartial and (in the long run) infallible rules of the market shape the economy, development, resource utilization and output. It is the so-called ‘textbook example’ of a free market, indeed, the champion and guarantor of free markets worldwide – thanks to its economic influence, trade relations, investment prowess and expertise, available investment capital, rule of law, benevolent military might…
While you may notice that I am drifting into sarcasm, most of the world still hold many or most of these to be true, even if they might consider the US misguided on one policy or another, too arrogant, too interventionist, etc. But in truth ALL of these factors can be questioned and if not laid to waste, certainly taken off their perceived pedestal:
The US Central Bank dictates, in concert with (who is the marionette and who is the puppeteer?) the Government monetary policy for the global reserve currency, and thus the world. The cost of currency/capital/loans are by definition of the current system FIAT – centrally planned.
Regulatory laws (or lack thereof) in ALL industries and areas directly influence, shape and guide the course of development – from deciding the survival/regeneration/downfall of entire sectors, down to the required thickness of workboot soles.
Property regulations, at both the Federal, State and Local level dictate the terms of property and productive asset ownership, the type, number and specific characteristics of enterprises which may be established in a given locale as well as in the country as a whole.
Tax and benefit laws are central to shaping societal behavior, social stratification, wealth transfer, performance incentives, investment and saving patterns. They are also used as an alternate/unofficial regulatory mechanism, again fundamentally altering the economy’s structure.
Six words: Patient Protection and Affordable Care Act
In Communist economies and societies, there was once a widely known doctrine that ALL activities could be divided into three categories:
This applied to EVERYTHING, from personal expression, art, economic ventures, research, trade relations with specific countries or companies – even the citizens themselves, ultimately fell into one of these buckets.
In looking at the system in the US or most other developed Western countries to some degree, I am hard-pressed to not see the exact same type of categorization taking place on a daily basis. The size of these categories may vary, the boundaries between them may be more permeable (mainly through the judicious application of ‘lubricant’ to the palms of those involved formulating policy).
The size, power, resources of the state have become so large as to seem Olympian in scale to the average individual member of society. Not just big, but SO huge that its size no longer even bears discussion, or consideration. In spite of all the rhetorical battles over whether .gov should regulate more or less, whether companies have too much power/status or if they are being stifled by regulation, the question that seems to me to be most important is very rarely asked: why should .gov have the power at ALL to be the arbiter of how and whether the economy develops? How and whether the citizenry is able to survive, work, earn a living, educate their children? And if we decide that yes, government SHOULD do these things, how can we expect it to carry out this task with so few citizens expending any effort to think through and be involved in the affairs of government? Currently in the US, there is not even a single-year budget, and can-kicks have sharply decreasing half-lives. At least the Communists had (have) 5-year plans, indicating some modicum of forward-thinking and long-term planning.
The problems with central planning remain the same, no matter how sophisticated a planning model is used, how accurate the measurement of economic activity is, or how powerful policy tools are available to shape the development and speed of the economy. In the end, the artificially created construct of the system becomes dependent on the ‘shaping’ or ‘managing’ forces for its survival. Maintaining these forces requires energy, which must be derived from the output of the system. What we are seeing today is the approach of the point where the energy required to keep the structure together, coupled with the amount of energy being leeched off by parasitic entities of many stripes, ultimately exceeds the surplus output of the economy. Like the great white shark, the system laboring under these conditions, as well as a debt-based money system, must constantly keep moving to survive. As Turd and others keep telling us, QE is ∞, and in my view this 'structural drag' is the other reason for it, besides exponentially growing 'monetary base' required by compound interest and currency based in debt. Whether you look at this as just part of the buttress supports holding up Jim Willie's Tower of Treasuries, or more broadly the Petrodollar Reserve Currency, or even more broadly the Fiat Ponzi (TM), one of its functions is to maintain central planning control.
When communist regimes switched from centrally planned economic models to ‘free market’ ones, many of them implemented a shock doctrine: a rapid, forcible transition with quick, sudden moves, quick privatization and drastic monetary policy shifts. The rise of the oligarch class, the political instability and government corruption/ineptitude, the eventual (but apparently all but inevitable) drift towards nationalistic, authoritarian-leaning political leadership in these countries was directly caused, or indirectly enabled by BOTH: the central planning AND the rapid transition to a different model. Whether this is something that could or would happen in the US is debatable, my crystal ball is very much clouded on this aspect. The structural stresses caused by ‘central planning’ are, however quite apparent -- and one might argue that the 'shock doctrine' has begun long ago, and is well underway.
Turning back to the topic of the ‘original’ central command & control economies, specifically the USSR – is ‘collapse’ inevitable? Was the ‘liberalization’ of economic policy and the current setup REALLY an abandonment of central planning – or could it be argued that current conditions in Russia are just as, if not more, centrally planned just like the US – minus the benefit of the global reserve currency? Just so there is no lack of conspiracy theory, there is a fascinating story to be found in the accounts of Anatoliy Golitsyn. He was a KGB defector to the US, who warned that the Soviet communist regime was playing a decades-long game of deception – faking its death to try to take over the world by exporting communism. Interesting alternate view of modern history… His books are ‘New Lies for Old’ (full book in PDF here) and ‘The Perestroika Deception’ (full book in PDF here).
For those with a couple of hours to kill – interviews with the editor of Golitsyn’s second book:
Some Golitsyn predictions from 1984:
“It is more than likely that these cosmetic steps will be taken as genuine by the West and will trigger a reunification and neutralization of West Germany and further the collapse of NATO. The pressure on the United States for concessions on disarmament and accommodation with the Soviets will increase. During this period there might be an extensive display of the fictional struggle for power in the Soviet leadership. One cannot exclude that at the next party congress or earlier, Andropov will be replaced by a younger leader with a more liberal image who will continue the so-called "liberalization" more intensively.”