Central planning versus market competition

Thomas Sowell writes at National Review,

The fundamental problem of the political Left seems to be that the real world does not fit their preconceptions. Therefore they see the real world as what is wrong, and what needs to be changed, since apparently their preconceptions cannot be wrong.

A never-ending source of grievances for the Left is the fact that some groups are “over-represented” in desirable occupations, institutions, and income brackets, while other groups are “under-represented.”

From all the indignation and outrage about this expressed on the left, you might think that it was impossible that different groups are simply better at different things.

Yet runners from Kenya continue to win a disproportionate share of marathons in the United States, and children whose parents or grandparents came from India have won most of the American spelling bees in the past 15 years. And has anyone failed to notice that the leading professional basketball players have for years been black, in a country where most of the population is white?

...Whole books could be filled with the unequal behavior or performances of people, or the unequal geographic settings in which whole races, nations, and civilizations have developed. Yet the preconceptions of the political Left march on undaunted, loudly proclaiming sinister reasons why outcomes are not equal within nations or between nations.

All this moral melodrama has served as a background for the political agenda of the Left, which has claimed to be able to lift the poor out of poverty, and in general make the world a better place. This claim has been made for centuries and in countries around the world. And it has failed for centuries in countries around the world.

Some of the most sweeping and spectacular rhetoric of the Left occurred in 18th-century France, where the very concept of the Left originated in the fact that people with certain views sat on the left side of the National Assembly.

The French Revolution was their chance to show what they could do when they got the power they sought. In contrast to what they promised — “liberty, equality, fraternity” — what they actually produced were food shortages, mob violence, and dictatorial powers that included arbitrary executions, extending even to their own leaders, such as Robespierre, who died under the guillotine.

In the 20th century, the most sweeping vision of the Left — Communism — spread over vast regions of the world and encompassed well over a billion human beings. Of these, millions died of starvation in the Soviet Union under Stalin and tens of millions in China under Mao.

Milder versions of socialism, with central planning of national economies, took root in India and in various European democracies.

If the preconceptions of the Left were correct, central planning by educated elites who had vast amounts of statistical data at their fingertips and expertise readily available, and were backed by the power of government, should have been more successful than market economies where millions of individuals pursued their own individual interests willy-nilly.

But, by the end of the 20th century, even socialist and communist governments began abandoning central planning and allowing more market competition. Yet this quiet capitulation to inescapable realities did not end the noisy claims of the Left.

In the United States, those claims and policies have reached new heights, epitomized by government takeovers of whole sectors of the economy and unprecedented intrusions into the lives of Americans, of which Obamacare has been only the most obvious example.

Read more here.

Free markets work, government bureaucracies not so much

Glenn Reynolds writes in his USA Today column,

When you stub your toe, the neurons in between your foot and your head don’t try to figure out ways not to send the news to your brain. If they did, you’d trip a lot more often. Likewise, in a market, bad decisions show up pretty rapidly: Build a car that nobody wants, and you’re stuck with a bunch of expensive unsold cars; invest in new technologies that don’t work, and you lose a lot of money and have nothing to show for it. These painful consequences mean that people are pretty careful in their investments, at least so long as they’re investing their own money.

Bureaucrats in government do the opposite, trying to keep their bosses from discovering their mistakes.

Read more here.

When the state intervenes in the economy

Today China devalued the yuan, and the news had an immediate impact, with the yuan falling nearly 2% against the U.S. dollar. It marked the biggest one-day plunge since 1994. Romain Hatchuel writes in the Wall Street Journal that

China’s interference in its stock markets reflects a global trend of states trying to govern economic activity.

In a normal market economy, prices of goods, services and assets are determined freely by supply and demand. For every seller, there has to be a buyer, and the direction prices move usually depends on whether sellers outnumber buyers, or vice versa. But monetary policies and government action can disrupt the buyer-seller relationship in a number of ways.

One way is by expanding the base of eligible consumers by providing ultracheap credit. A central bank cuts its main interest rate to an abnormally low level, and the number of potential buyers of homes, cars, smartphones and other products starts to rise.

Since 2008 the Federal Reserve, the European Central Bank, the People’s Bank of China, the Bank of Japan and the Bank of England have all cut their interest rates drastically. While these lower rates have supported consumption, they have primarily benefited financial assets, which have rallied for six years with only rare corrections.

The second way governments and central banks can alter normal supply and demand dynamics is by becoming buyers themselves. And many of them have been on a frantic shopping spree these past seven years. Governments increased public spending through fiscal stimulus plans, while central banks implemented aggressive quantitative-easing programs, which translated into colossal purchases of financial assets. Since 2008 the combined balance sheets of the world’s five leading central banks have increased by a staggering $9 trillion.

But if incentivizing buyers, or acting as buyers themselves, isn’t enough, governments and central banks can always forbid sellers from disposing of their securities, or make those securities unavailable for trading. China isn’t the only country to have used such subterfuges. There have been several short-selling bans in the U.S. and Europe since 2008, and while milder than prohibiting actual stockholders from selling, these bans are a similar way of intervening in markets.

...Unprecedented monetary easing, high public spending, repressive regulation and automatic debt forgiveness, while arguably useful in the midst of a severe crisis, cannot be sustainable remedies in the long term—that is unless one believes the world should do away with free-market principles altogether. Those who continue to advocate such measures, more than seven years after the global financial crisis blew up, should at least admit that what they really want is a profound and permanent change in the system.

Maybe they know something I don’t, but it is fair to ask whether these extreme interventionist policies have become part of the problem rather than the solution, and if we shouldn’t instead revert to what remains the most successful economic system ever tried—the free market.

As far as the U.S. and its slow but steady drift away from market fundamentals is concerned, the Federal Reserve’s future interest-rate decisions and the coming presidential election will provide important clues as to where the nation, and its still unsteady economy, is headed.

Read more here.

The left's preconceptions

Thomas Sowell writes:

If the preconceptions of the Left were correct, central planning by educated elites who had vast amounts of statistical data at their fingertips and expertise readily available, and were backed by the power of government, should have been more successful than market economies where millions of individuals pursued their own individual interests willy-nilly.

But, by the end of the 20th century, even socialist and communist governments began abandoning central planning and allowing more market competition. Yet this quiet capitulation to inescapable realities did not end the noisy claims of the Left.

In the United States, those claims and policies have reached new heights, epitomized by government takeovers of whole sectors of the economy and unprecedented intrusions into the lives of Americans, of which Obamacare has been only the most obvious example.

Please read more here.