↑ comment by gjm ·
2015-02-04T17:40:27.177Z · LW(p) · GW(p)
Please update already.
Update how, exactly?
As I have already said (more than once, I think) in this discussion: I already agree that the available evidence and theoretical analysis give good reason to think that markets beat large-scale central planning. And if Jiro had been proposing large-scale central planning, my only problem with your response would have been its needlessly contemptuous tone.
What s/he was actually proposing was interference with prices in a small number of rather unusual cases, the goal not being to maximize overall economic growth but to prevent what (I take it, with confidence but not certainty) s/he sees as exploitation.
For "Sigh. Why do you think central planning failed" to be an appropriate response to that, it is (it seems to me) not sufficient that the evidence, on the whole, points to markets doing better than large-scale central planning. What would make it an appropriate response? Perhaps if the communist countries had failed so spectacularly, and so obviously because of their different approach to price-setting and resource allocation, that any fool could see at a glance that any interference with the price-setting of the free market is bound to lead to disaster.
It doesn't appear to me that the state of the evidence is anywhere near to that.
How much empirical evidence do you need?
To agree that it looks like markets are better than large-scale central planning? I have enough, thanks. To say that it's a completely settled question empirically, and that the difference is so big that anyone suggesting a departure from perfectly free markets should be dismissed with a sigh? A lot more.
How large is our sample here? The number of countries that had centrally-planned economies is fairly large but they're far from independent (i.e., in many cases their outcomes were closely intertwined on account of common relationships with the USA and USSR). Perhaps something like the equivalent of n=10 independent experiments? (This feels like it's distinctly on the generous side.) They were mostly pretty poor to begin with, the US and its economic allies were trying pretty hard to make them fail, and their governments were messed up in ways largely unrelated to centralized economic planning. Plenty of economies do really badly without central planning, even without the world's richest countries actively trying to harm them. So, I dunno, in the total absence of harmful effects from central planning I'd give any given one of those (fictitious) 10 independent communist countries a 3/4 chance of doing badly economically, which means Pr(all do badly) comes out at about 1/18. So (given the laughably handwavy assumptions of this paragraph) this is the equivalent of a scientific experiment that falls just a little bit short of significance at the 5% level.
Maybe I should say a thing or two about empirical evidence versus theoretical arguments, because for sure there are good theoretical arguments for free markets. The trouble with these is that the lovely theorems the economists prove tend to say things along these lines: "Subject to such-and-such simplifying assumptions, every Pareto-optimal outcome can be had by making cash transfers and then letting a free market operate" and the transfers required to get the right Pareto-optimal outcome (note: there may be lots of Pareto-optimal outcomes and some may be terrible by any reasonable criteria) may be politically infeasible. They might amount to large-scale expropriation, for instance.
If you're hoping that the market will produce anything like a utility-maximizing outcome without large-scale interference (e.g., massive expropriatory wealth transfers), then the obstacle is that the market can't see utility except via the proxy of willingness to pay. And maximizing total utility-as-measured-by-willingness-to-pay is very much like maximizing total utility weighted by wealth (if marginal utility of money is inversely proportional to current wealth, which seems like a reasonable approximation, then the market is indifferent to a change that gives me 1 unit of utility at the cost of 1 unit of utility for each of 10 people with 1/10 my wealth). I don't know about you, but I don't find "max utility weighted by wealth" a very satisfactory figure of merit for optimization.
And, lo, empirically it does look rather as if markets look after the interests of the rich better than those of the poor (though of course this is hard to be sure about since other more reasonable effects can look similar). Does this mean that central planning is better? Heck no. Does it suggest that there might be a case for government intervention, perhaps including some diddling with prices in unusual cases, in order to come closer to maximizing total utility or (unweighted) average utility or something else we prefer to wealth-weighted utility, even at the cost of some reduction in total wealth? To me, yes.
That doesn't mean Jiro's suggestion is a good one. Maybe it's a terrible one. But considerations like the above are why I don't find "central planning failed and Economics 101 says free markets are optimal, duh" a satisfactory response.
Replies from: Lumifer
↑ comment by Lumifer ·
2015-02-04T18:15:19.699Z · LW(p) · GW(p)
I already agree that the available evidence and theoretical analysis give good reason to think that markets beat large-scale central planning.
That certainly wasn't evident from this comment of yours.
If you're hoping that the market will produce anything like a utility-maximizing outcome
The critical issue is the time horizon. In the short term the utility-maximizing move is to divide all the wealth equally. In the long term I would argue that we have evidence showing that markets do maximize utility, compared to the available alternatives.
Does it suggest that there might be a case for government intervention, perhaps including some diddling with prices in unusual cases, in order to come closer to maximizing total utility
First, governments just love diddling with prices. Google up why sugar is so expensive in the US. Or what happens to you if you produce raisins 8-/
Second, I am deeply suspicious of the claim that diddling with the prices is done in order to maximize total utility (of some sort). Based on historical experience, I expect that diddling with the prices aims to transfer wealth from some less politically powerful group to some more politically powerful group. Crony capitalism is a very popular thing nowadays.
That doesn't mean Jiro's suggestion is a good one.
Jiro is basically taking the paternalistic stance: "these people don't know what's good for them and I'm not going to allow them to do what I don't like". That's not a economic argument, it's a moral one and picking appropriate moral criteria you can justify any economic practice whatsoever (recall Proudhon's "Property is theft", for example).
Replies from: gjm
↑ comment by gjm ·
2015-02-04T22:24:53.333Z · LW(p) · GW(p)
That certainly wasn't evident from this comment of yours.
How fortunate, then, that I made other comments as well.
governments just love diddling with prices
I know. And they do diddle with prices. And so all the empirical evidence we have that free markets work well is really evidence that free markets with a whole lot of assorted government intervention work well.
I am deeply suspicious of the claim that diddling with the prices is done in order to maximize total utility
I wasn't claiming (or at least wasn't intending to claim) that it generally is. Only that it could be. An argument of the form "we could improve what markets do by doing X" is not invalidated by the fact that governments often do X for bad reasons.
picking appropriate moral criteria you can justify any economic practice whatsoever
No doubt. But if we're going to argue about what should be done, that's inevitably partly an argument about values. We can pretend it isn't, e.g. by settling on some not-explicitly-value-laden thing to maximize -- say, total wealth after 100 years -- but that really just amounts to choosing values that only care about total wealth after 100 years.