Why Central Planning Fails


We often hear seductively simple solutions to our social and economic problems. U.S. presidential hopeful Bernie Sanders (and many like him) asserts that measures such as raising the minimum wage and increasing taxes for the wealthy would provide solutions to the nation’s current economic problems, specifically the scourge of inequality.

So obvious are these solutions, and simple to implement through centralised political mechanisms, that anyone opposed to them is regarded as having a vested interest in exploitation or some kind of moral defect.

Only a couple of days ago, Oxfam announced that the richest 62 people are as wealthy as the poorest half of the world’s population. There is a grotesqueness to these kinds of statistics. It is hard not to ask, surely these men (most of them are men) could eradicate world poverty if they wanted to? If only they had more compassion than greed. If the wealthy are unable to act morally, then the government should step in to redistribute the wealth that had, no doubt, at least in part been gained through theft or exploitation of others..

It is obvious that this line of thinking has underscored much of President Barack Obama’s political career – If only we would dare to hope, and have the will to change, we can end inequality, fulfill the rights of all people to an education and healthcare, and ensure that no child is left behind. All we need is the will. Obama and his supporters have transcended their base human nature. They are the people we have been waiting for.

Obama presents us with a moral problem, which he claims he has the solution to overcome. But what Obama treats as a moral problem is actually an information problem.

The idea of central planning, or wealth redistribution sounds simple, good, and the right thing to do. Yet actually delivering such an outcome is impossible. A central planner cannot know all the needs or preferences of millions of people. That is why the introduction of ObamaCare has left many people with worse and more expensive health insurance than before.

The economy is a network of relationships, with each player holding a vast amount of knowledge that would be difficult to quantity or to even articulate.

While progressives and liberals present inequality as a moral problem to be solved (and they will solve it if only we’d let them), it is the knowledge problem of central planning which is the reason why socialism inevitably fails.

Despite their seductive appeal, simplistic wealth redistribution policies promulgated by President Obama, Bernie Sanders and the Australian Greens are doomed to failure.

Photo by david_shankbone