GenMarshall
High Elven ISB Capt & Ghost Agent
I only know the negatives.
Ask an Economist (Post #1005 and counting)
- Thread starter JerichoHill
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Godwynn
March to the Sea
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Do you know the negatives of a centrally planned economy?
GenMarshall
High Elven ISB Capt & Ghost Agent
No, I don't.
Ok CG. Here's a nice parable for you to learn of at least one of the negatives.
In the past, I know you've had family dinners, right? Your mom would cook up a storm and you'd all eat together. Right? If you haven't, just imagine. How often does she get everything exactly right? There are no leftovers (surplus) and nobody goes hungry (deficit). There is exactly enough food for everybody on the table and no more. Almost never, am I right?
If your mother couldn't plan everything out for a family of, say, four, how is a committee going to plan everything out for an entire country?
In the past, I know you've had family dinners, right? Your mom would cook up a storm and you'd all eat together. Right? If you haven't, just imagine. How often does she get everything exactly right? There are no leftovers (surplus) and nobody goes hungry (deficit). There is exactly enough food for everybody on the table and no more. Almost never, am I right?
If your mother couldn't plan everything out for a family of, say, four, how is a committee going to plan everything out for an entire country?
Integral
Can't you hear it?
Godwynn
March to the Sea
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The great advantage of a Free Market is its ability to weed out inefficiencies in an economy.
A central authority is incapable of knowing the efficient point in every business or sector of an economy.
JerichoHill
Bedrock of Knowledge
In a centrally planned economy, modeling fails due to data collection issues, aggregation bias, and other factors that make it utterly impossible, even with the best mathematicians and the best equipment to model with 0% error.
That so far, attempts at large scale planning have either melted into capitalism or faced a violent end would seem to speak that there is something in central planning that when taken to the extreme doesn't work.
However, even the US has central planning elements. For instance, our monetary system is centralized. It used not to be a federal responsibility, but a state's. They printed far too much money and the US had horrific inflation in its infancy. Thus, it was rational to centralize a component.
The question economists like myself would face (if we ran government policy) wouldn't be a question to adopt central planning (only the most extreme of economists would argue for a fully central planned economy, but they would be considered quacks). The question would be where is the government more efficient than the private sector in producing good economic results (or social results...) Alot of those answers depend on cultural institutions as well as math and data. At the moment, we really don't have a good idea on how to quantify culture accurately.
Culture accounts for the difference in US capitalism vs European capitalism. Europeans (history suggests) prefer more egalitarian policies at the cost of less social mobility (this may have to do with a disgust of the medieval way of running society). The US, founded on an open frontier, embraces more of a boom and bust mentality (thus less egalitarian but more social mobility).
One should really know an idea before bashing it, imho. For you to embrace central planning by only know capitalism's evils seems...one sided. It works the other way too.
But anyways, mathematics suggests that central planning will never work, because you can never optimize to individual preferences with aggregated policy decisions.
Suggestions for reading
Delli Carpini and Keeter, What Americans Know About Politics and Why It Matters, pp.68-95, 142-147, 154-161, 188-209
Frederic Bastiat, "What Is Seen and What Is Not Seen"
Landsburg, Fair Play, pp.76-85, 98-128, 136-142
Rothbard, Power and Market, pp.135-162
That so far, attempts at large scale planning have either melted into capitalism or faced a violent end would seem to speak that there is something in central planning that when taken to the extreme doesn't work.
However, even the US has central planning elements. For instance, our monetary system is centralized. It used not to be a federal responsibility, but a state's. They printed far too much money and the US had horrific inflation in its infancy. Thus, it was rational to centralize a component.
The question economists like myself would face (if we ran government policy) wouldn't be a question to adopt central planning (only the most extreme of economists would argue for a fully central planned economy, but they would be considered quacks). The question would be where is the government more efficient than the private sector in producing good economic results (or social results...) Alot of those answers depend on cultural institutions as well as math and data. At the moment, we really don't have a good idea on how to quantify culture accurately.
Culture accounts for the difference in US capitalism vs European capitalism. Europeans (history suggests) prefer more egalitarian policies at the cost of less social mobility (this may have to do with a disgust of the medieval way of running society). The US, founded on an open frontier, embraces more of a boom and bust mentality (thus less egalitarian but more social mobility).
One should really know an idea before bashing it, imho. For you to embrace central planning by only know capitalism's evils seems...one sided. It works the other way too.
But anyways, mathematics suggests that central planning will never work, because you can never optimize to individual preferences with aggregated policy decisions.
Suggestions for reading
Delli Carpini and Keeter, What Americans Know About Politics and Why It Matters, pp.68-95, 142-147, 154-161, 188-209
Frederic Bastiat, "What Is Seen and What Is Not Seen"
Landsburg, Fair Play, pp.76-85, 98-128, 136-142
Rothbard, Power and Market, pp.135-162
JerichoHill
Bedrock of Knowledge
@ CivGeneral,
I will gladly go in depth on questions on the effects of capitalism vs. central planning or other economics questions. I won't answer any questions that are stated subjectively, ie, no calling capitalism greedy. I'll answer objective questions like
"Why doesn't the market pay someone with a bachelor's degree more for flipping burgers than someone with a high school degree?"
Why does capitalism produce inequality?
What creates move poverty, decentralized or central planning?
What role does the government play in our free market? In others?
Why is the social structure different in NA vs. Europe or Asia?
Thems the ground word. I'm happy to help folks learn, and this thread is supposed to be a few folks answering economics related questions as objectively as possible. If I have a bias in an answer that I feel makes it different than a similiar professional economist would answer, Ill say so.
PS: You asked why McDonald's cashiers don't get 401ks. A simple answer is that most 401k plans have a year period before contributions can be made by the employer. The tenure of a McD's employee is almost always less than a year. I would know, I was one (when I was 16)
I will gladly go in depth on questions on the effects of capitalism vs. central planning or other economics questions. I won't answer any questions that are stated subjectively, ie, no calling capitalism greedy. I'll answer objective questions like
"Why doesn't the market pay someone with a bachelor's degree more for flipping burgers than someone with a high school degree?"
Why does capitalism produce inequality?
What creates move poverty, decentralized or central planning?
What role does the government play in our free market? In others?
Why is the social structure different in NA vs. Europe or Asia?
Thems the ground word. I'm happy to help folks learn, and this thread is supposed to be a few folks answering economics related questions as objectively as possible. If I have a bias in an answer that I feel makes it different than a similiar professional economist would answer, Ill say so.
PS: You asked why McDonald's cashiers don't get 401ks. A simple answer is that most 401k plans have a year period before contributions can be made by the employer. The tenure of a McD's employee is almost always less than a year. I would know, I was one (when I was 16)
GenMarshall
High Elven ISB Capt & Ghost Agent
Well this is not getting me anywhere since I want to learn more about Capitalism. Even if I am jaded to it :-/
JerichoHill
Bedrock of Knowledge
Ask questions then, but just don't call it "greedy capitalism".
GenMarshall
High Elven ISB Capt & Ghost Agent
Well I can assure you that I am not calling it "greedy capitalism", dispite having Communist symbolisms on me (I guess thats what tipped your suspicion 
).
The basics first:
What is Capitalism and how does it work?
Why is there underemployment (link added for clarification)
Why doesn't the market pay someone with a bachelor's degree more for flipping burgers than someone with a high school degree? (links with underemployment)
).The basics first:
What is Capitalism and how does it work?
Why is there underemployment (link added for clarification)
Why doesn't the market pay someone with a bachelor's degree more for flipping burgers than someone with a high school degree? (links with underemployment)
innonimatu
the resident Cassandra
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There have been several credible studies pointing out that the US has less social mobility that many europeans countries. We've discussed one on this forum, a few months ago. And whatever the reasons for cultural differences between the US and Europe we should search them in recent history.
JerichoHill
Bedrock of Knowledge
@@CivGeneral
Well I can assure you that I am not calling it "greedy capitalism", dispite having Communist symbolisms on me (I guess thats what tipped your suspicion ).
You said that phrase in a post of yours that I saw recently.
What is Capitalism and how does it work?
Capitalism is a free-market economy, meaning that transactions occur with limited (if any) direction or compulsion from a governing body.
Why is there underemployment (link added for clarification)
Which one of the three?
Why doesn't the market pay someone with a bachelor's degree more for flipping burgers than someone with a high school degree? (links with underemployment)
Because having a college degree in say American History or International Affairs has little to do with the ability to flip burgers at a fast food joint? Fast Food tends to demand little skill, so there's a pool of highly substitutable labor, so a college degreed flipper has little market power over their wage, should they choose to be a burger flipper. One hopes they would choose a career based on their skillset. I don't produce better burgers simply because I have a graduate degree in econometrics.
Well I can assure you that I am not calling it "greedy capitalism", dispite having Communist symbolisms on me (I guess thats what tipped your suspicion
).You said that phrase in a post of yours that I saw recently.
What is Capitalism and how does it work?
Capitalism is a free-market economy, meaning that transactions occur with limited (if any) direction or compulsion from a governing body.
Why is there underemployment (link added for clarification)
Which one of the three?
Why doesn't the market pay someone with a bachelor's degree more for flipping burgers than someone with a high school degree? (links with underemployment)
Because having a college degree in say American History or International Affairs has little to do with the ability to flip burgers at a fast food joint? Fast Food tends to demand little skill, so there's a pool of highly substitutable labor, so a college degreed flipper has little market power over their wage, should they choose to be a burger flipper. One hopes they would choose a career based on their skillset. I don't produce better burgers simply because I have a graduate degree in econometrics.
JerichoHill
Bedrock of Knowledge
I think history (or the lack of it for the US) matters, even far back in time. Institutions develop over a long period of time.
As for your first point, that may be correct. I would argue that the US may have the appearance of more social mobility to its citizenry. 80% of millionaires are first generation millionaires, and 50% are immigrants.
GenMarshall
High Elven ISB Capt & Ghost Agent
Specificaly the situation that I am in: Underutalization of skills.
EconomistBR
King
IMO there is no such thing as skill in a capitalist system, there is only 1 term that governs everything and that is: productivity
The market doesn't and shouldn't pay someone more just because he has titles or more skills, pay should always be based on productivity, always.
IMO the reason why there is underutilization of "skills" is because, as Keynes proved, salaries are not flexible. No engineer will work for minimum salary for example.
JerichoHill
Bedrock of Knowledge
Why are you in a job that doesn't use the skills you've developed?
EconomistBR essentially said the same thing I said previously. You may have skills, but those skills are non-essential to the job you are doing, and therefore do not provide a productivity boost. Therefore, you're not going to be compensated for them for simply having them...they add no value to what you're doing.
Like with the burger flipper, if the colleged degreed in <insert random major here> person raises a stink about their wage, they'll be let go and someone else hired because (a) said person's major adds no value to their job performance (b) the job they are performing requires little skill, thus the potential pool of labor that can fill said job will be large (c) therefore that individual has little market power to determine their wage.
I mean, you don't see me selling insurance. I've got a few degrees in economics, therefore, I apply for economist positions.
A simple solution for you is to find a job that matches with your skillset. Your underemployment may be because your major is unrelated, not needed, etc, to your work, or that your local job market has no need for said skills. That's when you move to a market that does. PoDiddlyFunk Iowa has no need for economists...I wouldn't be paid much there. DC does, so I moved there.
El Koeno
Emperor
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I'm not sure what your situation is, but let's just suppose it's flipping burgers with a university degree.
In a system of capitalism, both parties involved in a transaction must agree to it. If McDonalds does not gain anything by offering you a higher wage, it will not happen. Anyone can flip a burger, so if there's somebody who needs the job more than you do, and accept a lower wage, it makes sense for MacDonalds to go for that person. Apparently nobody would work for a lower wage than you're getting so MacDonalds keeps you employed without giving you a higher wage, because it makes sense for them, and to you, otherwise you wouldn't do the job.
happy_Alex
Happiness set to 11
Dosen't this assume that supply and demand mechanisms cannot exist in a centrally planned economy? There can still be shops and currency and exchange, after all...
JerichoHill
Bedrock of Knowledge
No, I'm not making that assumption. I'm assuming that at the highest point of centralization there is a directive that says (X of this, Y of this) and orders that production. Such a directive is going to be an inefficient allocation of resources based on problems of aggregating data, statistical sampling error, regression error, disaggregating solutions, measurement errror, time bias, etc. etc. One could think that maybe massive computing power could solve the problem, but we're not there yet with the technology. I don't know if we ever will be either, we'll need a quantum processor probably to account for probabilities correctly.
There can be shops and exchange to distribute the merchandise, but since they have no choice in production or what is supplied to them, I'd have to ask what's the point? There were grocery stores in the USSR, but if they were infamous for not having anything.
I'm focusing solely on massive focused central planning here. Economies in the modern era all have some mechanism of central planning (some more than others). However, its impossible to create an efficient system for all individuals because of data issues (and the cardinal/ordinal ranking of preferences).
Check the links that I posted. They go into why politics, even the most free ones, produce suboptimal solutions because it cannot satisfy every voters preferences simultaneously
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