Posted tagged ‘Market Solutions vs. Central Planning’

Must Reads For The Week 4/21/18

April 22, 2018

GOVERNMENT CENTRAL PLANNING DESTROYS COMPLEX SYSTEMS

Why Systems Fail, by Charles Hugh Smith, at oftwominds.    Excerpt from the article: 1) “Systems are accretions of structures and modifications laid down over time. Each layer adds complexity which is viewed at the time as a solution.”

“This benefits insiders, as their job security arises from the need to manage the added complexity. The new layer may also benefit an outside constituency that quickly becomes dependent on the new layer for income.”

“In short order, insiders and outsiders alike habituate to the higher complexity…….. Few people can visualize alternatives, and any alternative that reduces the budget, payroll or power…..is rejected as “unworkable.”

“In this set of incentives, the “solution” is always: we need more money. But increasing the budget can’t fix what’s broken….. As a result, new layers rarely replaces previous layers; the system becomes more and more inefficient and costly as every new layer must find workarounds and kludgy fixes to function with the legacy layers.

2) “The organization is incapable of instituting deep reforms due to organizational sclerosis…… The structure itself has lost the feedback loops and accountability needed to radically restructure a failing organization.”

These dynamics can manifest in both private-sector corporations and public-sector agencies….All of this contrasts with self-organizing networks which lack the hierarchy necessary for sclerosis, self-serving insiders and fatally blinded management. Since “this is the way the system works,” we have a hard time imagining how public agencies and corporations might be obsoleted by self-organizing, opt-in transparent rules-based networks.”

“Since failing systems are incapable of structural reform, collapse is the only way forward. Unfortunately collapse doesn’t guarantee success; if the rot is deep enough, the wherewithal to assemble a new more sustainable system may be lacking.”

EXAMPLES

Kentucky Teachers Want A Taxpayer Bailout, by Troy Vincent, at mises.org. Teachers unions and Government bureaucracies are examples of what is talked about above. Teachers unions are incentivized to get as much money for its constituency group as possible. That constituency is not the students it is the teachers. Politicians and bureaucrats cave in to these demands because the future fiscal problems that will arise, because of their decision, will be the problems for future politicians. And even if they are still in office, no one will remember that the previous decisions were responsible for the current fiscal problem. In this case the  feedback loop for politicians comes from the voters. But if voters are not informed enough to know what caused the problem, they can’t exercise their power. Ultimately voters will bear the fiscal burden of the decisions made by teachers unions and politicians. But voters have only themselves to blame for the problem because they were economically ignorant voters in the first place.

The War Between Public Pensioners And Tax Donkeys Is Heating Up, by Charles Hugh Smith, at oftwominds.com. Many State public pension systems are underfunded. Raising taxes is the only solution because we know the teachers unions will never give up anything. And politicians will always cave to the unions. Unfortunately someone will have to give something up. And that means tax payers will have to give up more of what they have produced. At some point this will come to an end. Because if you continue to consume more than you produce, at some point there will be nothing left.

US Budget Deficit Hits $600 Billion In 6 Months, As Spending On Interest Explodes, at zerohedge.com. And this: US Deficit To Soar Over 40% In 2019, Exceed $1 Trillion By 2020, at zerohedge.com. This debt is unsustainable. There will come a point where this debt can’t be paid off. We may have already passed the point of no return. Politicians and bureaucrats will never shrink the size of their fiefdoms, so collapse may be the only solution.

Californians Flee The State In Droves Over Taxation And Housing Costs, at zerohedge.com. Politicians have caused this problem. The solution is going to be forced on States like California when enough people leave. Where will the revenue come from when enough people leave. The scale will be tipped in the wrong direction. You can’t confiscate money from people who don’t exist.

Illegal Immigrants Shielded From University of California Out-Of-State Tuition Hike, by Keil Huber, at thecollegefix.com. If they are lucky they will spend more so the collapse can happen sooner.

LA Is Painting Some Of Its Streets White And The Reasons Why Are Pretty Cool, at cbsnews.com. Do the environmental crazies think there is no cost to their policies. $40,000 a mile adds up quickly. I hope this happens so California has to face economic reality sooner rather than later. It will be less costly.

Revealed: Mueller’s FBI Repeatedly Abused Prosecutorial Discretion, by Mollie Hemingway, at thefederalist.com. The legal system is important if a country is to function properly. But the rule of law has been in the process of breaking down for decades. When the rules don’t apply equally, and prosecutors are above the law, you no longer have a legal system.

What Attorney-Client Privilege?, by Andrew Napolitano, at lewrockwell.com. You may think this is OK because it is happening to Trump. But what is going to stop  prosecutors from doing this to you. Or rights are being trampled on. This is another example of the erosion of our the legal system.

More Hilarious Facts About Tesla From A Hedge Fund Shorting The Stock, at zerohedge.com. Government has been subsidizing the purchase of electric cars. This allows the waste of scarce resources to continue long after this waste would have been stopped under normal market conditions. Losses are just as important as profits in transmitting information to producers. Producers need to know what, and how much, to produce. When Government tries to pick winners, they usually fail miserable. And once again taxpayers get caught without a chair when the music stops.

WHERE SOLUTIONS COME FROM

Solutions Only Arise Outside The Status Quo, by Charles Hugh Smith, at oftwominds.com. Excerpt from the article: “…Institutions are fundamentally incapable of responding effectively or reforming themselves. The universal solution of failing institutions and hierarchies is throw more money at the failings in the doomed hope that doing more of what’s failed will magically solve the systemic problems. We see this dynamic in all the major public-private structures or our economy/society: Higher education (solution: make students borrow even more trillions, or have the government borrow more trillions); Healthcare (government needs to borrow more trillions), and national defense/security (government needs to borrow more trillions).”

“As a result, solutions are only possible outside these ossified, self-serving centralized hierarchies.”

“When faced with fiscal crises, central states/banks inevitably succumb to the temptation to print/borrow currency in whatever sums are needed to fill the shortfall of the moment. This….seems to be magic at first…..but eventually gravity takes hold and the currency’s purchasing power declines, as the real economy the production of goods and services) grows at rates far below the expansion of currency. Even the greatest empires in human history have been unable to resist the “easy” solution of devaluing currency…….

“Existing systems optimized for bygone eras and maximizing the security and wealth of insiders are doomed to fail…… Solutions will only arise outside the control and boundaries of existing systems, as all structural solutions threaten to obsolete or replace existing structures, displacing all the incumbents and insiders who benefit from the continuing failure of the institutions they manage and control.

Institutions like markets, money and law were created by spontaneous order. Government central planning did not create them. Since people don’t understand that these came about spontaneously, they also don’t understand that Government central planning has created all the problems with these institutions. Allowing solutions to come from the spontaneous order created by individuals making decisions, is the only way these problems can be solved. Government central planning can’t solve the problems it created, because it has no incentive to do so. Taking decision making power away from centralized Government, and returning it to individuals, is the only way this ends well.

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How Would Government Run Single Payer Healthcare Work? Look At The VA.

April 19, 2017

The VA is a government-run single payer healthcare system. It is a disaster. Obamacare is the last step before you get to a government-run single payer system. Here is a video from Prager University (here) which outlines the failure of our government-run single payer system known as the VA. Obamacare is going to suffer the same failure.

OUR CHOICES ARE?

The only way to lower the cost of healthcare is to repeal all 2500 pages of the Affordable Care Act (aka Obamacare). If we truly want the lowest possible costs, we should repeal every piece of legislation related to healthcare that has been passed in the last 100 years. A majority of people believe something as complex as our healthcare system has to be managed or regulated from the top down by experts (government experts). They can’t fathom a complex order created spontaneously from bottom up decisions made by individual consumers and producers (a market). The difficulty in understanding an abstract concept like spontaneous order, allows politicians and bureaucrats to pass top down concrete planning. Seeing a plan spelled out, no matter how complex, is easier to believe than someone not being able to show what a spontaneous complex market order would look like.

2014 VA SCANDAL

Remember the 2014 VA scandal? We wrote about what was taking place in VA hospitals in this article titled Incentives Matter (here). Here is an excerpt from the 2014 article: “The incentives and constraints transmitted through the market, are totally different from the incentives and constraints transmitted to bureaucracies. In the market the incentive is to provide what the consumer wants. A bureaucracy is a monopoly on a particular service, which means the person using the service is an annoyance rather than someone who has to be pleased……Firing Eric Shinseki and replacing him with a better “angel” won’t solve the problem, {if the problem is making sure the veterans are being taken care of}, because the incentive structure will remain the same.

INDIVIDUAL DECISIONS vs. GOVERNMENT SOLUTIONS

The Republicans failed repeal and replace bill was not much different from Obamacare. The truth is Republicans like the idea of government-run healthcare. They just like their version better than the Democrats version. Only decisions by consumers and producers of healthcare, made free of government coercion, will lower costs.

The 30 or so congressman in the Freedom Caucus are the only members of the House who want to get rid of government-run healthcare. All Democrats want Obamacare to stay as written. All Republicans, except the 30 in the Freedom Caucus, want Obamacare lite. The congressmen in the freedom caucus are all that stands between a permanent government-run single payer system and the possibility of a free market healthcare system.

Related ArticleHealthcare: Market Solutions vs. Government Decrees, at austrianaddict.com.

Related ArticleSpontaneous Order = Free Market, at austrianaddict.com.

Solutions To California’s Drought: Government Fines, or Market Prices.

July 24, 2014

File:2003-09-28 Lawn sprinklers at NCSSM.jpg

California’s water shortage due to the drought is being dealt with in typical interventionist fashion. The Government wouldn’t even consider how the free market deals with scarcity. Murray Rothbard wrote about a water shortage that occurred in 1977 in northern California in this article titled, The Water Shortage, (at economicpolicyjournal.com). Time has passed since this was written but the economic principles are as true today as they were in 1977.

FREE MARKET vs. CENTRAL PLANNING

When Government is the supplier a good, whether it’s water, electricity, or healthcare, the first thing that happens when there is a shortage is they blame the consumer for using too much. When electrical use is high during the summer, suppliers always warn consumers to use less electricity because of the strain on the system. Rolling black outs may come into play if use outstrips the ability to supply enough electricity. I’ve always wondered why producers of electricity are always trying to get consumers to use less of their product, even to the point of giving them energy efficient light bulbs. In the free market, producers use advertising to try to increase demand for their product.

The first rule of economics is scarcity. What we desire is greater than the means available to fulfill this desire. These scarce goods have to be rationed one way or another. If there were no scarcity, there would be no need to economize on any good. Prices ration scarce resources in the free market. Bureaucrats and planning boards ration scarce resources in a centrally planned system.

ROTHBARD EXPLAINS SCARCITY, SHORTAGE, RATIONING

I’m going to let Rothbard take it from here because he is way better than me at explaining scarcity, shortages, rationing, prices, and supply and demand. Her are some excerpts from the 1977 article.

“….northern California, has been suffering from a year-long drought, ……. government must leap in to combat it—not, of course, by creating more water, but by mucking up the distribution of the greater scarcity.”

“…. on the free market, regardless of the stringency of supply, there is never any “shortage”, that is, there is never a condition where a purchaser cannot find supplies available at the market price. On the free market, there is always enough supply available to satisfy demand. The clearing mechanism is fluctuations in price. If, for example, there is an orange blight, and the supply of oranges declines, there is then an increasing scarcity of oranges, and the scarcity, is “rationed” voluntarily to the purchasers by the uncoerced rise in price, a rise sufficient to equalize supply and demand. If, on the other hand, there is an improvement in the orange crop, the supply increases, oranges are relatively less scarce, and the price of oranges falls consumers are induced to purchase the increased supply.”

“Note that all goods and services are scarce, and the progress of the economy consists in rendering them relatively less scarce, so that their prices decline. Of course, some goods can never increase in supply. The supply of Rembrandts, for example, is exceedingly scarce, and can never be increased—barring the arrival of a Perfect Forger. The price of Rembrandts is high, of course, but no one has ever complained about a “Rembrandt shortage.” They have not, because the price of Rembrandts is allowed to fluctuate freely without interference from the iron hand of government.”

“If the water industry were free and competitive, the response to a drought would be very simple: water would rise in price. There would be griping about the increase in water prices, no doubt, but there would be no “shortage”, and no need or call for the usual baggage of patriotic hoopla, calls for conservation, altruistic pleas for sacrifice to the common good, and all the rest. But, of course, the water industry is scarcely free; on the contrary, water is almost everywhere in the U.S. the product and service of a governmental monopoly.”

“When the drought hit northern California, raising the price of water to the full extent would have been unthinkable; accusations would have been hurled of oppressing the poor, of selfishness, and all the rest. The result has been a crazy-quilt patchwork of compulsory water rationing, accompanied by a rash of patrioteering ecological exhortation: “Conserve! Conserve! Don’t water your lawns! Shower with a friend! Don’t flush the toilet!”

“…. local ecologists and statists got into the act. They groused that the over-conservation had induced people not to water their lawns, which led to the “visual pollution” “unsightly” lawns…..”

“…. wouldn’t the poor be hurt by the water district raising its water prices? …No….the poor are not being hurt by the higher price because, being forced to cut their consumption, their total bill has not increased. Thus, a price rise by a private firm is always selfish and oppressive of poor people; but when a monopoly governmental agency increases its price, the poor do not suffer at all, since if they cut their purchases sufficiently in response to the higher price, their total dollar payments will not increase. It is this sort of nonsense that our statists and busybodies are now being reduced to.”

NOTHING HAS CHANGED

In the present drought situation, central planners are trying the same failed responses to the problem, while free market solutions siton the sideline waiting for their chance to prove they are better than these “first string solutions” of the central planners. Remember, there is no solution to scarcity, just a better or worse way of dealing with it.

This article, California City Will Fine Couple $500 For Not Watering Lawn, State Will Fine Them $500 If They Do, by Mary Beth Quirk, at consumerist.com, shows that central planners have not gotten any smarter in 35 years. They are true believers in their central planning religion, and no amount of conflicting incentives or failures will convert them.

The market is always trying to correct perverse incentives created by central planners. It will come up with alternatives to paying the fines, as shown in this article, Spray-Painting Your Grass Green Is One Way To Avoid “Brown Lawn Fees“, by Mary Beth Quick, at consumerist.com. The shame of it is there would have been no need for this lawn spray-painting business in a true free market. It only became viable because of Government planning. The labor, capital, and resources used to keep from getting fined, could have been used in more productive ways satisfying true free market demand. If the price would have been allowed to go up to ration water, each person could have decided how much to use at the higher price, allowing them to use their money for other things than complying with green lawn laws. This is a version of the broken window fallacy, read here, Hurricane Sandy And The Broken Window Fallacy.

Understanding some basic economic principles will give us enough knowledge to confidently argue against the political “solutions” bureaucratic central planners come up with in dealing with the first rule of economics; scarcity.

Related ArticleIncentives Matter, at austrianaddict.com.

Related ArticleThe Reality Of Obamacare, at austrianaddict.com.

Related ArticleMilton Friedman on Market Failure vs. Government Failure. Which Has a Higher Cost? at austrianaddict.com.