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I thought this paragraph was the most enlightening: Chávez was an innovator in how he spent money, but he did little to improve how Venezuela actually makes mo

I thought this paragraph was the most enlightening: Chávez was an innovator in how he spent money, but he did little to improve how Venezuela actually makes money. He paid no attention to diversifying the economy or investing in domestic production outside of the oil sector. The country relies on imports for many of its most basic goods and services, include food and medicine. You could probably put the greatest economic minds in the world in charge of a big country like Venezuela and they would still fail to diversify the economy. Markets are necessary for successful diversification - avoiding shortages and economic collapses when key industries suffer downturns. I'd say social democracies in Europe have shown pretty conclusively that the way to fund broad social programs to help the poor and middle class is via taxation of market economies. Let a healthy private sector self-organize the production of the economy, and let taxes pay for social programs.

ue_ 9y ago
>Markets are necessary for successful diversification - avoiding shortages and economic collapses when key industries suffer downturns. Out of interest, why do you think this is true? (Edit: Why does this comment have a score of -2? What can I do to improve the quality or relevance of my comments? Will the downvoters explain, please?)
- padobson 9y ago
  Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it. Historically I think it's true because broad central planning has generally led to unstable economies. I think the Nordic states best figured out how to provide widespread social programs funded by taxation of market economies - with national programs working alongside of self-organizing markets instead of trying to organize production directly.
  - ue_ 9y ago
    > Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it. This has been a common complaint, though it's not without response. As to what variables need to be taken into account, there's been discussion that not every product made would have to be. Here's a comment by "Keshav"[0] on Cockshott's input-output tables idea of economic planning, which came about in 1995: "On a related note, Cockshott and Cottrell have a number of papers arguing that central planning is feasible with modern computer technology. As I understand it, the algorithm they present (e.g. in “Towards a New Socialism”) does not consider a linear programming problem; rather, it takes as given a target for final goods production (determined elsewhere in their model, which includes some markets for consumer goods) and solve for the gross output levels required to meet this target. They exploit the fact that the input-output structure of the economy is sparse (only a small fraction of the goods in the economy are directly used to produce any single good). Their algorithm’s complexity increases with n*m, where m is the number of direct inputs for each product, which seems manageable even with n=12 billion." Cockshott talks at length about "The problem of scale" (the one which is your theoretical agrument) in his book in the chapter of the same name, which is downloadable for free as a PDF in its LaTeX glory here[1]. I last read it many years ago and refutations of it exist, though it's worth a read in my opinion. [0] http://crookedtimber.org/2012/05/30/in-soviet-union-optimization-problem-solves-you/#comment-415949 http://crookedtimber.org/2012/05/30/in-soviet-union-optimiza... [1] https://www.researchgate.net/publication/299519892_Towards_a_new_socialism_Cockshott_and_Cottrell https://www.researchgate.net/publication/299519892_Towards_a...
    - padobson 9y ago
      I suppose it's reasonable to suggest that if all of the variables in an economy could be identified and quantified, then it could be fed into central planning software. But that's a very big if. Furthermore, I'd suggest "If it ain't broke, don't fix it" applies here. We already know markets are good at organizing production, we should use them to do that. Any social ills that result because or alongside of markets should be addressed directly.
      - ue_ 9y ago
- hueving 9y ago
  There has never been a successful centrally planned economy. Perhaps with the assistance of massive computation and information spread via the Internet it could be conceivable. But without that it seems like every toy model a central planner uses is going to fail miserably.
  - nopatternhere 9y ago
    That's a WHAT, not a why. You aren't wrong, just answered the wrong way around. The why is because it is just too hard for any centralised group to know enough to plan a large economy adequately, for two main reasons (to keep an already long post short): 1. It is too much information for any group to consider and get any significant chunk of it correct. 2. Innovation is the opposite of planning. "Lets try this unproductive waste of time to connect college students and see what happens. Oh, we are worth billions" is not the way anyone would plan an economy, let alone the problem to assign smart people to. Innovation, unfortunately, can't really be planned. Central planning fails for the same reason scaling in tech is so difficult. When you have one server, a monolith (planned, organised) is great. All the code is in one place, one database, super easy to reason with and manage, no need for cludgey hacks, perfect code etc etc. But when you beyond that single server, another layer of complexity arises. How do we set up our infrastructure? How do we optimise long running tasks? How do we make sure everyone knows what everyone else is doing? Should we split code into smaller, harder to understand chunks? Planned economies fail because what the planners are optimising for - as a reductio ad absurdum - is protecting their own skin, and that means avoiding failure much more than encouraging success, especially in innovation, where > 90% of new ideas ultimately fail. Markets work because failure is a part of the puzzle, and markets optimise for success, not avoiding failure. As VC firms show, a lot of failure can be overcome with a tiny percentage of great successes, and these great success spur on growth. Markets also succeed because the conditions on a micro-level - i.e. a street - vary wildly. King Street in Newtown Australia - https://www.google.com.au/maps?q=king+street&um=1&ie=UTF-8&sa=X&ved=0ahUKEwjt2vLB-rTWAhUEurwKHWS9AFUQ_AUICigB https://www.google.com.au/maps?q=king+street&um=1&ie=UTF-8&s... - is a long, winding, inefficient mess of op-shops, restaurants and weirdness. No one would plan a street like that, but it works. However, the elements that make up King Street - what the actual shops sell - is different to what makes say the Haight-Ashbury in San Francisco sells, or what is available in San Telmo in Argentina, despite all three being similar in what they represent in each city (an area for alternative types). The flipside to these three places is Brasília - the capital of Brazil and a planned disaster. TL;DR markets optimise for success while accepting failure happens, whereas planned economies optimise to avoid failure above risky practices that may lead to success, and markets allow micro-optimisations, whereas planned economies end up one size-fits-all.
coliveira 9y ago
It is funny that people accuse the Venezuelan regime of being socialist, but then claim that the problem is that they didn't reshape the economy enough. In other words, their failure was in not planning the economy as much as their critics want! No standard capitalist regime would be able to do that anyway so you have here a clearly bogus criticism.
- MarkPNeyer 9y ago
  > their failure was in not planning the economy as much as their critics want The argument for capitalism is that _no single entity can do this_ planning. It's not as if capitalist economies have a 'capitalist planner' who's better at planning that the socialist planner. Capitalist economies don't have one person - or agency - in charge of planning or shaping the economy. Bottom up, not top down.
  - coliveira 9y ago
    Since most capitalist economies have never fully developed (especially in Latin America), this cannot be traced something that Venezuela did of not. It is, again, a bogus criticism.
- scythe 9y ago
  >but then claim that the problem is that they didn't reshape the economy enough. Another way to express this which lacks the apparent contradiction is: their socialist policies inhibited the natural tendency of the economy to reshape itself. However the real problem in Venezuela was not "socialism" per se nor a lack of diversification -- in fact several countries, particularly Brazil and Argentina, experienced problems when they tried to forcibly diversify their economies (Peronism/import substitution), whereas Chile went all in on copper, and while they've suffered downturns, their long-run growth has more than made up for it, making them today the richest country in Latin America. And precisely this pattern (comparative advantage) is how capitalism usually succeeds, and Chile today is diversifying at a natural/gradual pace. But in Venezuela the biggest problem was that Chavez appointed his friends to run the oil companies, and refused to cooperate with the previous administration and employees of the oil companies, which resulted in a lot of skilled people in Venezuela's oil industry taking their ball and going home. In other words, the problem was not that Chavez was a socialist but that he was a strongman who had no respect for democracy, the rule of law, or the desires of anyone but himself, which was also reflected in his later attempts to silence his critics in the media and to sabotage the Venezuelan Constitution and its legislature. I think this is why we've seen post-Chavez socialists like Mujica and Moreno taking a more measured approach to economic reforms and working with, rather than against, preexisting institutions.
SilasX 9y ago
It was diversified ... until they slapped on price controls for everything, with its predictable effects.
- pessimizer 9y ago
  Extensive price controls pre-date Chavez, although he predictably gets accused of originating them for ideological reasons.
redial 9y ago
> Let a healthy private sector self-organize the production of the economy, and let taxes pay for social programs. The problem occurs when the private sector is so overwhelmed by greed (always) that decides to make social programs part of their market, as can be seen in real time as they try to privatize NHS in the UK.
- padobson 9y ago
  This sounds more like a political problem then an economic one. I won't suggest I have any idea how to alleviate the tension between market-forces and the government, and all the profiteers and rent-seekers in between. But those problems are small compared to widespread food, medicine and energy shortages.
  - redial 9y ago
    I agree with everything you said, economically you are right, markets are the economy and you can't have a market with only one actor. But a market can turn unhealthy, at least from the point of view of a democracy. Many profit from its ever growing influence and usually the political class is not strong enough to counter its push.
    - microcolonel 9y ago
      > Many profit from its ever growing influence and usually the political class is not strong enough to counter its push. And then when the political class is strong enough to counter it, it inevitably turns to tyranny because it enriches the political class in the short term.
guelo 9y ago
And America is showing that if you don't tax wealth enough the inequality causes instability.
- wmccullough 9y ago
  Not disagreeing, just curious. How much taxation is appropriate for the wealthy? When explicitly does the label of wealthy apply?
  - guelo 9y ago
    Who knows. I'm sure there are many economics papers addressing the question. But it's somewhere before you get to the historic inequality levels of today https://fred.stlouisfed.org/series/GINIALLRF https://fred.stlouisfed.org/series/GINIALLRF
    - thephyber 9y ago
      To be fair, inequality levels were comparable in 1929, which falls outsize of the scope of that chart. Still historic by US standards, but not unprecedented.
  - hetman 9y ago
    Rather than a single cut-off you just scale this gradually so there is no single wealthy/not wealthy divide but an increasing expectation to carry social responsibility as your wealth increase.
    - matt_wulfeck 9y ago
      You’ve outlined our tax system as it exists today.
  - matt_wulfeck 9y ago
    Just take it all and divide it up equally. Then when enough people start to run out, take it all and divide it again.
- 9y ago

ue_ 9y ago

>Markets are necessary for successful diversification - avoiding shortages and economic collapses when key industries suffer downturns. Out of interest, why do you think this is true? (Edit: Why does this comment have a score of -2? What can I do to improve the quality or relevance of my comments? Will the downvoters explain, please?)

padobson 9y ago
Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it. Historically I think it's true because broad central planning has generally led to unstable economies. I think the Nordic states best figured out how to provide widespread social programs funded by taxation of market economies - with national programs working alongside of self-organizing markets instead of trying to organize production directly.
- ue_ 9y ago
  > Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it. This has been a common complaint, though it's not without response. As to what variables need to be taken into account, there's been discussion that not every product made would have to be. Here's a comment by "Keshav"[0] on Cockshott's input-output tables idea of economic planning, which came about in 1995: "On a related note, Cockshott and Cottrell have a number of papers arguing that central planning is feasible with modern computer technology. As I understand it, the algorithm they present (e.g. in “Towards a New Socialism”) does not consider a linear programming problem; rather, it takes as given a target for final goods production (determined elsewhere in their model, which includes some markets for consumer goods) and solve for the gross output levels required to meet this target. They exploit the fact that the input-output structure of the economy is sparse (only a small fraction of the goods in the economy are directly used to produce any single good). Their algorithm’s complexity increases with n*m, where m is the number of direct inputs for each product, which seems manageable even with n=12 billion." Cockshott talks at length about "The problem of scale" (the one which is your theoretical agrument) in his book in the chapter of the same name, which is downloadable for free as a PDF in its LaTeX glory here[1]. I last read it many years ago and refutations of it exist, though it's worth a read in my opinion. [0] http://crookedtimber.org/2012/05/30/in-soviet-union-optimization-problem-solves-you/#comment-415949 http://crookedtimber.org/2012/05/30/in-soviet-union-optimiza... [1] https://www.researchgate.net/publication/299519892_Towards_a_new_socialism_Cockshott_and_Cottrell https://www.researchgate.net/publication/299519892_Towards_a...
  - padobson 9y ago
    I suppose it's reasonable to suggest that if all of the variables in an economy could be identified and quantified, then it could be fed into central planning software. But that's a very big if. Furthermore, I'd suggest "If it ain't broke, don't fix it" applies here. We already know markets are good at organizing production, we should use them to do that. Any social ills that result because or alongside of markets should be addressed directly.
    - ue_ 9y ago
hueving 9y ago
There has never been a successful centrally planned economy. Perhaps with the assistance of massive computation and information spread via the Internet it could be conceivable. But without that it seems like every toy model a central planner uses is going to fail miserably.
- nopatternhere 9y ago
  That's a WHAT, not a why. You aren't wrong, just answered the wrong way around. The why is because it is just too hard for any centralised group to know enough to plan a large economy adequately, for two main reasons (to keep an already long post short): 1. It is too much information for any group to consider and get any significant chunk of it correct. 2. Innovation is the opposite of planning. "Lets try this unproductive waste of time to connect college students and see what happens. Oh, we are worth billions" is not the way anyone would plan an economy, let alone the problem to assign smart people to. Innovation, unfortunately, can't really be planned. Central planning fails for the same reason scaling in tech is so difficult. When you have one server, a monolith (planned, organised) is great. All the code is in one place, one database, super easy to reason with and manage, no need for cludgey hacks, perfect code etc etc. But when you beyond that single server, another layer of complexity arises. How do we set up our infrastructure? How do we optimise long running tasks? How do we make sure everyone knows what everyone else is doing? Should we split code into smaller, harder to understand chunks? Planned economies fail because what the planners are optimising for - as a reductio ad absurdum - is protecting their own skin, and that means avoiding failure much more than encouraging success, especially in innovation, where > 90% of new ideas ultimately fail. Markets work because failure is a part of the puzzle, and markets optimise for success, not avoiding failure. As VC firms show, a lot of failure can be overcome with a tiny percentage of great successes, and these great success spur on growth. Markets also succeed because the conditions on a micro-level - i.e. a street - vary wildly. King Street in Newtown Australia - https://www.google.com.au/maps?q=king+street&um=1&ie=UTF-8&sa=X&ved=0ahUKEwjt2vLB-rTWAhUEurwKHWS9AFUQ_AUICigB https://www.google.com.au/maps?q=king+street&um=1&ie=UTF-8&s... - is a long, winding, inefficient mess of op-shops, restaurants and weirdness. No one would plan a street like that, but it works. However, the elements that make up King Street - what the actual shops sell - is different to what makes say the Haight-Ashbury in San Francisco sells, or what is available in San Telmo in Argentina, despite all three being similar in what they represent in each city (an area for alternative types). The flipside to these three places is Brasília - the capital of Brazil and a planned disaster. TL;DR markets optimise for success while accepting failure happens, whereas planned economies optimise to avoid failure above risky practices that may lead to success, and markets allow micro-optimisations, whereas planned economies end up one size-fits-all.

coliveira 9y ago

It is funny that people accuse the Venezuelan regime of being socialist, but then claim that the problem is that they didn't reshape the economy enough. In other words, their failure was in not planning the economy as much as their critics want! No standard capitalist regime would be able to do that anyway so you have here a clearly bogus criticism.

MarkPNeyer 9y ago
> their failure was in not planning the economy as much as their critics want The argument for capitalism is that _no single entity can do this_ planning. It's not as if capitalist economies have a 'capitalist planner' who's better at planning that the socialist planner. Capitalist economies don't have one person - or agency - in charge of planning or shaping the economy. Bottom up, not top down.
- coliveira 9y ago
  Since most capitalist economies have never fully developed (especially in Latin America), this cannot be traced something that Venezuela did of not. It is, again, a bogus criticism.
scythe 9y ago
>but then claim that the problem is that they didn't reshape the economy enough. Another way to express this which lacks the apparent contradiction is: their socialist policies inhibited the natural tendency of the economy to reshape itself. However the real problem in Venezuela was not "socialism" per se nor a lack of diversification -- in fact several countries, particularly Brazil and Argentina, experienced problems when they tried to forcibly diversify their economies (Peronism/import substitution), whereas Chile went all in on copper, and while they've suffered downturns, their long-run growth has more than made up for it, making them today the richest country in Latin America. And precisely this pattern (comparative advantage) is how capitalism usually succeeds, and Chile today is diversifying at a natural/gradual pace. But in Venezuela the biggest problem was that Chavez appointed his friends to run the oil companies, and refused to cooperate with the previous administration and employees of the oil companies, which resulted in a lot of skilled people in Venezuela's oil industry taking their ball and going home. In other words, the problem was not that Chavez was a socialist but that he was a strongman who had no respect for democracy, the rule of law, or the desires of anyone but himself, which was also reflected in his later attempts to silence his critics in the media and to sabotage the Venezuelan Constitution and its legislature. I think this is why we've seen post-Chavez socialists like Mujica and Moreno taking a more measured approach to economic reforms and working with, rather than against, preexisting institutions.

SilasX 9y ago

It was diversified ... until they slapped on price controls for everything, with its predictable effects.

pessimizer 9y ago
Extensive price controls pre-date Chavez, although he predictably gets accused of originating them for ideological reasons.

redial 9y ago

> Let a healthy private sector self-organize the production of the economy, and let taxes pay for social programs. The problem occurs when the private sector is so overwhelmed by greed (always) that decides to make social programs part of their market, as can be seen in real time as they try to privatize NHS in the UK.

padobson 9y ago
This sounds more like a political problem then an economic one. I won't suggest I have any idea how to alleviate the tension between market-forces and the government, and all the profiteers and rent-seekers in between. But those problems are small compared to widespread food, medicine and energy shortages.
- redial 9y ago
  I agree with everything you said, economically you are right, markets are the economy and you can't have a market with only one actor. But a market can turn unhealthy, at least from the point of view of a democracy. Many profit from its ever growing influence and usually the political class is not strong enough to counter its push.
  - microcolonel 9y ago
    > Many profit from its ever growing influence and usually the political class is not strong enough to counter its push. And then when the political class is strong enough to counter it, it inevitably turns to tyranny because it enriches the political class in the short term.

guelo 9y ago

And America is showing that if you don't tax wealth enough the inequality causes instability.

wmccullough 9y ago
Not disagreeing, just curious. How much taxation is appropriate for the wealthy? When explicitly does the label of wealthy apply?
- guelo 9y ago
  Who knows. I'm sure there are many economics papers addressing the question. But it's somewhere before you get to the historic inequality levels of today https://fred.stlouisfed.org/series/GINIALLRF https://fred.stlouisfed.org/series/GINIALLRF
  - thephyber 9y ago
    To be fair, inequality levels were comparable in 1929, which falls outsize of the scope of that chart. Still historic by US standards, but not unprecedented.
- hetman 9y ago
  Rather than a single cut-off you just scale this gradually so there is no single wealthy/not wealthy divide but an increasing expectation to carry social responsibility as your wealth increase.
  - matt_wulfeck 9y ago
    You’ve outlined our tax system as it exists today.
- matt_wulfeck 9y ago
  Just take it all and divide it up equally. Then when enough people start to run out, take it all and divide it again.
9y ago