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> Central planning has always proven to be an inefficient way to allocate resources Amazon seems pretty efficient. ;)

by kome 9y ago

AmericanChopper 9y ago
I think you don’t know what central planning means. It refers to a centrally planned economy, which has many problems to overcome that a single entity like Amazon doesn’t. Once a company gets large enough, some of it’s inefficiencies can be caused by similar issues that centrally planned economies face, however the two are very different. Amazon still has to contend with market forces, and its resource allocation decisions have to be mostly aligned with that. In a centrally planned economy, resource allocation only has to align with the central plan. Amazon also doesn’t have anything even close to the same supply chain complexity of an economy. I’d suggest you read ‘I, Pencil’, which convincingly asserts that not a single person knows how to make a pencil. China’s tech boom largely comes from entrepreneurs innovating in a market that is in many ways under-regulated, which has been a very efficient environment for those entrepreneurs to operate in. If the communist party wants to take more control of that industry, it’s hard to see how it’s going to do that without impacting efficiency.
- yorwba 9y ago
  A centrally planned economy is still subject to market forces. They manifest as the effort required to implement the central plan. The difference between centrally planning your household finances, a company or a whole country is really just one of scale. Because the plan can allocate internal resources arbitrarily so long as the external forces are matched out, it's possible for this internal allocation to be wildly imbalanced. But if you're personally overspending on some item, you're going to feel that pretty quickly, while a corporation might sink a lot of money into a doomed project before it gets axed, and a country can spend decades before correcting. The larger an organization is, the longer it takes for a pressure felt at just one part of the organizational border to propagate far enough that it affects the overall plan. This is actually less a problem of central planning than of an aversion to change the plan. In a market, there is little attachment to other participants, and if a better supplier for something pops up, nobody has any qualms about switching to them. But most companies would hesitate much more before cutting an internal department than they would if it were just a question of hiring a different contractor. Because changing the plan feels like admitting failure, inefficiency creeps in. So central planning could actually work, but you would have to continually adapt the plan to changing circumstances. The end result might look a lot like a market economy, though.
  - AmericanChopper 9y ago
    In a hypothetical perfectly efficient planned economy, you’d assume it would look just like a perfectly efficient free market. However the objectives of a planned economy aren’t market efficiency, the objectives are at least superficially supposed to be whatever the planners deem to be socially equitable wealth distribution. This requires overcoming market forces, by dictating supply with a central plan, and ignoring demand by arbitrarily distributing resources. This doesn’t scale up from a household scale to an economy-wide scale for numerous reasons, but probably the most significant ones are: 1. The non-existence or competition means that inefficient enterprises cannot fail. 2. The mind-boggling complexity of centrally planning the supply chain of an entire economy unavoidably introduce massive inefficiencies. If a household wants more bread, they can just allocate more resources to buying bread. But if I want to plan for an economy to produce more bread, I need to individually allocate more resources to every single element of the bread supply chain. There’s no way a central planner could be expected to do that with the same efficiency as market forces could.
andybak 9y ago
Hmmmmm. I've often wondered about the contradiction wherein it's argued that the economy thrives on competition and yet corporations larger than many nation states never apply the same model internally. (I'm aware there are efforts in some companies at creating "internal markets" but never close to the scale of market forces that exist externally to the company)
- AmericanChopper 9y ago
  Resource allocation is the single hardest problem to address in large organisations, and there’s numerous cases of companies withering and dying because they failed to properly align their resource allocation with market forces. Except withering and dying for a company is not a humanitarian crisis, but it is for a country. A company can also fire an underperforming team member, or ditch an entire department. Where as terminating underperforming citizens, or unneeded communities is generally frowned upon.
  - bad-joke 9y ago
    This is why some strains of socialism advocate a regulated market wherein businesses can freely experiment, then the optimal path is nationalized. Free market or centralized economy, at the end of the day someone is making an executive decision about how resources are allocated. Whether you believe that executive person (or committee) should be acting in the best interests of the public or a group of shareholders is a matter of principle, not logistics.
    - AmericanChopper 9y ago
      This creates exactly the same set of problems. A CEO has to compete with other CEOs, if they don’t do so efficiently they will fail and another will take their place. A government committe doesn’t have to compete with anybody, if they fail, you just end up with a society that gradually deteriorates. A CEO also has to deal with market forces, a government committe does not. A government committe doesn’t have to produce goods that people want, they only have to align their resource allocation with the central plan, as their country is gradually eroded underneath them. Your argument is trying to have its cake and eat it too, it doesn’t resolve any of the inefficiency of central planning, it just shifts it down the road a bit.

> Central planning has always proven to be an inefficient way to allocate resources Amazon seems pretty efficient. ;)

by kome 9y ago

> Central planning has always proven to be an inefficient way to allocate resources Amazon seems pretty efficient. ;)

I think you don’t know what central planning means. It refers to a centrally planned economy, which has many problems to overcome that a single entity like Amazon doesn’t. Once a company gets large enough, some of it’s inefficiencies can be caused by similar issues that centrally planned economies face, however the two are very different. Amazon still has to contend with market forces, and its resource allocation decisions have to be mostly aligned with that. In a centrally planned economy, resource allocation only has to align with the central plan. Amazon also doesn’t have anything even close to the same supply chain complexity of an economy. I’d suggest you read ‘I, Pencil’, which convincingly asserts that not a single person knows how to make a pencil. China’s tech boom largely comes from entrepreneurs innovating in a market that is in many ways under-regulated, which has been a very efficient environment for those entrepreneurs to operate in. If the communist party wants to take more control of that industry, it’s hard to see how it’s going to do that without impacting efficiency.

yorwba 9y ago
A centrally planned economy is still subject to market forces. They manifest as the effort required to implement the central plan. The difference between centrally planning your household finances, a company or a whole country is really just one of scale. Because the plan can allocate internal resources arbitrarily so long as the external forces are matched out, it's possible for this internal allocation to be wildly imbalanced. But if you're personally overspending on some item, you're going to feel that pretty quickly, while a corporation might sink a lot of money into a doomed project before it gets axed, and a country can spend decades before correcting. The larger an organization is, the longer it takes for a pressure felt at just one part of the organizational border to propagate far enough that it affects the overall plan. This is actually less a problem of central planning than of an aversion to change the plan. In a market, there is little attachment to other participants, and if a better supplier for something pops up, nobody has any qualms about switching to them. But most companies would hesitate much more before cutting an internal department than they would if it were just a question of hiring a different contractor. Because changing the plan feels like admitting failure, inefficiency creeps in. So central planning could actually work, but you would have to continually adapt the plan to changing circumstances. The end result might look a lot like a market economy, though.
- AmericanChopper 9y ago
  In a hypothetical perfectly efficient planned economy, you’d assume it would look just like a perfectly efficient free market. However the objectives of a planned economy aren’t market efficiency, the objectives are at least superficially supposed to be whatever the planners deem to be socially equitable wealth distribution. This requires overcoming market forces, by dictating supply with a central plan, and ignoring demand by arbitrarily distributing resources. This doesn’t scale up from a household scale to an economy-wide scale for numerous reasons, but probably the most significant ones are: 1. The non-existence or competition means that inefficient enterprises cannot fail. 2. The mind-boggling complexity of centrally planning the supply chain of an entire economy unavoidably introduce massive inefficiencies. If a household wants more bread, they can just allocate more resources to buying bread. But if I want to plan for an economy to produce more bread, I need to individually allocate more resources to every single element of the bread supply chain. There’s no way a central planner could be expected to do that with the same efficiency as market forces could.

andybak 9y ago

Hmmmmm. I've often wondered about the contradiction wherein it's argued that the economy thrives on competition and yet corporations larger than many nation states never apply the same model internally. (I'm aware there are efforts in some companies at creating "internal markets" but never close to the scale of market forces that exist externally to the company)

AmericanChopper 9y ago
Resource allocation is the single hardest problem to address in large organisations, and there’s numerous cases of companies withering and dying because they failed to properly align their resource allocation with market forces. Except withering and dying for a company is not a humanitarian crisis, but it is for a country. A company can also fire an underperforming team member, or ditch an entire department. Where as terminating underperforming citizens, or unneeded communities is generally frowned upon.
- bad-joke 9y ago
  This is why some strains of socialism advocate a regulated market wherein businesses can freely experiment, then the optimal path is nationalized. Free market or centralized economy, at the end of the day someone is making an executive decision about how resources are allocated. Whether you believe that executive person (or committee) should be acting in the best interests of the public or a group of shareholders is a matter of principle, not logistics.
  - AmericanChopper 9y ago
    This creates exactly the same set of problems. A CEO has to compete with other CEOs, if they don’t do so efficiently they will fail and another will take their place. A government committe doesn’t have to compete with anybody, if they fail, you just end up with a society that gradually deteriorates. A CEO also has to deal with market forces, a government committe does not. A government committe doesn’t have to produce goods that people want, they only have to align their resource allocation with the central plan, as their country is gradually eroded underneath them. Your argument is trying to have its cake and eat it too, it doesn’t resolve any of the inefficiency of central planning, it just shifts it down the road a bit.