9 ms·

Extreme concentration of wealth in US economy has led to central planning

95 points by ph0rque 15y ago

siglesias 15y ago
For reference, here's a study that was recently conducted that compares Americans' perception of the wealth distribution against the actual wealth distribution. Surprisingly, participants of all stripes badly estimated the current distribution and proffered an "ideal" distribution even more out of whack with reality. Before clicking, take your guess. What percent of total American wealth does the top quintile control? Summary: http://danariely.com/2010/09/30/wealth-inequality/ http://danariely.com/2010/09/30/wealth-inequality/ Paper: http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20pre...
- egiva 15y ago
  I saw this a while back - REALLY interesting! I definitely give this a +1 to anyone who has time to read it.
dr_ 15y ago
What the country really needs now, more than ever, is coming together to solve problems and less hyperbole, or convenient political rhetoric. There is no central planning in the US. There is nothing even close to central planning. Our politicians cannot agree on anything - the political parties are almost as divided as they've ever been - and we are only beginning to see the effects of that. How is this central planning? The examples the author gives at the very end of the article (the main article on globalgorillas), is the result of the free market at work. The political situation we were in in 2008 and we are in today, is the response to that. That's democracy and, as gut wrenching as it seems right now, it will eventually work itself out.
dangoldin 15y ago
If anyone is interested in this stuff try reading Hayek's "Road to Serfdom." He wrote it in the 30s as a response to the push for more central planning.
rdtsc 15y ago
On a side note there is Cybersyn http://en.wikipedia.org/wiki/Cybersyn http://en.wikipedia.org/wiki/Cybersyn The Chilean attempt at realtime computer controlled planned economy.
ph0rque 15y ago
Intriguing... if true, I wonder if the 'central planners' could use this for good, as China did in http://news.ycombinator.com/item?id=2875800 http://news.ycombinator.com/item?id=2875800 ?
ars 15y ago
Non logarithmic graphs of money, how I hate them! This entire premise would go out the window if he only knew how to graph money correctly.
- egiva 15y ago
  true that
- Dove 15y ago
  A logarithmic graph is the right way to graph money? Why is that?
  - corysama 15y ago
    Because you almost always care about proportional changes not absolute changes. If you buy at stock a $1 and it goes to $10, you have made a ton of money. But if I then buy in at $10 and it goes to $20, I have merely doubled my investment. Logarithmic graphs convey this clearly. Linear graphs make our returns look too similar. It is very common for inflammatory articles to use absolute numbers that (intentionally or not) ignore inflation, changes in GDP, etc... because it is both simpler to explain and more effective for inciting outrage.
    - tryitnow 15y ago
      ?I don't understand why there would be a need for a logarithmic graph in this case. The author is not discussing proportional changes or even absolute changes, unless you want to consider income as a change in wealth, but that's not quite accurate and adds an unnecessary layer of complexity. The author's main goal is to show how a proxy for decision making power (viz. household cash income) is highly concentrated. I don't think the author's graph is the best visualization of his point. I would like to see a graph of the proportion of national wealth owned by households at each percentile. The would deliver the point the "power is highly concentrated" in the top percentiles. Wealth is a better proxy than income and understanding the proportion of wealth each percentile holds claims to is better than seeing the absolute amount of wealth held by that group.
egiva 15y ago
Good arguments but limited interpretation in this article - namely the fact that growth in Soviet bureaucracy correlated strongly with a decline in overall (real) productivity, while growth in US bureaucracy comes during a time in continued GROWTH in productivity, not decline. Then the author mixes in this observation/fact that the US experiences a quickly growing income gap between rich and poor, and it's hard for most readers to realize that that fact doesn't necessary support the idea that central planning is taking place. Central planning is top-down (the central leaders have most say over what industry does) and I'd argue that it's the opposite in the United States - namely business has more political sway than our elected officials when it comes to making policy and changing laws.
- abstractbill 15y ago
  ...and I'd argue that it's the opposite in the United States - namely business has more political sway than our elected officials when it comes to making policy and changing laws. I think you missed the main point of the article. This isn't about business vs. government having more power, it's about few vs. many.
  - _delirium 15y ago
    Yeah, it's actually a fairly old (but still interesting) observation that very large corporations are a form of top-down central planning. In fact many old-school communists first got inspired by late-19th-century capitalism's trend towards managed technocracy. There was a large movement in business that argued that production could be scientifically optimized using statistics, data collection, scientific management, etc. The communists just took it to its logical conclusion and asked, why not organize all of society in the optimal manner, using principles of technocratic scientific management? Even that argument was more or less originated by capitalists; some of the large industrial trusts argued that there was no problem with monopolies, because they were simply the most efficient, scientifically managed form of industrial production, unlike the messy, inefficient web of competing small businesses they had replaced. So really the only thing they disagreed on was how the profits of the centrally managed monopoly should be distributed. There's an odd amount of borrowing in the other direction, too. Many large businesses do realize that they internally are basically inefficient, bureaucratic command economies, mirroring some of the problems with the Soviet system. So they introduce some of the same attempted solutions that the Soviets tried: intra-corporation pseudo-markets, competition and awards, recently the trend of "gamifying" workplaces, etc. (At the risk of self-promotion, I recently wrote a bit on the latter similarity: http://www.kmjn.org/notes/soviet_gamification.html http://www.kmjn.org/notes/soviet_gamification.html)
tedsuo 15y ago
I like the central theme, but there's not really a lot of facts and I would argue the details. For example, he claims there has been a simultaneous growth in wealth concentration and government control, resulting in misallocation of resources. But it was deregulation and lack of government enforcement in the financial markets that allowed them to misallocate capital so egregiously. I would say that the checks and balances that kept our country strong have been steadily eroded, with the result that he describes.
- dreamdu5t 15y ago
  I'd like to add to this. In addition to checks and and balances being eroded, the ever increasing technological advancement and efficiency of our economy means that welfare for the unemployed is even more important. Instead of chasing unrealistic employment goals with central planning, we should just install adequate social welfare. We need to start accepting the fact that near 10% unemployment could easily be equilibrium in a modern economy like the US.
  - egiva 15y ago
    I really hope that 10% unemployment IS NOT an equilibrium for the US, but I agree that all the major increases in US productivity lately are not being shared evenly among the working class. Capital (held ever-increasingly by the wealthy) is being used to increase productivity and grow their wealth, but those benefits are not passed on to average Americans. That happens now because you don't have to employ more people to make more money - not like 30, 40 or 50 years ago when you had to employ more workers in your factory to sell more and thus grow your wealth. So I guess productivity going up isn't attached as strongly to more employees being hired, and that does imply the potential for larger, structural unemployment (though probably less than the current 9%). It also means that trick-down ideas of a "factory owner using his money to hire more employees" are increasingly irrelevant.
    - dreamdu5t 15y ago
      Exactly. We need to start addressing both culturally and politically the fact that unemployment in a modern economy is going to get progressively worse as it increasingly requires less manual labor and more intellectual prowess to create value. The only way to deal with it is proper social welfare, because you can't just "create jobs." We could have a freer market and near full-employment if we replaced all our social welfare programs with a single minimum living stipend (you apply if you make below it, and if you qualify, get a check for the difference), and abolished minimum wage. It would save tons of money to as so much complicated and unnecessary administration of multiple agencies would be eliminated. Sadly, a proper social welfare system is exactly what the US refuses to implement. From healthcare to unemployment to disability. The economy is fine. It's not booming, but companies are flush with cash. The only thing wrong is unemployment, and the only option to deal with it is some form of welfare. The other option is to let the number of unemployed get to a point that social unrest starts becoming a problem.
nostromo 15y ago
It's certainly true that a lot of central planning plays a role in US housing. The income tax mortgage deduction and Fannie Mae are the two striking examples. It seems they did play a role in the housing bubble -- however, I don't see that specific example as a result from a concentration of wealth.
- grandalf 15y ago
  The concentrated wealth that influenced the housing bubble came from a variety of places: - the building trade (obvious) - the defense industry (less obvious... in order to "sell" an expensive war, the masses have to feel rich, thus there was pressure on the Fed to let the housing market heat up, and on the SEC to ignore Fannie and Freddie so that Joe Homeowner felt rich enough not to worry too much about extremely high gas prices. There was virtually no talk about the actual cost of the war (short or long term) other than deliberately misleading statements by the leaders trying to sell the war. - financial services industry (heat in the housing market improves consumer credit ratings and ends up giving free money to banks (b/c the homeowner whose house appreciated now has A+ credit and lots of collateral... and the boom created lots of such homeowners)... all the while the losses are socialized b/c the government will try to prevent large scale housing market price declines.)
abalone 15y ago
A large chunk of international free trade is actually centrally managed transfers within multinational corporations. The bigger they get, the more central planning we have... And they're gettin' pretty big.
wcoenen 15y ago
Images of smoke-filled rooms secretly steering our lives may speak to the imagination, but it all sounds a bit too much like silly conspiracy theories to me. There are simpler models if you want to explain the current economic malaise. Just look at the fundamentals: we've run out of cheap energy!
- tryitnow 15y ago
  ? Who mentioned "images of smoke-filled rooms secretly steering our lives" Again, who? How is this relevant to the article above? Did you read O'Reilly's article? It would be really cool if folks read the article before commenting. Sehr kool.
  - wcoenen 15y ago
    Yes I did read the article. The article doesn't literally mention "smoke-filled rooms". It is an expression: http://en.wikipedia.org/wiki/Smoke-filled_room http://en.wikipedia.org/wiki/Smoke-filled_room The article does show a graph of the concentration of wealth according to a power law. It also mentions that "All it will take is is one extremely bad decision and the cascade of failure that follows will catch everyone off guard." So the article is suggesting that the decisions of a small group of a powerful elite have a large influence on our lives. Unless you are saying that these people don't talk to each other, that's what the "smoke-filled rooms" expression is all about.
ordinary 15y ago
The G+ link just lifts out some choice paragraphs. It links to the full article at the end. For your convenience: http://globalguerrillas.typepad.com/globalguerrillas/2011/07/journal-central-planning-and-the-fall-of-the-us-empire.html http://globalguerrillas.typepad.com/globalguerrillas/2011/07...
grandalf 15y ago
One very glaring example of this phenomenon is how entrenched power (mostly those getting rich from prisons, law enforcement, alcohol and tobacco, etc.) have managed to create drug laws so at odds with the free market forces that the entire country of Mexico is profoundly unstable... and it may come crashing down.
- jarjoura 15y ago
  Umm, Mexico's border city stability has such more more to do with our illegal immigration policies than our war on drugs. Sure these thugs are funded by our addictions, but should we legalize drugs tomorrow, they'll just find a new revenue stream.
  - timmaxw 15y ago
    > they'll just find a new revenue stream I find it interesting to model gang violence as a market. If drugs are made legal, the demand for thugs will go down. If the supply of thuggery is elastic, then former gang members will leave gangs and find other work. If it's inelastic, they'll find other revenue streams.
    - cellis 15y ago
      I've heard that simply decriminalizing weed in many states has had a material, and in some cases profound negative effect on revenue for mexican drug cartels. Furthermore, many consumers of narcotics are "moving upstream" to prescription drugs. But with less revenue, comes more violence initially as the factions squabble fiercely over a bigger slice of a smaller pie. Eventually this will reach an equilibrium and enough producers will drop out or realize it's not worth it and we'll end up with a few kingpins for the CIA to take out (a la Noreaga, Escobar, et al.).
  - piguy314 15y ago
    Two questions: Why do you think there are so many poor people in Mexico, where do narco-terrorists get money to buy weapons? NAFTA is passed > government subsidized US corn exports destroy Mexican corn producers > Poor, unemployed mexicans flood into three places: Factory jobs (US outsourcing), migrant labor in America, narcotics export > Cartels slowly increase in power and wealth over the course of 2 decades > Cartels destabilize government
darksaga 15y ago
Unfortunately, this is the beauty and the beast of a capitalistic economy. One the one hand, you have incredible opportunity to achieve success. While on the other, you end up with a concentration of wealth and power to a small group of individuals or corporations.
- Astrohacker 15y ago
  Every industry in the US is highly regulated. The worsening economy has correlated with more regulations and bigger government. I don't think this is a coincidence. It is the decrease in capitalism due to an expansion of government that is creating our present problems. Capitalism is not the problem. Government is.
  - BarkMore 15y ago
    Don't forget about the bailouts. The wealth conentration in the finance industry would be much lower without the government bailout of AIG and others.
lionhearted 15y ago
Central planning isn't bad just because it's bad, there's reasons for its badness. Here's a few - First, you get people who don't know about a profession trying to dictate to people who do know about it. EX: Hitler and Stalin managing farm production, even though they didn't know anything about farming - agricultural production goes down leading to famines. Second, you lose the price signal which says what people really want enough to act on, given scarce resources. This leads to a feedback loop where goods priced below the equilibrium have demand far in excess of supply. EX: Everyone would love to buy a subsidized steak instead of a hamburger, so if steak is subsidized to hamburger prices, there'll be shortages and you'll need to impose rationing and coupons and things (which becomes a dual currency system where the coupon/ration becomes the real constraint currency, and then those become blackmarketed until an equilbrium is reached - but only with a lot of hassle). Third, central planners generally have incentives that diverge widely from the people they're supposed to be planning for - ex, making sure those new centrally planned jobs go to your political supporters. This has happened in the majority of centrally planned economies. You wouldn't expect a high concentration of wealth to have these same problems. Steve Jobs having central planning ability over Apple, and by extension, over a lot of the high quality glass and semiconductor industries isn't the same as Brezhnev having that power. Jobs, of course, is much more competent at building high end consumer technology than Brezhnev and not prone to make some of the common errors.
- RockyMcNuts 15y ago
  Good stuff... TFA would make sense if they said concentration of wealth leads to oligopoly, or highly imperfect competition, or rent-seeking. But those are different from central planning. In the 50s, when a vertically integrated GM or Ford controlled 3% of GDP, that was as close to central planning as we got. But back then, interestingly, wealth and incomes were less concentrated than today. The link between concentration of wealth and the form of industrial organization is not very clear.
  - asmithmd1 15y ago
    In the 50's the managers of GM and other successful companies paid over 90% marginal tax on income. I am sure that had an effect on their decision making process; i.e. Should I pay myself a $1000 bonus and be able to spend less than $90 of it? - or should I re-invest that $1000 in the company?
guelo 15y ago
It's an interesting idea but ultimately weakly supported with very few numbers. Just another ideologically driven fact-less polemic.
chrismealy 15y ago
It's called The New Industrial State and JK Galbraith wrote about in 1967. It's also why companies hoard cash, so their managers can stay in control. http://en.wikipedia.org/wiki/The_New_Industrial_State http://en.wikipedia.org/wiki/The_New_Industrial_State
Astrohacker 15y ago
Good insight. I would just add that the concentration of wealth has a lot to do with fractional reserve banking and the Federal Reserve. Since these are highly regulated institutions, it's not as simple as saying the concentration of wealth created the central planning. The central planning also created the concentration of wealth.
jarjoura 15y ago
Umm, this "central planning" theory always comes after a great economic boom period. It's just a collection of wealth at the top that will take a lot of political might to break up and distribute more evenly. I think we all hoped Obama was going to be the president to do it and unfortunately we will just have to wait for the next guy.
- nkassis 15y ago
  I don't foresee any future guy doing any better. The reality is the president doesn't have much power to improve it but as we've seen with the last president they do have a great amount of power in making it worse.
ChristianMarks 15y ago
The Taxpayer Theorem The finding that extreme concentration of wealth within the United States in the hands of a few thousand people amounts to central planning is empirical evidence in favor of the application to the US economy of a theorem in the Theory of Games and Economic Behavior. In Chapter 11 of The Theory of Games and Economic Behavior (TGEB), Morgenstern and Von Neumann attempt to reduce the general theory of n-person games to the theory of (n+1)-person zero-sum games through the introduction of a fictitious (n+1)-st player. The payoff to the fictitious (n+1)-st player in the new game equals the negative of the sum of of the payoffs to the n players in the original n-player game. This defines the (n+1)-player zero-sum extension of a general n-player game. In the discussion, Morgenstern and Von Neumann observe that the introduction of the fictitious (n+1)-st player requires some analysis to ensure that the zero-sum extension of an n-player game does not create additional possibilities for interaction among the original n players–that the ‘”fictitious” player does not influence the game in any way. They rule out the absurd possibility of receiving payments from a fictitious player, but have to consider the possibility of self-denial among the n real players in the zero-sum extension. In the reduction of a general n-player game to an (n+1)-player game in which a fictitious (n+1)-st player is introduced with no ability to form coalitions with the n real players, and whose losses pay for the winnings of the real players, Morgenstern and Von Neumann captured the plight of the lower 99.5% of the population (the "taxpayer"), which collectively serves as the fictitious (n+1)-st player in modern capitalism. The taxpayer is unable to influence the outcome of the games of the real players–the upper one half of one percent of the population (the "central planners"). The taxpayer's role is to passively fork over whatever funds are needed to ensure the maximum winnings for the real players, and the least for himself. This outcome is established in a proposition on page 513 of TGEB, in which the possibility that the n players may choose self-denial to exploit some coalitional advantage is ruled out. The real players will never deny themselves in any imputation to the advantage of the fictitious (n+1)-st player, who always receives the minimum. We might call that proposition the Taxpayer Theorem. Its application to contemporary capitalism, in which the taxpayer insures the central planners against losses, seems not to have been noticed.* In the case of the taxpayer, unlike the fictitious player of the (n+1)-st zero-sum extension of a n-player game, there is some slight possibility of influencing the n real players, but in practice this effect is negligible, and in the strict terms of cooperative game theory, irrational. In the case of the lower 99.5%, side-payments to the upper 0.5% are ruled out because taxpayers are effectively unable to form coalitions, since the concentration of wealth in the upper 0.5% is too extreme. To almost any approximation, the taxpayer is the fictitious player in the zero-sum extension of whatever game the important players in the upper one half of one percent happen to be playing. *It is inconceivable that Von Neumann would not have foreseen this application, but it is conceivable that he would chose to leave its rediscovery to posterity.

95 points by ph0rque 15y ago

For reference, here's a study that was recently conducted that compares Americans' perception of the wealth distribution against the actual wealth distribution. Surprisingly, participants of all stripes badly estimated the current distribution and proffered an "ideal" distribution even more out of whack with reality. Before clicking, take your guess. What percent of total American wealth does the top quintile control? Summary: http://danariely.com/2010/09/30/wealth-inequality/ http://danariely.com/2010/09/30/wealth-inequality/ Paper: http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20pre...

egiva 15y ago
I saw this a while back - REALLY interesting! I definitely give this a +1 to anyone who has time to read it.

dr_ 15y ago

What the country really needs now, more than ever, is coming together to solve problems and less hyperbole, or convenient political rhetoric. There is no central planning in the US. There is nothing even close to central planning. Our politicians cannot agree on anything - the political parties are almost as divided as they've ever been - and we are only beginning to see the effects of that. How is this central planning? The examples the author gives at the very end of the article (the main article on globalgorillas), is the result of the free market at work. The political situation we were in in 2008 and we are in today, is the response to that. That's democracy and, as gut wrenching as it seems right now, it will eventually work itself out.

dangoldin 15y ago

If anyone is interested in this stuff try reading Hayek's "Road to Serfdom." He wrote it in the 30s as a response to the push for more central planning.

rdtsc 15y ago

On a side note there is Cybersyn http://en.wikipedia.org/wiki/Cybersyn http://en.wikipedia.org/wiki/Cybersyn The Chilean attempt at realtime computer controlled planned economy.

ph0rque 15y ago

Intriguing... if true, I wonder if the 'central planners' could use this for good, as China did in http://news.ycombinator.com/item?id=2875800 http://news.ycombinator.com/item?id=2875800 ?

ars 15y ago

Non logarithmic graphs of money, how I hate them! This entire premise would go out the window if he only knew how to graph money correctly.

egiva 15y ago
true that
Dove 15y ago
A logarithmic graph is the right way to graph money? Why is that?
- corysama 15y ago
  Because you almost always care about proportional changes not absolute changes. If you buy at stock a $1 and it goes to $10, you have made a ton of money. But if I then buy in at $10 and it goes to $20, I have merely doubled my investment. Logarithmic graphs convey this clearly. Linear graphs make our returns look too similar. It is very common for inflammatory articles to use absolute numbers that (intentionally or not) ignore inflation, changes in GDP, etc... because it is both simpler to explain and more effective for inciting outrage.
  - tryitnow 15y ago
    ?I don't understand why there would be a need for a logarithmic graph in this case. The author is not discussing proportional changes or even absolute changes, unless you want to consider income as a change in wealth, but that's not quite accurate and adds an unnecessary layer of complexity. The author's main goal is to show how a proxy for decision making power (viz. household cash income) is highly concentrated. I don't think the author's graph is the best visualization of his point. I would like to see a graph of the proportion of national wealth owned by households at each percentile. The would deliver the point the "power is highly concentrated" in the top percentiles. Wealth is a better proxy than income and understanding the proportion of wealth each percentile holds claims to is better than seeing the absolute amount of wealth held by that group.

egiva 15y ago

Good arguments but limited interpretation in this article - namely the fact that growth in Soviet bureaucracy correlated strongly with a decline in overall (real) productivity, while growth in US bureaucracy comes during a time in continued GROWTH in productivity, not decline. Then the author mixes in this observation/fact that the US experiences a quickly growing income gap between rich and poor, and it's hard for most readers to realize that that fact doesn't necessary support the idea that central planning is taking place. Central planning is top-down (the central leaders have most say over what industry does) and I'd argue that it's the opposite in the United States - namely business has more political sway than our elected officials when it comes to making policy and changing laws.

abstractbill 15y ago
...and I'd argue that it's the opposite in the United States - namely business has more political sway than our elected officials when it comes to making policy and changing laws. I think you missed the main point of the article. This isn't about business vs. government having more power, it's about few vs. many.
- _delirium 15y ago
  Yeah, it's actually a fairly old (but still interesting) observation that very large corporations are a form of top-down central planning. In fact many old-school communists first got inspired by late-19th-century capitalism's trend towards managed technocracy. There was a large movement in business that argued that production could be scientifically optimized using statistics, data collection, scientific management, etc. The communists just took it to its logical conclusion and asked, why not organize all of society in the optimal manner, using principles of technocratic scientific management? Even that argument was more or less originated by capitalists; some of the large industrial trusts argued that there was no problem with monopolies, because they were simply the most efficient, scientifically managed form of industrial production, unlike the messy, inefficient web of competing small businesses they had replaced. So really the only thing they disagreed on was how the profits of the centrally managed monopoly should be distributed. There's an odd amount of borrowing in the other direction, too. Many large businesses do realize that they internally are basically inefficient, bureaucratic command economies, mirroring some of the problems with the Soviet system. So they introduce some of the same attempted solutions that the Soviets tried: intra-corporation pseudo-markets, competition and awards, recently the trend of "gamifying" workplaces, etc. (At the risk of self-promotion, I recently wrote a bit on the latter similarity: http://www.kmjn.org/notes/soviet_gamification.html http://www.kmjn.org/notes/soviet_gamification.html)

tedsuo 15y ago

I like the central theme, but there's not really a lot of facts and I would argue the details. For example, he claims there has been a simultaneous growth in wealth concentration and government control, resulting in misallocation of resources. But it was deregulation and lack of government enforcement in the financial markets that allowed them to misallocate capital so egregiously. I would say that the checks and balances that kept our country strong have been steadily eroded, with the result that he describes.

dreamdu5t 15y ago
I'd like to add to this. In addition to checks and and balances being eroded, the ever increasing technological advancement and efficiency of our economy means that welfare for the unemployed is even more important. Instead of chasing unrealistic employment goals with central planning, we should just install adequate social welfare. We need to start accepting the fact that near 10% unemployment could easily be equilibrium in a modern economy like the US.
- egiva 15y ago
  I really hope that 10% unemployment IS NOT an equilibrium for the US, but I agree that all the major increases in US productivity lately are not being shared evenly among the working class. Capital (held ever-increasingly by the wealthy) is being used to increase productivity and grow their wealth, but those benefits are not passed on to average Americans. That happens now because you don't have to employ more people to make more money - not like 30, 40 or 50 years ago when you had to employ more workers in your factory to sell more and thus grow your wealth. So I guess productivity going up isn't attached as strongly to more employees being hired, and that does imply the potential for larger, structural unemployment (though probably less than the current 9%). It also means that trick-down ideas of a "factory owner using his money to hire more employees" are increasingly irrelevant.
  - dreamdu5t 15y ago
    Exactly. We need to start addressing both culturally and politically the fact that unemployment in a modern economy is going to get progressively worse as it increasingly requires less manual labor and more intellectual prowess to create value. The only way to deal with it is proper social welfare, because you can't just "create jobs." We could have a freer market and near full-employment if we replaced all our social welfare programs with a single minimum living stipend (you apply if you make below it, and if you qualify, get a check for the difference), and abolished minimum wage. It would save tons of money to as so much complicated and unnecessary administration of multiple agencies would be eliminated. Sadly, a proper social welfare system is exactly what the US refuses to implement. From healthcare to unemployment to disability. The economy is fine. It's not booming, but companies are flush with cash. The only thing wrong is unemployment, and the only option to deal with it is some form of welfare. The other option is to let the number of unemployed get to a point that social unrest starts becoming a problem.

nostromo 15y ago

It's certainly true that a lot of central planning plays a role in US housing. The income tax mortgage deduction and Fannie Mae are the two striking examples. It seems they did play a role in the housing bubble -- however, I don't see that specific example as a result from a concentration of wealth.

grandalf 15y ago
The concentrated wealth that influenced the housing bubble came from a variety of places: - the building trade (obvious) - the defense industry (less obvious... in order to "sell" an expensive war, the masses have to feel rich, thus there was pressure on the Fed to let the housing market heat up, and on the SEC to ignore Fannie and Freddie so that Joe Homeowner felt rich enough not to worry too much about extremely high gas prices. There was virtually no talk about the actual cost of the war (short or long term) other than deliberately misleading statements by the leaders trying to sell the war. - financial services industry (heat in the housing market improves consumer credit ratings and ends up giving free money to banks (b/c the homeowner whose house appreciated now has A+ credit and lots of collateral... and the boom created lots of such homeowners)... all the while the losses are socialized b/c the government will try to prevent large scale housing market price declines.)

abalone 15y ago

A large chunk of international free trade is actually centrally managed transfers within multinational corporations. The bigger they get, the more central planning we have... And they're gettin' pretty big.

wcoenen 15y ago

Images of smoke-filled rooms secretly steering our lives may speak to the imagination, but it all sounds a bit too much like silly conspiracy theories to me. There are simpler models if you want to explain the current economic malaise. Just look at the fundamentals: we've run out of cheap energy!

tryitnow 15y ago
? Who mentioned "images of smoke-filled rooms secretly steering our lives" Again, who? How is this relevant to the article above? Did you read O'Reilly's article? It would be really cool if folks read the article before commenting. Sehr kool.
- wcoenen 15y ago
  Yes I did read the article. The article doesn't literally mention "smoke-filled rooms". It is an expression: http://en.wikipedia.org/wiki/Smoke-filled_room http://en.wikipedia.org/wiki/Smoke-filled_room The article does show a graph of the concentration of wealth according to a power law. It also mentions that "All it will take is is one extremely bad decision and the cascade of failure that follows will catch everyone off guard." So the article is suggesting that the decisions of a small group of a powerful elite have a large influence on our lives. Unless you are saying that these people don't talk to each other, that's what the "smoke-filled rooms" expression is all about.

ordinary 15y ago

The G+ link just lifts out some choice paragraphs. It links to the full article at the end. For your convenience: http://globalguerrillas.typepad.com/globalguerrillas/2011/07/journal-central-planning-and-the-fall-of-the-us-empire.html http://globalguerrillas.typepad.com/globalguerrillas/2011/07...

grandalf 15y ago

One very glaring example of this phenomenon is how entrenched power (mostly those getting rich from prisons, law enforcement, alcohol and tobacco, etc.) have managed to create drug laws so at odds with the free market forces that the entire country of Mexico is profoundly unstable... and it may come crashing down.

jarjoura 15y ago
Umm, Mexico's border city stability has such more more to do with our illegal immigration policies than our war on drugs. Sure these thugs are funded by our addictions, but should we legalize drugs tomorrow, they'll just find a new revenue stream.
- timmaxw 15y ago
  > they'll just find a new revenue stream I find it interesting to model gang violence as a market. If drugs are made legal, the demand for thugs will go down. If the supply of thuggery is elastic, then former gang members will leave gangs and find other work. If it's inelastic, they'll find other revenue streams.
  - cellis 15y ago
    I've heard that simply decriminalizing weed in many states has had a material, and in some cases profound negative effect on revenue for mexican drug cartels. Furthermore, many consumers of narcotics are "moving upstream" to prescription drugs. But with less revenue, comes more violence initially as the factions squabble fiercely over a bigger slice of a smaller pie. Eventually this will reach an equilibrium and enough producers will drop out or realize it's not worth it and we'll end up with a few kingpins for the CIA to take out (a la Noreaga, Escobar, et al.).
- piguy314 15y ago
  Two questions: Why do you think there are so many poor people in Mexico, where do narco-terrorists get money to buy weapons? NAFTA is passed > government subsidized US corn exports destroy Mexican corn producers > Poor, unemployed mexicans flood into three places: Factory jobs (US outsourcing), migrant labor in America, narcotics export > Cartels slowly increase in power and wealth over the course of 2 decades > Cartels destabilize government

darksaga 15y ago

Unfortunately, this is the beauty and the beast of a capitalistic economy. One the one hand, you have incredible opportunity to achieve success. While on the other, you end up with a concentration of wealth and power to a small group of individuals or corporations.

Astrohacker 15y ago
Every industry in the US is highly regulated. The worsening economy has correlated with more regulations and bigger government. I don't think this is a coincidence. It is the decrease in capitalism due to an expansion of government that is creating our present problems. Capitalism is not the problem. Government is.
- BarkMore 15y ago
  Don't forget about the bailouts. The wealth conentration in the finance industry would be much lower without the government bailout of AIG and others.

lionhearted 15y ago

Central planning isn't bad just because it's bad, there's reasons for its badness. Here's a few - First, you get people who don't know about a profession trying to dictate to people who do know about it. EX: Hitler and Stalin managing farm production, even though they didn't know anything about farming - agricultural production goes down leading to famines. Second, you lose the price signal which says what people really want enough to act on, given scarce resources. This leads to a feedback loop where goods priced below the equilibrium have demand far in excess of supply. EX: Everyone would love to buy a subsidized steak instead of a hamburger, so if steak is subsidized to hamburger prices, there'll be shortages and you'll need to impose rationing and coupons and things (which becomes a dual currency system where the coupon/ration becomes the real constraint currency, and then those become blackmarketed until an equilbrium is reached - but only with a lot of hassle). Third, central planners generally have incentives that diverge widely from the people they're supposed to be planning for - ex, making sure those new centrally planned jobs go to your political supporters. This has happened in the majority of centrally planned economies. You wouldn't expect a high concentration of wealth to have these same problems. Steve Jobs having central planning ability over Apple, and by extension, over a lot of the high quality glass and semiconductor industries isn't the same as Brezhnev having that power. Jobs, of course, is much more competent at building high end consumer technology than Brezhnev and not prone to make some of the common errors.

RockyMcNuts 15y ago
Good stuff... TFA would make sense if they said concentration of wealth leads to oligopoly, or highly imperfect competition, or rent-seeking. But those are different from central planning. In the 50s, when a vertically integrated GM or Ford controlled 3% of GDP, that was as close to central planning as we got. But back then, interestingly, wealth and incomes were less concentrated than today. The link between concentration of wealth and the form of industrial organization is not very clear.
- asmithmd1 15y ago
  In the 50's the managers of GM and other successful companies paid over 90% marginal tax on income. I am sure that had an effect on their decision making process; i.e. Should I pay myself a $1000 bonus and be able to spend less than $90 of it? - or should I re-invest that $1000 in the company?

guelo 15y ago

It's an interesting idea but ultimately weakly supported with very few numbers. Just another ideologically driven fact-less polemic.

chrismealy 15y ago

It's called The New Industrial State and JK Galbraith wrote about in 1967. It's also why companies hoard cash, so their managers can stay in control. http://en.wikipedia.org/wiki/The_New_Industrial_State http://en.wikipedia.org/wiki/The_New_Industrial_State

Astrohacker 15y ago

Good insight. I would just add that the concentration of wealth has a lot to do with fractional reserve banking and the Federal Reserve. Since these are highly regulated institutions, it's not as simple as saying the concentration of wealth created the central planning. The central planning also created the concentration of wealth.

jarjoura 15y ago

Umm, this "central planning" theory always comes after a great economic boom period. It's just a collection of wealth at the top that will take a lot of political might to break up and distribute more evenly. I think we all hoped Obama was going to be the president to do it and unfortunately we will just have to wait for the next guy.

nkassis 15y ago
I don't foresee any future guy doing any better. The reality is the president doesn't have much power to improve it but as we've seen with the last president they do have a great amount of power in making it worse.

ChristianMarks 15y ago

The Taxpayer Theorem The finding that extreme concentration of wealth within the United States in the hands of a few thousand people amounts to central planning is empirical evidence in favor of the application to the US economy of a theorem in the Theory of Games and Economic Behavior. In Chapter 11 of The Theory of Games and Economic Behavior (TGEB), Morgenstern and Von Neumann attempt to reduce the general theory of n-person games to the theory of (n+1)-person zero-sum games through the introduction of a fictitious (n+1)-st player. The payoff to the fictitious (n+1)-st player in the new game equals the negative of the sum of of the payoffs to the n players in the original n-player game. This defines the (n+1)-player zero-sum extension of a general n-player game. In the discussion, Morgenstern and Von Neumann observe that the introduction of the fictitious (n+1)-st player requires some analysis to ensure that the zero-sum extension of an n-player game does not create additional possibilities for interaction among the original n players–that the ‘”fictitious” player does not influence the game in any way. They rule out the absurd possibility of receiving payments from a fictitious player, but have to consider the possibility of self-denial among the n real players in the zero-sum extension. In the reduction of a general n-player game to an (n+1)-player game in which a fictitious (n+1)-st player is introduced with no ability to form coalitions with the n real players, and whose losses pay for the winnings of the real players, Morgenstern and Von Neumann captured the plight of the lower 99.5% of the population (the "taxpayer"), which collectively serves as the fictitious (n+1)-st player in modern capitalism. The taxpayer is unable to influence the outcome of the games of the real players–the upper one half of one percent of the population (the "central planners"). The taxpayer's role is to passively fork over whatever funds are needed to ensure the maximum winnings for the real players, and the least for himself. This outcome is established in a proposition on page 513 of TGEB, in which the possibility that the n players may choose self-denial to exploit some coalitional advantage is ruled out. The real players will never deny themselves in any imputation to the advantage of the fictitious (n+1)-st player, who always receives the minimum. We might call that proposition the Taxpayer Theorem. Its application to contemporary capitalism, in which the taxpayer insures the central planners against losses, seems not to have been noticed.* In the case of the taxpayer, unlike the fictitious player of the (n+1)-st zero-sum extension of a n-player game, there is some slight possibility of influencing the n real players, but in practice this effect is negligible, and in the strict terms of cooperative game theory, irrational. In the case of the lower 99.5%, side-payments to the upper 0.5% are ruled out because taxpayers are effectively unable to form coalitions, since the concentration of wealth in the upper 0.5% is too extreme. To almost any approximation, the taxpayer is the fictitious player in the zero-sum extension of whatever game the important players in the upper one half of one percent happen to be playing. *It is inconceivable that Von Neumann would not have foreseen this application, but it is conceivable that he would chose to leave its rediscovery to posterity.