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Mises proposed that in a planned economy, there is a fundamental flaw called the economic calculation problem: essentially, it is almost impossible to calculate
by jl6 4y ago
Mises proposed that in a planned economy, there is a fundamental flaw called the economic calculation problem: essentially, it is almost impossible to calculate optimal resource allocation because doing so amounts to knowing every single person’s needs, and every detail of every factor of production, at all times. The information is too hard to get. Only markets can sufficiently simplify the problem by providing price as a universal point of comparison. That was his theory.
Unfortunately, the success of price as a simplifying mechanism also hides all of the information from which the price emerged. This makes it almost impossible to determine whether the price is low because the materials are poor quality, or because the labor was underpaid, or because environmental standards were bypassed through offshoring, or because the manufacturing process was particularly efficient. Clearly we hope it is due to the latter, but determining so amounts to solving the economic calculation problem.
But, rather than abandoning all hope, I believe the answer lies in consumers demanding supply chain transparency. This isn’t going to enable an efficient planned economy, but it might enable individuals to make better decisions about the purchases for which they care most.
- sudosysgen 4y agoGood supply chain transparency is about as difficult as an efficient planned economy, actually. Supply chain transparency was by very very far the biggest issue. Actually planning the economy is a polynomial time problem to solve exactly for linear situations, and ~n*log(n) to approximate fairly well both for linear and nonlinear situations. Consumer demand is solved by using markets for everything except capital. And so revealing accurate information turned out to be by far the most difficult task, at which planned economies routinely suffered catastrophic failures. For example, the USSR overestimated grain production by around 2x for the Holodomor due to misreporting and lies at every single level (the ensuing catastrophic and tyrannical resource distribution is a whole other topic). Until the 1990s, Soviet planners highly valued US spy informations on their economic situation as it was vastly more reliable than their own. Planned economies are far more reliant on this data of course, and that is why they are far more affected. Actually finding a sufficiently efficient organisation of production is not that big of a challenge either in theory or in practice, the issue is mostly figuring out exactly what you've got to organize. Unfortunately Mises did not have the algorithmic intuition to figure out that the calculation part is completely doable (even when you assume a perfect efficient market which is theoretically impossible unless P=NP and entropy stops existing and even then only for linear systems, the exact solution can be found at worst in cubic time to the number of industries).
- jonnycomputer 4y agoI suspect that many manufacturers would love more transparency in the supply chains they themselves depend on, and are only a little less in the dark than their consumers. [no personal knowledge of industry, just an observation from various news accounts over the years];
- sudosysgen 4y agoMost definitely, the issue is they won't want to be the ones providing transparency into their own operations, for a variety of reasons.