The key to a well-functioning society is feedback: the market economy is truly excellent at feedback—at identifying what is going wrong to the people who can take action to correct it: Cosma Shalizi (2012): In Soviet Union, Optimization Problem Solves You: "There’s lots to say about Red Plenty as a work of literature; I won’t do so.... The first of the two political problems. The objective function in the plan is an expression of values or preferences, and people have different preferences. How are these to be reconciled?...
...I do not have a knock-down proof that there is no good way of evading the problem of planners’ preferences. Maybe there is some way to improve democratic procedures or bureaucratic organization to turn the trick. But any such escape is, now, entirely conjectural. In its absence, if decisions must be made, they will get made, but through the sort of internal negotiation, arbitrariness and favoritism which Spufford depicts in the Soviet planning apparatus. This brings us to the second political problem. Even if everyone agrees on the plan, and the plan is actually perfectly implemented, there is every reason to think that people will not be happy with the outcome. They’re making guesses about what they actually want and need, and they are making guesses about the implications of fulfilling those desires. We don’t have to go into “Monkey’s Paw” territory to realize that getting what you think you want can prove thoroughly unacceptable; it’s a fact of life, which doesn’t disappear in economics....
We need then some systematic way for the citizens to provide feedback on the plan, as it is realized. There are many, many things to be said against the market system, but it is a mechanism for providing feedback from users to producers, and for propagating that feedback through the whole economy, without anyone having to explicitly track that information. This is a point which both Hayek, and Lange (before the war) got very much right. The feedback needn’t be just or even mainly through prices; quantities (especially inventories) can sometimes work just as well. But what sells and what doesn’t is the essential feedback. It’s worth mentioning that this is a point which Trotsky got right. (I should perhaps write that “even Trotsky sometimes got right”.) To repeat a quotation:
The innumerable living participants in the economy, state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical determinations of plan commissions but by the direct pressure of supply and demand. The plan is checked and, to a considerable degree, realized through the market.
It is conceivable that there is some alternative feedback mechanism which is as rich, adaptive, and easy to use as the market but is not the market, not even in a disguised form. Nobody has proposed such a thing...
#shouldread
#economicsgoneright
