Saturday, March 23, 2024

How not to argue against the Economic Calculation Problem

The Economic Calculation Problem is a serious, possibly fatal, problem for claims that socialism can increase well-being.  It posits that planners cannot make rational decisions about resource management without prices formed by profit maximisation by private owners of factors of production.  So in other words you need a free market, at least in capital, land and labour to maximise the accomplishment of goals, even socialist goals like good houses for everyone.

The first false counterargument is to attack the word “rational” and assume it means a false assumption of what goals are rational.  It does not.  It merely means the ability to reason about how to achieve those goals.  The original article was called “Economic Calculation in the Socialist Commonwealth” but it equally applies to a theocratic commonwealth, a feudal imperialistic state, or any other area where a planner seeks to maximise something through control of the economy.  The question isn't “Is this a smart thing to try to do?”, it's “Can we find the best way to do it, given current resources?”.  This means rationality is always possible and required, because trying to achieve your goals irrationally is stupid. 

Similarly just because socialists aren't trying to maximise money but the provision of needs that doesn't mean you don't need  to plan rationally.  The ECP isn't about trying to be rich, it's about trying to achieve the goals planners are trying to achieve with the limited means available.   It doesn't matter if the planner is trying to maximise yachts and private planes for his employers as possible or food and shelter for the hungry.  Optimisation is still possible and desirable.  

Imagine a world where everyone agrees everyone can have anything, and work is strictly voluntary but they recognise a social duty of the able to create more than they consume.  How do you decide whether to use create more solar panels or increase transmission efficiency to get more power?  Or should you discourage people from doing the activities that consumer power?  All approaches reduce total utility, the first two by diverting resources from other useful endeavours the last by reducing the enjoyment of the people, that enjoyment being the goal of the whole thing.  Without factor prices you can't tell what's more expensive OR what's more valuable, and they are different things.  If you increased solar power when reducing transmission losses would be use less valuable resources or vice versa people have less access to goods.  If you encouraged people to use less electricity when generating more is the most efficient way to produce more happiness again, you're failing to optimise what you're trying to optimise.   

Using engineers and experts to try and overcome this problem won't work either.  Yes, the optimisation of resources will involve engineers, agronomists, chemists etc. but they are not specialists in optimising resources.  They all rely on outside price signals to tell them what tasks are worthy of their attention, what is worth doing and what isn't.  Consider whether to build a mine to extract a potentially valuable ore.  To know whether to do this one must know how much more valued things will happen if you have the ore.  But to know this you must know what other means could be substituted for this ore, what those means would otherwise be used for and how valuable that is.  It's true that engineers routinely include budget estimates for projects that allow planners to assess the viability of a  project.  But these budgets don't set their own prices, they observe prices established outside the project.  Even if it were possible to establish correct prices in the absence of a private market in factors of production, engineers/chemists/designers don't have that skill. In addition you must know how valuable goals are relative to each other.     

Another non-starter of an argument is that prices could be set by a central authority.  Prices are there to express the desirability of not using the factors of production.  They only work if they indicate the actual utility and difficulty of replacing the factor.  The planner doesn't know this, and can't know this. To know enough to set the price of a resource he would have to know the relative scarciy of everyof every resource that could be substituted for it, partly or wholey and the interactions of that substitution with other resources and projects.  This is impossible.  You can't know everything about every transport route, every mine, every factory, let alone every worker or every technical subject.  That's the whole problem.

Profit-maximisers however know enough to quote a price, which is all you need to assess whether to use this resource or another.  Profit-maximisers will not price perfectly of course, that's why losses happen, but they have both the information and the incentive to make a good estimation of actual value.

Another thought was to make decisions on resource use without using prices and just account for each resource separately.  So a project would use X amount of steel, Y amount of concrete, Z amount of skilled labor etc.  But this involves tracking literally thousands of different resources (or even hundreds of thousands depending on how you define categories) and comparing the billions of ways they could be combined.  Even if this could be done theoretically with perfect inputs, you don't have perfect inputs.  You would have to know the disposition and condition of every useful resource in the economy, including workers, who are not fungible or identical and then run billions of  simultaneous equations hoping nobody put in false information.  They did.  

Speaking of computers, no they don't help.  The big problem is not the lack of information processing, it's the amount of information that would have be conveyed to the planner, much of it subjective, possessed by an enormous number of people and/or hard to communicate to a formal body in real time. Only by summarising the information in a price can it be made simple enough to communicate efficiently.  The ECP could just as easily be called the economic communication problem.  Imagine spending half your life typing answers into a computer, and then realizing they didn't ask the important question they had no idea even existed. That's how computer would “solve” this problem.  

So how serious is the ECP?  Some planning can occur under socialist systems.  Just because you can't find a precise number for how much more resource approach A would cost versus approach B doesn't mean you can't make decisions.  They just won't be very good ones.  Resources will be expended to achieve goals that should have gone to other goals, and resources that went to the first goal go to the others.  Now there will be cases where the correct choice is obvious. Nobody makes rail tracks out of titanium but the cost is enormous for the more marginal cases.  It is not a financial cost but a cost in results.  One hospital instead of two, 90 KPH trains instead of 120, cancer deaths reduced by 20% instead of 50%, that sort of thing.  It is not trivial.

Saturday, January 20, 2024

Response to uglysuprith

“I think you're an AnCap.” 


 “Capitalism is definitely better than feudalism, for sure, it gives more freedom than feudal States. But the control over masses just shifted to financial form in capitalism, from military control in feudalism,. It's just a better & indirect form of control.”

But it isn't control. All they can do is not offer you resources, and the cure for that is literally anyone who thinks your labor/product is worth something. This isn't just a different type of control, it's not control at all.

 “ "As usual the less capitalist a system is the worse it is.", For that it depends on the stage of capitalism.”

No, whatever stage of capitalism you're in (and I don't agree with Marxist ideas on “stages of capitalism because Marx was usually wrong), the worst elements are the furthest from capitalism. The banking system is terrible, and the most regulated industry (except perhaps health, which is it's own nightmare), property speculation is entirely the result of the government's interference in the money supply. But the worst is the industry that runs on “From each according to his ability, to each according to his needs.”. I speak of course of the police. Yes that's how the run, taxes are taken roughly according to ability to pay, and the police do things when you need them to. That's how it's run. Now you can say they actually don't treat everyone the same, that they aren't efficient, that they're more interested in maintaining the status quo than doing their jobs, but that's all Marxist systems. If the cops were run on a capitalist basis would there still be firms that shot Black people so often? Or beat people up for owning a plant? Or enforced a thousand stupid laws that are not designed for the public benefit but as a sop to the corrupt? Or would firms that tried to do that find they had no customers? 

The worst things about a partially capitalist system is the least capitalist parts. And the least capialist countries are the worst too. Look up the Index of Economic Freedom and compare it to corruption, bad water, low income, anything. 

 “Early stage capitalism is almost a utopia & late stage capitalism is surely a distopia, with almost everything owned by single or very few people,” 

Except that it hasn't been shown that the result of capitalism, rather than political control of the economy. “who (financially) rule over the majority, distorting the supply and demand, thereby controlling markets & the system..” 

But the current elite don't financially rule over the majority, they ACTUALLY rule over the majority. They control the political system, which is specifically not trade of value for value, i.e. not capitalist.

“Capital is power, & when we work to make our boss more money than he pays us, we are effectively increasing his power over us.” 
No, you're increasing his power to acquire goods and services. You could well be accumulating capital at a faster percentage rate than him. 

 “More money that he pays us” isn't a relevant measure. Shaquille O'Neal made his boss more money than he was paid. Does he seem powerless to you? Only way for equilibrium is by some businesses going bust or not making any profit accumulation. Or else we'll end up in monopoly land..” 

The free market has never led to monopoly. It just doesn't happen. 

 “When anyways Not making profits, why not just switch to true socialism, working for people, not profit..” 

Because no making profits reduces the total capital in society which reduces total benefit to society. Socialism has done nothing good for over 100 years, why hold out hope?