Quote of the Week – Dear Paul Krugman: 'I'll see you in hell'

@All who like my comments:
Thanks for the appreciation. It’s nice to know all that typing didn’t just get skipped over (even if it was a bit too long 😉
@Ed, Mr. Jones:
Yes, the agriculture / industrial transition was a big benefit. Yet one can also look at the early days of Fascist Italy (also a flavor of Socialism – in particular, the first “3rd Way Progressive” version – he coined the term even…) First couple of decades were great economic progress.
Basically, when things are ‘pretty messed up’ and all it takes is a few ‘no brainer’ decisions (like make more steel, or get the trains working) central planning does well. It is once you need more detailed and subtle (localized or flexible) decisions, the “Emergent System” of capitalist markets just runs rings around central planning. This is also why during times of war, having a central war production ministry “calling the shots” works well. It’s pretty clear what is needed (“make 1000 tanks!”) and which one (Orders are “That one!”). The rest is elaboration. Change that to “Figure out what ‘fashion’ will be next summer and start manufacture now” or “transform telephones with more features and portability than you can imagine”… well, central planing kind of just flops. Badly.
So in times of war, we adopt a semi-socialist command economy model for many things. Then folks think that will work just as well at other times. And it won’t. Oh Well…
But regardless of when it happened, or what tech was happening; the fact is that early stage Socialisms do OK. It’s just an historical fact. Late stage they are horrid. (Look at Greece today… BTW, get ready for a ‘run on the banks’ as Cypress just confiscated 6% to 9% of depositors money. No joke. So in most any of the PIIGS, I’d be on ‘bank run’ watch.)
@Dirk H:
Sadly, the morality of a method is not an economic concern… It was all “Centrally planned” even if some was via contracts and the method involved the Gulag. ( I never said it was moral, only that it was effective… and even that, only for a little while.) But there is a modestly long list of early stage Command Economies doing well. I’d rather not go all prolix here and start listing them all. Besides, most of them have since gone belly up 😉
I’ve been working on a theory as to why. I think it has to do with information density and processing speed of the people involved. Government rewards larger overhead and slower processing, along with punishing change. Profit motive rewards minimal overhead, faster processing, and really rewards disruptive change to your competitors. At the start, the central government system is starting from a zero basis on overhead and “legacy”, so works. As it stagnates, the need to “prune the legacy” and “chop out the time wasting mind numbing overhead” grows day by day… until it is just maddening… Then the collapse comes.
But yes, one of the major problems with a command economy is that since there is often only ONE Evil Bastard in charge and little to constrain them, they are often quite brutal. Even when it is a committee of a dozen “deputies”, they are usually more interested in ‘favor of friends’ than ‘morality for strangers’.
@HenryP:
Capitalism is Good for Mostly Everyone. as long as there are anti trust laws. Look at the incredible wealth of the average nobody in the USA. Cars. Appliances. So much food that “Obesity” is our major food problem. Even our poor are incredibly wealth by global standards.
What is true is that it is incredibly over the top Good for the very super rich. So we have great “income disparity”, from Super Rich down to just ‘pretty well off’ on a global basis.
The problem I’ve repeatedly pointed out, that you seem to be ignoring, is that if you have wealthy from 100 down to 20 in the USA (with 20 to 0 in places like 3rd world hell holes) then making us all ‘equal’ at 25 (or even less divergent with 50 – 22 ) results in less investment over time and more poverty for ALL So in a few years you are at 15 for all and falling… or 30 to 15 and falling. You simply can not ignore “Marginal Propensity To Invest” and expect things to work right.
There is only a 2% to 3% “cushion” of economic growth. Quash just that much, and you end up in malaise, recession, even depressions, stagflation (if money printing) etc. etc.
It really is easy to screw up 2% worth of the economy and break it. (See the EU today and the USA as well… we’ve gone to the pathetic growth group too…) People look at a $10 Trillion economy and think there is $10 Trillion to play with. There isn’t. Most of that is obligatory just to keep the motor running. You have $200 Billion to $300 Billion of growth that if you mess it up, puts you into a recession. So, for example, tax an added $400 Billion, your economic growth is gone (and then some). Somebody has to stop buying shirts and beans and use that money to pay the tax. That means the investment to make those goods dries up and that part of the economy shrinks. Have more than 2 or 3% of that, you are in a recession (even if the other 2% to 3% of ‘new stuff’ did grow, as the net is zero to negative).
So layer on 2% of added costs for Central Planned Regulations? Just killed growth. Start the stagnation and decay cycle…
It really is imperative to grasp that. We MUST have investment on going just to stay in the same place. We only grow a small amount per year. Waste that, you shrink.