Thomas Sowell, Government planning creates absurdity

Although some have contrasted government planning with uncontrolled chaos in the private marketplace, in fact government central planning means over-riding other people’s plans, since private individuals and organizations have their own plans, which are coordinated with one another through price movements.

How well either set of plans is likely to work out is the issue. For much of the twentieth century, it was widely assumed that central planning was more likely to produce desired results than the uncontrolled competition of the marketplace. It was only after such planning was put into effect in a variety of countries around the world that the results turned out to be worse than anyone expected—leaving planned economies falling behind the economic progress in countries where the coordination of the economy as a whole was left to market competition and resulting price movements that directed resources and products to where they were most in demand.

By the last decade of the twentieth century, even socialist governments and communist governments had begun abandoning central planning and selling government-owned enterprises to private entrepreneurs…

Although the USSR had prices, these were prices set by central planners, and did not reflect the relative scarcities of particular resources, as prices resulting from supply and demand in competitive markets tend to do. Nor was it clear how centrally planned prices could have reflected anything so complex and volatile as the ever changing relative scarcities of innumerable resources and finished products, since there were 20 million prices for central planners to set.

This was a virtually impossible task for the central planners to perform well, though it presents no special problem in a market economy where millions of consumers and producers each keep track of, and influence, a relative handful of prices which directly affect them. The net result was that it was common for the Soviet Union to have warehouses bulging with unwanted and unsold goods, while people were lined up in queues for other things that they wanted and hoped to get before supplies ran out.

In a capitalist economy, the prices of the surplus goods piled up in warehouses would have fallen because of supply and demand, forcing the enterprises which produced them to cut back production, in order to avoid continuing losses.

This in turn would release resources (including labor) that would be in demand in other sectors of the economy, where shortages and rising prices would have produced higher profits—and thus greater demand for the labor and raw materials needed to increase the supply of the more profitable output. But no such process took place in a socialist economy, where simultaneous shortages and surpluses could persist for years, until overburdened central planners could get around to dealing with each problem.


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