Home Economics The Reason We Can't Have A Planned Economy - People

The Reason We Can’t Have A Planned Economy – People

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It is still one of those castle in the sky dreams out there, that we can have a properly planned and efficient economy. The problem with it is that the people whose activity are to be planned are, well, people. Thus they’ll go and do things that aren’t in the plan, that’s just what humans do.

The dream has been around for a long time. The chaos and seeming waste of competition is what led many to scientific socialism a century and more back. HG Wells and many others thought that proper planning by the clever people at the centre could get rid of the chaos, the seeming waste, and that production would rise as a result of that centralisation.

As we now know it didn’t quite work out that way. Hayek told us part of it, the centre can never have the information necessary to be able to do the planning. Mere observation tells us another part – anyone competent to do the planning isn’t going to get to the top of the Planning Ministry which rather obviates the initial point. After all, politics isn’t a great way to select for people who know what they’re doing.

We now have further empirical evidence from this coronavirus lockdown:

A private equity executive taking under-the-radar meetings in Regents’ Park. A Surrey hairdresser holding appointments in her garage. Fitness instructors going into people’s homes to host one-on-one sessions. And a framer who shut his store but is still accepting orders through the window.

A new grey economy is emerging across Britain, as lockdown chafes and salaries are stretched.

For those who can, operating in the shadows has become the new norm, with informal services flourishing in communities throughout the country.

Even before the latest economic downturn, more than two million people worked in Britain’s so-called informal economy, accounting for nearly 14pc of all employment.

People just don’t follow the plan. Even some big, important and short term plan, like lockdown in the face of a pandemic. People will – we can see they will because we can see they are – risk killing Granny for the sake of a haircut. Or, as we can also put it, as economic agents people will act according to what they think are their own best interests given the incentives they face at that time in that place. This is just what humans do.

Bugger what the Man in Whitehall says, what’s in it for me?

Do note that own best interests as divined by the individual will include such things as the joy of being kind, the reciprocity of neighbourliness the warm buzz of charity and so on. But what drives humans is our desires, not what we’re told to do. We are not ants that is.

And thus that dream of the planned economy just never will work because the raw material being planned resists the planning rather too much. Even where people were shot as wreckers for not conforming to the plan there was still that nonconformism.

That scientific socialism just doesn’t work with our species. We’ve even run the scientific test to prove this, we normally call that the 20th century. So, can we get with what does work with us? There’s a range, roughly laissez faire free market capitalism a la Hong Kong over to roughly laissez faire free market capitalism with a large welfare state a la Sweden. These are the methods of organisation that work with homo sapiens sapiens. You can have anywhere you like along that spectrum but only in that spectrum.

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