Atanu Dey On India's Development

Central Planners and Wooden Boards

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central planning In my favourite Bruce Lee movie Enter the Dragon (which I have seen at least a dozen times) there’s a very telling scene. Just before a particular fight, Bruce Lee’s opponent, to demonstrate how awesomely tough he is, holds up a wooden board and with one swift punch smashes it to bits. Bruce Lee impassively looks him in the eye and calmly says, “Boards don’t hit back.”

People are different from things. Things are easy to understand and deal with. But people hit back. They behave strategically. They respond to stimulus and they respond to incentives. This is why economies are hard to understand and even harder to manage. But some people labor hard under the delusion that they can do things that are impossible. Tragic consequences of hubris — somewhat like technological hubris.

Technology’s marvelous ability to bring all sorts of amazing things to life (pun intended) frequently inspires hubris and consequent disasters. Science, in contrast, teaches humility because basic scientific advance more often than not sets boundaries to what is possible.

In any area of ignorance, the limits are not known and everything is possible. But with increasing knowledge of science, we begin to know and appreciate the limits. These limits are useful since it prevents people from attempting to do what is impossible. People had no reason to believe that there is an ultimate speed limit until Einstein came along and showed that there was. Thermodynamics tells us that it is pointless to try to invent a perpetual motion machine. Heisenberg’s uncertainty principle imposed limits on how precisely you can know position and momentum.

There’s an analogue of this in the social sciences. In a sense, economics is the study of limits. The lesson a careful study of economics teaches is humility. One of the most fundamental lessons is that humans have bounded rationality and very limited ability to comprehend (leave alone direct) complex systems.

To the untutored mind, the idea that some social planner could manage a system as complex as a large economy may not be absurd. But it is. Economics says that it is futile to attempt to centrally plan an economy and shows that the problem is essentially an information and knowledge problem.

Central planning is as much an absurdity as the dreams of a perpetual motion machine. But while a crank wasting his life trying to invent one is mostly harmless, great leaders forcing central planning on poor nations inevitably leads to untold misery, poverty and death. The matter gets worse when an economics ignoramus blinded by technological hubris gets his hands on the controls. That’s when you get the most disastrous outcomes.

(Every time you hear of yet another IIT-trained technologist has got into the business of meddling with the economy, be very afraid. Be very very afraid it the person has been a very successful technologist. And be absolutely terrified when it is an IIT-trained technologist with bureaucratic tendencies and delusions of grandeur. Just saying.)

If there’s one lesson that has been demonstrated too often, it is the lesson that central planning does not work. Why, then, you may ask, does it get repeated so often? The simple answer is that it is good to be the central planner — fame and fortune are the perquisites of the job. Central planning enriches the planner, even as it impoverishes the people.

Unfortunately, once the disease of central planning takes hold, there is no escape. Afflicted with poverty, the people clamor for relief and there’s the central planner, ever ready to do a bit more planning, a bit more controlling, a bit more of messing with prices, with quotas, with more regulations and rules and a bit more of redistribution.

So how does this end? People have to stop being wooden boards. They have to hit back.

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  • Mahesh Sreekandath

    “The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.” – Adam Smith (The Theory of Moral Sentiments)

    http://www.econlib.org/library/Smith/smMS6.html