Markets vs Bureaucracies

Glenn Reynolds has an article in USA Today:  free markets automatically create and transmit negative information, while socialism hides it.  Excerpt:

It is simple really: When the “Great Leader” builds a new stadium, everyone sees the construction. Nobody sees the more worthwhile projects that didn’t get done instead because the capital was diverted, through taxation, from less visible but possibly more worthwhile ventures — a thousand tailor shops, bakeries or physician offices.

 At the same time, markets deliver the bad news whether you want to hear it or not, but delivering the bad news is not a sign of failure, it is a characteristic of systems that work. When you stub your toe, the neurons in between your foot and your head don’t try to figure out ways not to send the news to your brain. If they did, you’d trip a lot more often. Likewise, in a market, bad decisions show up pretty rapidly: Build a car that nobody wants, and you’re stuck with a bunch of expensive unsold cars; invest in new technologies that don’t work, and you lose a lot of money and have nothing to show for it. These painful consequences mean that people are pretty careful in their investments, at least so long as they’re investing their own money.  Bureaucrats in government do  the opposite, trying to keep their bosses from discovering their mistakes.

Indeed, this is an important point, and one that is too rarely understood.  Rose Wilder Lane, the author and political thinker, offered the example of British versus French and Spanish approaches to colonial management:

The Governments gave them (in the case of the French and Spanish colonies–ed) carefully detailed instructions for clearing and fencing the land, caring for the fence and the gate, and plowing and planting, cultivating, harvesting, and dividing the crops…The English Kings were never so efficient. They gave the land to traders. A few gentlemen, who had political pull enough to get a grant, organized a trading company; their agents collected a ship-load or two of settlers and made an agreement with them which was usually broken on both sides…To the scandalized French, the people in the English colonies seemed like undisciplined children, wild, rude, wretched subjects of bad rulers.

Yet the English colonies, economically-speaking, were generally much more successful.

RWL also explained the way in which central planning demands the categorization of people:

Nobody can plan the actions of even a thousand living persons, separately. Anyone attempting to control millions must divide them into classes, and make a plan applying to these classes. But these classes do not exist. No two persons are alike. No two are in the same circumstances; no two have the same abilities; beyond getting the barest necessities of life, no two have the same desires.Therefore the men who try to enforce, in real life, a planned economy that is their theory, come up against the infinite diversity of human beings. The most slavish multitude of men that was ever called “demos” or “labor” or “capital” or”agriculture” or “the masses,” actually are men; they are not sheep. Naturally, by their human nature, they escape in all directions from regulations applying to non-existent classes. It is necessary to increase the number of men who supervise their actions. Then (for officials are human, too) it is necessary that more men supervise the supervisors.

And the planner will always demand more power:

If he wants to do good (as he sees good) to the citizens, he needs more power. If he wants to be re-elected, he needs more power to use for his party. If he wants money, he needs more power; he can always sell it to some eager buyer. If he wants publicity, flattery, more self-importance, he needs more power, to satisfy clamoring reformers who can give him flattering publicity.

Read  Glenn’s whole article, and  my post about Rose Wilder Lane’s ideas and writing

4 thoughts on “Markets vs Bureaucracies”

  1. Jonathan, I think Big Healthcare is about to duplicate the cable experience. The planned merger of two giant health insurance companies has the government in a tizzy.

    While many analysts say the mergers, if approved by antitrust regulators, will create greater efficiencies, the consolidation from five major publicly traded insurers to three is fueling worries among policymakers and healthcare providers. They fear that the deals will undermine the Affordable Care Act’s goal of creating greater private- market competition and a robust consumer-choice model.

    All this will do, and what the “Affordable Care Act” will accomplish, is flight from the giant and inefficient monopolists who cannot provide good service. This is why I think the next Republican president does not have to repeal Obamacare but simply make it optional and open the market to traditional forms of indemnity health coverage. Doctors and patients will flock to the more efficient model.

    What remains of Obamacare will be a welfare health care system for the poor. We once had superb city and county hospitals. I trained in one. They were destroyed by Medicare and Medicaid. Medicaid patients were kept out of big county hospitals because the hospital could not bill Medicaid for care. They have since been destroyed by illegal aliens who pay nothing and who have lots of exotic diseases they bring with them,

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