When I was younger I heard that a planned economy can never be as potentially as efficient over time as a free (not capatilist) market due to the “lack of perfect information”. Meaning, not one authority can fully and effectively makimulsy optimize each supply/demand connection across all types of markets (pencils, food, trucks, medicine, tutors, etc…). The benefit of allowing markets to form organically (again, not monopolies, not regulatory capture, but person to person markets) is that each market will self-optimize for their own local maxima of efficiency.
This local optimization represents the implicit information that each market maker (buyer vs seller) brings to the table: effectively making every small market a mini-planned market. Now, many local maxima does not equal one true global maxima, but with many such algorithms local maxima produce very efficient and high quality results.
Hence, the challenge with a planned economy is not the control, but the lack of total information necessary to meet a higher efficiency target for all markets than would be possible if each market self-planned.
Like most things, scaling does introduce complexities that require more and more knowledge and the ability do be effective with it while making local adjustments. Some things don’t benefit from scale as much as others too, so there needs to be smart decisions.
That is why the worldwide food distribution network does lead to less expensive food due to large scale efficiencies overall, but some foods only work locally because they don’t hold up to transportation or the transportation costs are significantly higher than other foods.
What is being planned and the scale of what is being planned are extremely important, plus the decision makers need to not be malicious egomaniacs…
When I was younger I heard that a planned economy can never be as potentially as efficient over time as a free (not capatilist) market due to the “lack of perfect information”. Meaning, not one authority can fully and effectively makimulsy optimize each supply/demand connection across all types of markets (pencils, food, trucks, medicine, tutors, etc…). The benefit of allowing markets to form organically (again, not monopolies, not regulatory capture, but person to person markets) is that each market will self-optimize for their own local maxima of efficiency.
This local optimization represents the implicit information that each market maker (buyer vs seller) brings to the table: effectively making every small market a mini-planned market. Now, many local maxima does not equal one true global maxima, but with many such algorithms local maxima produce very efficient and high quality results.
Hence, the challenge with a planned economy is not the control, but the lack of total information necessary to meet a higher efficiency target for all markets than would be possible if each market self-planned.
Like most things, scaling does introduce complexities that require more and more knowledge and the ability do be effective with it while making local adjustments. Some things don’t benefit from scale as much as others too, so there needs to be smart decisions.
That is why the worldwide food distribution network does lead to less expensive food due to large scale efficiencies overall, but some foods only work locally because they don’t hold up to transportation or the transportation costs are significantly higher than other foods.
What is being planned and the scale of what is being planned are extremely important, plus the decision makers need to not be malicious egomaniacs…