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Monday, September 17, 2007

Revisiting statism

One of the primary reasons for recent and future planned posts on economic history is an attempt to more accurately calibrate views of the past. Although true believers in socialism are now a small minority in most places (I hope), many mixed economy advocates are prone to a slide towards statism. A search of this blog by that term yields this collection of posts. Many people have the tendency to blame too many ills of society on a free market economic system while underappreciating the benefits of free market and limited government. Consequently, there is a willingness to allow for more government involvement when marginally less involvement might lead to better outcomes.

"...statism, which my dictionary defines as the concentration of economic controls and planning in the hands of a highly centralized government, and which I further define as the belief that the state is the mechanism best suited for solving most if not all of society's ills, be they health related, natural disasters, poverty, job training, or injured feelings. Statism is the great political disease of the twentieth century, with Communist, socialist, and many democratic nations infected to a greater or lesser degree. When the political history of our century is written, its greatest story will be how a hundred variants of statism failed." Jim Rogers from Investment Biker

This increasing statism can have detrimental effects, both subtle and not so subtle.

As we have pointed out, the modern welfare state indeed coerces in a variety of ways to attain its unattainable ends.

But well-meaning patriarchalism also enervates people by robbing them of the entrepreneurial spirit implicit in freedom. What harm long-term dependence on the welfare state can inflict became apparent after the collapse of the Soviet Union, when a substantial part of the population, suddenly deprived of comprehensive state support and unaccustomed to fending for itself, came to yearn for the restoration of the despotic yoke.

The trouble is that because schools fail to teach history, especially legal and constitutional history, the vast majority of today’s citizens have no inkling to what they owe their liberty and prosperity, namely a long successful struggle for rights of which the right to property is the most fundamental. They are therefore unaware what debilitating effect the restrictions on property rights will, over the long run, have on their lives.

The aristocrat Tocqueville, observing the democratic United States and his native bourgeois France a century and a half ago, had a premonition that the modern world faced dangers to liberty previously unknown. “I have no fear that they will meet with tyrants in their rulers,” he wrote of future generations, “but rather with guardians.” Such “guardians” will deprive their peoples of liberty by gratifying their desires and then exploit their dependence on such generosity. He foresaw a kind of democratic despotism in which “an innumerable multitude of men, all equal and alike” incessantly strive to pursue “the petty and paltry pleasures with which they glut their lives.” The benign paternalistic government – the modern welfare state – hovers over them.
For their happiness such a government willingly labors, but it chooses to be the sole and only arbiter of that happiness; it provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of property, and subdivides their inheritances: what remains, but to spare them all the care of thinking and all the trouble of living?
The “principle of equality has prepared men for these things” and “oftentimes to look on them as benefits.”
After having thus taken each member of the community in its powerful grasp, and fashioned him at will, the supreme power then extends its arms over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent and guided; men are seldom forced to act, but they are constantly restrained from acting: such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to be nothing better than a flock of timid and industrious animals, of which the government is the shepherd.

Property and Freedom by Richard Pipes pp291-2; drawing upon Democracy in America.


Oroborous said...

This is tangential, but if anyone wishes to return to the halcyon days of freedom that Alexis de Tocqueville observed, it's fairly easy to do.

Since at that time roughly 90% of Americans were farmers or ranchers of one sort or another, simply move to the American upper Midwest, or to the largely deserted non-coastal West.

Places like Nebraska, Kansas, the Dakotas, Wyoming, Montana, Colorado...

In most of eastern Colorado, on the sparsely-settled plains, there are no building codes, or dedicated fire or ambulance service, and minimal policing. Property taxes are very low. If you want to build a deathtrap shack, or live in a tent, and farm using a mule or an ox, nothing prevents it.

If you become a subsistence farmer, and only earn enough money to pay your property taxes and transportation costs, you'd owe no Federal income taxes, and in most states, no state income taxes either.

The government, nanny-state or not, would collect a very small vig, and in return would offer very little in the way of support or molly-coddling.

Harry Eagar said...

I think I'll quit offering my thoughts about centrism -- done that -- but I do have a question about it:

What is the general explanation for the belief that an incoherent private organization (say GE: designing atomic reactors, making jet engines, banking) can plan; but a coherent public institution (say a school board or a state department of transportation) cannot?

Anonymous said...

Whoever said that? Isn't "compete or die" the main defence, not inherent superiority at planning?

I agree with you, though, that we on the right have a tendency to overstate the putative insight or cleverness or industriousness or even virtue of successful businesspeople, who have a talent for making money but not necessarily much else. This is matched by the leftist tendency to speak of bureaucrats as if they were devoid of self-interest and motivated entirely by the common good.

erp said...

Harry, the question posed on your last post is astonishing. To whom are you referring when you say there is a belief that an incoherent ... ?

In fact, quite the opposite is true. Private organizations must be able to plan coherently or go out of business while in the public sector only institutions with well defined limited tasks like the military, treasury department, courts, etc. can plan coherently.

The only planning the totally incoherent overlapping trillion dollar myriad agencies in public sector purporting to help us can do is how to keep fooling taxpayers into keeping them funded. To be fair, they're past masters at this.

Susan's Husband said...

Mr. Eager;

I find it so very odd that people who believe in evolution as a mechanism for producing more capable organisms and successful ecosystems don't believe that it works for organizations.

Harry Eagar said...

erp, by incoherent, I meant that it does not make obvious sense to create an organization that simultaneously designs nuclear reactors, builds jet engines and runs banks.

SH: Well, why wouldn't planning improve on evolution? In our discussions, one argument for the existence of evolution is that so many organisms display really bad design.

Evolution does not optimize mechanisms, and it does not optimize survival, either.

Last man standing is not necessarily an optimal outcome.

As you might have expected from me, I did not pick GE out of the air.

I chose it for three reasons: It has been extravagantly praised as an example of good management; it is as big as some governments and bigger than many; and its brilliant managers were responsible for the refrigerator motor debacle, one of the stupidest planning choices ever made.

GE survived that one only because it was big, not because is was efficient. (An effect seen in governments, too.)

Bret said...

By your definition ("incoherent" = "does more than one type of thing") all governments are incoherent since I'd imagine that Defense and Education (for example) might take rather different skill sets (at least I'd hope so).

As Peter Burnet noted, it's not planning that makes it more likely that I'd put faith in GE to make jet engines rather than the government, even though both are "incoherent", is that if GE blows it enough times and values to delivery goods with adequate value to be competitive, they're history and that provides the strongest possible incentive to get it right. A government can muddle along forever and keep making crappy jet engines soaking up way to much resource per unit output and never go out of business. There's just not the same incentive to get it right in that case.

Business often make mistakes, but that's a feature not a bug, because they go out business and the economic landscape evolves. Government often make mistakes, but in that case it's a bug not a feature, since there is relatively little incentive to fix it.

erp said...

Harry, a good manager can manage a company that makes jet engines, TV dinners, or anything in between. In one case, we hire engineers in another nutritionists and then stand out of their way and let them do their jobs.

Once a good management team is place, it's a good idea not waste it, so diversifying makes sense.

Susan's Husband said...

"Well, why wouldn't planning improve on evolution?"

See F.A. Hayek, _The Fatal Conceit_. In short form, evolution / market mechanics supports distributed processing, which in turns enables far more computation and information to be used. Planning limits the computational and informational resources to a very small set of brains.

Planning is also far less adaptive and flexible, which makes it far more brittle.

Bret said...

susan's husband,
I think what Harry's saying is that GE is so large that it's basically a mini-Nation with its own internal government (management + board), albeit one without its own currency and one with a very high percentage of "foreign" trade. It devotes a fair amount of energy to "central planning" so why is it lauded as a great company but socialistic governments condemned as inefficient because of their "central planning". GE's planning may be limited to relatively few brains as well.

There's little doubt in my mind that GE at its huge size is less adaptive in each of the markets than its competitors. That, however, is balanced by its depth of knowledge and capital based momentum so that it remains competitive. If some day its lack of adaptability overwhelms the knowledge and capital advantage, it will go out of business, or at least shrink and/or be broken up. A government, on the other hand, no matter how uncompetitive, never shrinks (except via coups and revolutions), so if its disadvantages overwhelms its advantages, the problem is never rectified.

Anonymous said...


Read 'em and weep.

Harry Eagar said...

Bret explains me better than I can explain myself.

The knife cuts two ways. GE is not that different from government in some ways. But allegedly chaotic central planning is not always that much different from how corporations set themselves up.

Peter, good news, indeed. To whom are we to direct thanks? Free market forces? I think not.

Oroborous said...

I agree with Harry about the drop in infant mortality.

Even in the U.S., medical care isn't a classical free market.

joe shropshire said...

I'd be curious to know who here has ever participated in (as opposed to reading about or observing) a large-scale planning effort, for example of the sort associated with a medium-to-large defense contract. Let's say a project plan for more than three hundred people, over a time span of more than three years. Anybody?

Harry Eagar said...

Who, me? I'm just an observer.

Have I monitored such a plan? Sure.

joe shropshire said...

No, I didn't think so. That's a shame, Harry; might have cured you, you know.

Anonymous said...

The closest I ever came was during a three year "guest" stint in the Foreign Ministry up here. They do career rotation and every time some up-and-coming hotshot was put in charge of administration, he would invariably plan a reorganization of the whole show. The Department tended to attract the brightest within the civil service and therefore the most sociopathic as well. Nobody would notice him/her if he just tended the fires, therefore the whole thing had to be "rationalized" so he/she could emerge a hero.

This led to a near perpetual cycle of working groups, flow-charts, directives, committees, proposals, etc, all of which led to the most bitter in-fighting imaginable because, forget foreign policy, careers and fiefdoms were at stake. Morale tanked, which led to regular mass gatherings where the entire staff were told pretty much nothing except that they shouldn't worry-- management considered them to be the Department's most important resource. Of course, being bright and sociopathic themselves, they bought none of it and just planned subversive resistance.

The most amazing thing is that no one could ever get a grip on it or stop it or even end it. I don't imagine it is much different in large corporations with remote or diffuse management.

Susan's Husband said...

Having worked in a very large corporation (at one point the largest market capitalization on the planet), I think it is in fact different in large corporations because ultimately there is a set of external judges who act as a limiter on the behavior. The product ships, or it doesn't. For government generally, as in your example, the incentives are all internal, without reference to external reality.

Bret said...

peter burnet wrote: "...which led to the most bitter in-fighting imaginable because, forget foreign policy, careers and fiefdoms were at stake."

I'm intending to never work in a not-for-profit organization because, from what I can see, the in-fighting/fiefdom thing is far worse in such organizations because there is no objective bottom line. In for-profit companies, the tether to the bottom-line is often indirect, but at least there is a single objective measure of success.

Harry Eagar said...

It's a free country, bret, so you don't have to. Fortunately, not everyone feels the same and they are not all sociopaths.

I'd be interested to see how the free-marketeers would approach the task of protecting California agriculture from imported pests.

There's a government task with a well-defined goal. Very successful, too.

We're making a little progress on my question, why is planning not fungible?, but I haven't yet seen any reason to think it is not.

Anonymous said...

SH, the key is "ultimately". It does generally come to an end that it never seems to in government, but the same nonsense can go on for a very long time. Just ask GM.

Bret: Agreed, any organization with a "cause" is especially prone to infighting and disintegration. The other thing that struck me about my stint in government was that the departments with the best morale seemed to be the ones that bought paperclips or reported the weather, etc. The sexier ones hellbent on saving the environment or improving the plight of women were awful.

Probably the worst example of what you are talking about is the parent run private school (co-operative). The mental you-know-what never ends. I always wince when my fellow conservatives trumpet "parental choice" in education. Choose the school, sure, but the kids will generally be better off if you then disappear until June or alternatively show up with a paint brush and just keep your mouth shut.

Also, another bizarre thing about non-profits is how naive and useless so many tough businesspeople can be when they are put on the board. It's like they give up the whole package of realistic, feet-on-the-ground bottom-line thinking that made them such successes and revert to gooey freshmen discussing social justice in a Poli Sci 101 seminar. They can be complete suckers for the activists and amazingly easy to conscript in supporting extremist nonsense.

Susan's Husband said...

Mr. Burnet;

Cleary. That's why the benefits of free markets are only visible over the span of decades.

Mr. Eager;

How much of a basic computer science education would you like? Planning is fundamentally computation and CS has a lot to say about how that sort of thing works. Essentially, most planning doesn't scale well, so that a "unit" of planning here is not at all the same as a unit of planning "there" if the scales are different, making it non-fungible.

But if you really want to understand why planning isn't fungible, read _The Mythical Man Month_. The book is about building software, but it's applicable to any large scale intellectual exercise, such as planning.

Bret said...

harry eagar wrote: "...why is planning not fungible?"

Could you elaborate on this question? I'm not clear on what your asking even though I see that Susan's Husband has attempted an answer.

Are you basically asking why government and business planning aren't the same in terms of effectiveness?

erp said...

Harry, are you confusing planning with a plan?

A plan might be fungible (able to be used interchangeably in different situations) should conditions be warrant it, but planning???

Harry Eagar said...

No, I mean planning.

How does it come about that a man who is famous for organizing a private business -- say, Engine Charlie Wilson -- is somehow unable to organize a public enterprise when he switches hats?

Or, to stay in Detroit, should we be surprised that a man who failed at every job in private industry -- say, Robert Extremely Strange McNamara -- should fail at organizing a public one?

I could understand an argument that a person who had never planned a private enterprise ('hadn't met a paycheck' in the political lingo of my youth) might be suspect. But what about all the men who had met paychecks?

Something in the D.C. water?

Bret said...

harry eagar wrote: "...planned a private enterprise..."

From my perspective, that seems like an odd way to put it. To me, private enterprises are managed. Sure, that management involves constant planning and replanning, but the planning constantly evolves as new information becomes available and business conditions change.

It seems obvious that those who are better than most at managing private entities have a head start at being good at managing public ones. Not always though, since the skill set required to work for shareholders is different than the skill set required to work for politicians and the public.

Harry Eagar said...

That's my question. Is the skill set different?


It's true that measuring success in public operations is (most often) more difficult.

Measuring success in business, as you guys keep saying, is mindlessly simple.

Stock up, good. Stock down, bad.

Well, there might be more to it than that.

Anonymous said...

This is starting to remind me of the story I heard about a bunch of Swedish (?) businessmen giving a seminar on free enterprise to some Russians just after the fall of the Soviet Union. The Russians listened carefully for several hours and took copious notes. Finally at the end, one of them said" "There is one thing we don't understand. How do you plan what goods you are going to produce under the free enterprise system?"

Harry, why do you think planning is so important, and also such a systematic, promising concept? Why not just get up early and see what the day brings? Turn on a dime, etc. I'm relatively satisfied with both my family and business life, but I can assure you I don't do much planning about either. I try to do more, but so many difficult, incompetent folks mess me up.

Again, you seem to have the idea there is an agreed upon "job" to do building something and that we are arguing about who can plan it better. A plague on your plans! Nobody ever said free enterprise led inexorably to any pre-set objectives. It's like what Churchill said about democracy. Free enterprise is an unsavoury, amoral system that allows sweaty, scummy people to indulge their hypocritical, selfish interests, but it has proven far superior to any alternative.

Anonymous said...

And, Harry, may I commend to you Kingsly Amis's quip that everything that is wrong with the modern world can be summed up in one word: workshop.

erp said...

Axioms and witticisms about planning and the hubris of man abound: There's many a slip 'twixt the cup and the lip; The best laid plans of mice and men often go awry; Man proposes, God disposes and dozens more.

I think the left is desperate to make order out of the chaos and uncertainty of our existence, ergo planning becomes an obsession as does fitting fungible laborers into the interchangeable cogs prepared for them. Doesn't and can't work.

No matter how good the planning, Murphy's law will pop up, so good planners make sure their plans are flexible, but since flexibility can't be codified, it's impossible for the public sector to deviate from the rules and regs as written in the master plan.

The private sector planners aren't hide bound, so when conditions change, so can their game plan.

Harry Eagar said...

Obviously, none of you guys ever put out a daily newspaper.

All the trial lawyers I know plan their presentations, too.

You can plan for contingencies. A flexible plan is not the same as no plan at all.

I have, more than once, presented the evidence of radar. One of the two or three most important developments of the last century.

Several countries were competing to develop radar. The one with the most careful plan (Britain) won.

All gummint work.

There was, of course, no reason why a private electric company could not have done the same. Except that none did.

Anonymous said...

I figured something like that was coming. Actually, I thought you were going to ask us whether we believed in building houses without architectural plans.

C'mon now, apples and oranges. There is a world of difference between planning how to build a new car and planning for all of America's automobile needs (or even better, "transportation needs") for the next ten years. I don't mind if you want to plan my morning, Harry, but please not my whole life.

erp said...

Peter, another direct hit.

Harry, how do you know that the radar system we use is the best possible one?

Harry Eagar said...

In the radar case, it didn't have to be the best, it had to be first.

There seems to be no happy medium here.

A nation has to plan for its transportation at least to the extent of deciding whether, say, to have roads or trains. We chose roads.

Best choice? Who knows? We couldn't afford both.

I guess you could have let railroads and roads fight it out, although I'm not sure you'd ever get to a conclusion. Meanwhile, you'd have a lousy transportation system.

Anyhow, if you've planned your morning, and maybe then your afternoon, then perhaps it might be worth looking ahead to tomorrow.

Once you start planning, there doesn't seem to be any necessary point where you have to stop. You may decide that here is the place, but that's just a matter of judgment.

erp said...

Unfortunately, the roads and railroads didn't fight it out. The railroad unions sabotaged them to the extent that a moribund system was propped up by the taxpayers instead being allowed to sink or swim on its merits

We could have had great railroads and great roads, but the union leaders planned to feather their own nests and ...

Anonymous said...

if you've planned your morning, and maybe then your afternoon, then perhaps it might be worth looking ahead to tomorrow.

Wise words. You should plan for your tomorrow and I should plan for mine. It's when you start planning for mine that I get nervous.

Harry, have you ever met an academic who teaches planning? They are quite something and can spew out more abstract gobbledegook in an hour that you or I could in a week. They have whole faculties devoted to it in lots of universities. Not planning fisheries or parks or national defence or railroad lines or anything in particular. Just planning.

Harry Eagar said...

Are you kiddin'? I spend half my days listening to these nitwits.

The current enthusiasm in the islands is for defining 'sustainability' and 'carrying capacity.'

I am not clear whether any of the leaders of the movement believe what they are saying. In my opinion, they are just no-growthers who have picked up a convenient stick to beat business with.

But just as Ken Lay does not indict all business executives, dishonest planners do not indict all planning.

As it happens, and just coincidentally, my physics adviser and I have been debating this (not too much of a contest, we're more or less on the same side); and he is preparing a possible guest post through me here based on his experience in industry.

It turns out we are not the first people who have contemplated a general approach to planning.

My example of the British Air Ministry and radar still stands, in my view, as a thoughtful way to attack a problem.

As for planning for other people, unless you're an extreme libertarian, it seems to me you're going to be doing some of that.

Criminal law, for example, amounts to planning other people's behaviors.