economics general

The problem was not that particular planners made particular mistakes in the Soviet Union or in other planned economies. Whatever the mistakes made by central planners, there are mistakes made in all kinds of economic systems— capitalist, socialist, or whatever. The more fundamental problem with central planning has been that the task taken on has repeatedly proven to be too much for human beings, in whatever country that task has been taken on. As Soviet economists Shmelev and Popov put it:

>No matter how much we wish to organize everything rationally, without waste, no matter how passionately we wish to lay all the bricks of the economic structure tightly, with no chinks in the mortar, it is not yet within our power.

This lesson proved hard for many others who lived in a centrally planned economy to accept. Mikhail Gorbachev was not the only leader raised in the Soviet Union who found the market’s operations and results in the West baffling. During the last years of the Soviet Union, Boris Yeltsin, later destined to become Russia’s first post-Communist leader, was equally struck by what he saw in a capitalist economy:

>A turning point in Yeltsin’s intellectual development occurred during his first visit to the United States in September 1989, more specifically his first visit to an American supermarket, in Houston, Texas. The sight of aisle after aisle of shelves neatly stacked with every conceivable type of foodstuff and household item, each in a dozen varieties, both amazed and depressed him.

>>8676447
Because Hayek's information problem exists dispite people's political desire to have communist and socialist command style economies.

>>8676464

>For Yeltsin, like many other first-time Russian visitors to America, this was infinitely more impressive than tourist attractions like the Statue of Liberty and the Lincoln Memorial. It was impressive precisely because of its ordinariness. A cornucopia of consumer goods beyond the imagination of most Soviets was within the reach of ordinary citizens without standing in line for hours. And it was all so attractively displayed. For someone brought up in the drab conditions of communism, even a member of the relatively privileged elite, a visit to a Western supermarket involved a full-scale assault on the senses.

When he returned to Moscow, Yeltsin spoke of the pain he felt after seeing in Houston the contrast between American and Soviet living standards. He described what he had seen in America to what was described as “a stunned Moscow audience.” Yeltsin’s aide said that the Houston supermarket experience destroyed the last vestiges of Yeltsin’s belief in the Communist system, setting the stage for his becoming the first leader of post-Communist Russia.

>>8676465
>people's

i think you should clarify that to be "people who do not understand economics' desire..."

The significance of free market prices in the allocation of resources can be seen more clearly by looking at situations where prices are not allowed to perform this function. During the era of the government-directed economy of the Soviet Union, for example, prices were not set by supply and demand but by central planners who sent resources to their various uses by direct commands, supplemented by prices that the planners raised or lowered as they saw fit. Two Soviet economists, Nikolai Shmelev and Vladimir Popov, described a situation in which their government raised the price it would pay for moleskins, leading hunters to get and sell more of them:

>State purchases increased, and now all the distribution centers are filled with these pelts. Industry is unable to use them all, and they often rot in warehouses before they can be processed. The Ministry of Light Industry has already requested Goskomtsen twice to lower purchasing prices, but the “question has not been decided” yet. And this is not surprising. Its members are too busy to decide. They have no time: besides setting prices on these pelts, they have to keep track of another 24 million prices.

While markets coordinated by price movements— “capitalism” as it is called— may seem like a simple thing, markets are misunderstood more often than some other things that are considered much more complex. Although a free market economic system is sometimes called a profit system, it is in reality a profit-and-loss system— and the losses are equally important for the efficiency of the economy, because losses tell producers what to stop doing— what to stop producing, where to stop putting resources, what to stop investing in. Losses force the producers to stop producing what consumers don’t want. Without really knowing why consumers like one set of features rather than another, producers automatically produce more of what earns a profit and less of what is losing money. That amounts to producing what the consumers want and stopping the production of what they don’t want. Although the producers are only looking out for themselves and their companies’ bottom line, nevertheless from the standpoint of the economy as a whole the society is using its scarce resources more efficiently because decisions are guided by prices.

>>8676476
rice-coordinated markets enable people to signal to other people how much they want and how much they are willing to offer for it, while other people signal what they are willing to supply in exchange for what compensation. Prices responding to supply and demand cause natural resources to move from places where they are abundant, like Australia, to places where they are almost non-existent, like Japan, because the Japanese are willing to pay higher prices than Australians pay for those resources— and these higher prices will cover shipping costs and still leave a larger profit than selling the same resources within Australia, where their abundance makes their prices lower. A discovery of large bauxite deposits in India would reduce the cost of aluminum baseball bats in America. A disastrous failure of the wheat crop in Argentina would raise the incomes of farmers in Ukraine, who would now find more demand for their wheat in the world market, and therefore higher prices.

While telling people what to do might seem to be a more rational or orderly way of coordinating an economy, it has turned out to be far less effective in practice. The situation as regards pelts was common for many other goods during the days of the Soviet Union’s centrally planned economy, where a chronic problem was a piling up of unsold goods in warehouses at the very time when there were painful shortages of other things that could have been produced with the same resources. In a market economy, the prices of surplus goods would fall automatically by supply and demand, while the prices of goods in short supply would rise automatically for the same reason— the net result being a shifting of resources from the former to the latter, again automatically, as producers seek to gain profits and avoid losses.

During a brief era of greater openness in the last years of the Soviet Union, when people became more free to speak their minds, the two Soviet economists already mentioned wrote a book giving a very candid account of how their economy worked and this book was later translated into English.* As Shmelev and Popov put it, production enterprises in the Soviet Union “always ask for more than they need” from the government in the way of raw materials, equipment, and other resources used in production. “They take everything they can get, regardless of how much they actually need, and they don’t worry about economizing on materials,” according to these economists. “After all, nobody ‘at the top’ knows exactly what the real requirements are,” so “squandering” made sense— from the standpoint of the manager of a Soviet enterprise.
Among the resources that were squandered were workers. These economists estimated that “from 5 to 15 percent of the workers in the majority of enterprises are surplus and are kept ‘just in case.’” The consequence was that far more resources were used to produce a given amount of output in the Soviet economy as compared to a price-coordinated economic system, such as that in Japan, Germany, and other market economies.

>>8676481
Citing official statistics, Shmelev and Popov lamented:

>To make one ton of copper we use about 1,000 kilowatt hours of electrical energy, as against 300 in West Germany. To produce one ton of cement we use twice the amount of energy that Japan does.

The Soviet Union did not lack for resources, but was in fact one of the most richly endowed nations on earth— if not the most richly endowed in natural resources. Nor was it lacking in highly educated and well-trained people. What it lacked was an economic system that made efficient use of its resources. Because Soviet enterprises were not under the same financial constraints as capitalist enterprises, they acquired more machines than they needed, “which then gather dust in warehouses or rust out of doors,” as the Soviet economists put it. In short, Soviet enterprises were not forced to economize— that is, to treat their resources as both scarce and valuable in alternative uses, for the alternative users were not bidding for those resources, as they would in a market economy. While such waste cost individual Soviet enterprises little or nothing, they cost the Soviet people dearly, in the form of a lower standard of living than their resources and technology were capable of producing.

>>8676484
Such a waste of inputs as these economists described could not of course continue in the kind of economy where these inputs would have to be purchased in competition with alternative users, and where the enterprise itself could survive only by keeping its costs lower than its sales receipts. In such a price-coordinated capitalist system, the amount of inputs ordered would be based on the enterprise’s most accurate estimate of what was really required, not on how much its managers could persuade higher government officials to let them have. These higher officials could not possibly be experts on all the wide range of industries and products under their control, so those with the power in the central planning agencies were to some extent dependent on those with the knowledge of their own particular industries and enterprises. This separation of power and knowledge was at the heart of the problem.
Central planners could be skeptical of what the enterprise managers told them but skepticism is not knowledge. If resources were denied, production could suffer— and heads could roll in the central planning agencies. The net result was the excessive use of resources described by the Soviet economists. The contrast between the Soviet economy and the economies of Japan and Germany is just one of many that can be made between economic systems which use prices to allocate resources and those which have relied on political or bureaucratic control.

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I though capitalism means that the means of production are privately owned, while communism means they are publiquely owned.

Free market is on another level, since it is not about production, but about the exchanges of the production.

>>8676525
>I though capitalism means that the means of production are privately owned, while communism means they are publiquely owned.

well, i guess you were wrong then, werntchya?

>>8676471
see
>>8676525
and
>>8676476

for some clarification on "capitalism", more aptly called a price coordinated market.

>>8676548
Ok, but does that fully require private profit ?

Also european, public health systems are more efficient than the US one.

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>>8676572
>Ok, but does that fully require private profit ?


>Also european, public health systems are more efficient than the US one.
you should probably read this before, while, or after you finish basic economics

The many products which remained unsold in stores or in warehouses in the Soviet Union, while there were desperate shortages of other things, were a sign of the fatal weakness of central planning. But, in a price-coordinated economy, the labor, management, and physical resources that went into producing unwanted products would have had to go into producing something that could pay its own way from sales revenues. That means producing something that the consumers wanted more than they wanted what was actually produced. In the absence of compelling price signals and the threat of financial losses to the producers that they convey, inefficiency and waste in the Soviet Union could continue until such time as each particular instance of waste reached proportions big enough and blatant enough to attract the attention of central planners in Moscow, who were preoccupied with thousands of other decisions.

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>>8676572
>Ok, but does that fully require private profit ?
yes profits are privately owned. Exactly how much of are you entitled to what another person has worked for?

>>8676447
>scarce goods which have alternative uses.

Children's food (nutritional health) is stolen from them and turned into alcohol and other drugs.

>>8677766
Why are you projecting emotional irrationality onto a rational, albeit extremely intricate, system of exchanges?

Prices in a market economy are not simply numbers plucked out of the air or arbitrarily set by sellers. While you may put whatever price you wish on the goods or services that you provide, those prices will become economic realities only if others are willing to pay them— and that depends not on whatever prices you have chosen but on what prices other producers charge for the same goods and services, and what prices the customers are willing to pay. Even if you produce something that would be worth $100 to a customer and offer it for sale at $90, that customer will still not buy it from you if another producer offers the same thing for $80. Obvious as all this may seem, its implications are not at all obvious to some people— those who blame high prices on “greed,” for example, for that implies that a seller can set prices at will and make sales at those arbitrary prices. For example, a front-page news story in The Arizona Republic began:

>Greed drove metropolitan Phoenix’s home prices and sales to new records in 2005. Fear is driving the market this year.

This implies that lower prices meant less greed, rather than changed circumstances that reduce the sellers’ ability to charge the same prices as before and still make sales. The changed circumstances in this case included the fact that homes for sale in Phoenix remained on the market an average of two weeks longer than the previous year before being sold, and the fact that home builders were “struggling to sell even deeply discounted new homes.” There was not the slightest indication that sellers were any less interested in getting as much money as they could for the houses they sold— that is, that they were any less “greedy.”

>>8677766
In bidding for cheese, ice cream, and yogurt, consumers are in effect also bidding indirectly for the milk from which these products are produced. In other words, money that comes in from the sales of these products is what enables the producers to again buy milk to use to continue making their respective products. When the demand for cheese goes up, cheese-makers use their additional revenue to bid away some of the milk that before went into making ice cream or yogurt, in order to increase the output of their own product to meet the rising demand. When the cheese-makers demand more milk, this increased demand forces up the price of milk— to everyone, including the producers of ice cream and yogurt. As the producers of these other products raise the prices of ice cream and yogurt to cover the higher cost of the milk that goes into them, consumers are likely to buy less of these other dairy products at these higher prices.

How will each producer know just how much milk to buy? Obviously they will buy only as much milk as will repay its higher costs from the higher prices of these dairy products. If consumers who buy ice cream are not as discouraged by rising prices as consumers of yogurt are, then very little of the additional milk that goes into making more cheese will come from a reduced production of ice cream and more will come from a reduced production of yogurt.

>>8677789
What this all means as a general principle is that the price which one producer is willing to pay for any given ingredient becomes the price that other producers are forced to pay for that same ingredient. This applies whether we are talking about the milk that goes into making cheese, ice cream, and yogurt or we are talking about the wood that goes into making baseball bats, furniture, and paper. If the amount of paper demanded doubles, this means that the demand for wood pulp to make paper goes up. As the price of wood rises in response to this increased demand, that in turn means that the prices of baseball bats and furniture will have to go up, in order to cover the higher costs of the wood from which they are made.

The repercussions go further. As the price of milk rises, dairies have incentives to produce more milk, which can mean buying more cows, which in turn can mean that more cows will be allowed to grow to adulthood, instead of being slaughtered for meat as calves. As the price of wood rises, forestry companies have incentives to plant more trees. Nor do the repercussions stop there. As fewer cows are slaughtered, there is less cowhide available, and the prices of baseball gloves can rise because of supply and demand. As forestry companies plant more trees, they buy up more land on which to plant those trees, so that the price of land on which to build houses goes up. Such repercussions spread throughout the economy, much as waves spread across a pond when a stone drops into the water. By the same token, if someone figures out a way to produce cereal more cheaply, or how to create new foods that are cheaper or better substitutes for cereal, the repercussions of that spread out in all directions as well.

>>8677758
%50 if I married them :^)

>>8677805
there are many legal ways around that, especially if you have a lot of money

>>8677809
of course, but thats why you should only try to screw over brainlets.

>>8677844
I ask this question every day when my boss and his boss and so on take everythung I have produced that day and offers me just barely enough to survive.

>>8676572
It's not at all clear that the US healthcare market is a free market at all. Consider the fact that one cannot re-import drugs in the United-State from other countries, effectively imposing protectionist measure favoring pharmaceuticals over the America consumer. Consider further the fact that hospital do not have the right to refuse emergency treatments irrespective of ability to pay, which is a set of costs they somehow have to offset somewhere else. Consider furthermore the fact of Medicare and Medicaid, hardly free market institutions, or the competition restriction measure embedded in Obamacare, which prevented denial of coverage on the basis of preexisting condition, an horrendous obligation to introduce in a fucking INSURANCE business.

>>8677844
>>8677758

> profit
> work

How long will this bullshit last ?

It's not because work has a priced fixed by a market that this price has any relevance in a human society.

>>8677881
your boss can replace you faster than you can replace him

>>8677941
But what are they producing? This is simply theft with extra steps.

>>8677945
I don't know where you work, how do I know? I assume he's more qualified for that job than you, which is why you aren't his boss

>>8677965
I see you've never entered the workforce. Qualifications and hard work don't amount to shit when things like nepotism exist. Take a look at Trump and Trudeau, two examples of people who got to where they are because of their parents. Even Hillary is only known because of who she's married to. Feudalism never died, it just got a label change.

>>8677987
So capitalism only sucks because of nepotism? Why do people rail against capitalism as a whole then? Why not just criticise nepotism

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> be made king because of holy bloodline
> be the best ruler there is
> suddenly, filthy peasants start shouting
"Down with his head" " We demand democracy" "Enough with the crowned crook"
> I don't understand, why are these people so mad at me ?
> and why are they so greedy ?
> they don't even have blue blood, how could they rule anything anyway ...

>>8676447
>scarce goods

No, it isn't about scarce goods at all. It is about people and what they want.

>>8677990
Capitalism allows nepotism to exist. How do you expect a parent to give a child special favors when the government is the one handling fair education for all and giving out jobs? In capitalism the only thing that matters is the birth lottery. Either you're born into the right conditions for wealth, or better luck next ressurection if it exists.

>>8677990
>Why do people rail against capitalism as a whole then?

I think it's precisely because of what OP describes : in capitalism the market decides everything. So since many people are left behind, they blame the ruler, capitalism.

>>8677881
your fault for not being skilled enough, desu.

third world countries are driving labor costs down. knowledge is the most valuable scarcity. get some.

>>8678004
well, i guess you're wrong then, arentchya?

>>8678330
>need wealth to get education
>need education to get wealth
Ain't America grand?

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>>8676465
>>8676468
>>8676447
>economics
>a science
daily reminder that all economics is bauble-gazing for childish fedoras.

I love how everyone here is talking about economics like its a science or something

>>8678330
do you find it at all noteworthy that you offered that response without having the slightest clue about what he does for a living or what skills or knowledge his may possess?

>>8678345
No you don't and... no you don't

>>8678366
no

>>8678353
>>8678352

shills in full force today. op's book is required reading