A not Unminor problem for the Left

DANIEL.DAVIES at flemings.com DANIEL.DAVIES at flemings.com
Fri Apr 14 07:36:46 PDT 2000


>>


>>You miss my point, and also Hayek's.<<

Yeah, probably, but we Welsh don't know when we're beaten (don't know when we're winning either), so here goes. . . . . .


>> My point was that Hayek calls out
attention, emphatically, to reasons to care about costs and waste in real world terms, <<<

Hmmmmmmm .... a lot of what you're assuming is "waste" might be called "production of leisure" by someone looking at this from a different perspective. In the original post, you wrote:


>>If we decide, for example, that we want better health care and
therefore we must spend X dollars (or whatever the measure of the amount of resources we use), but in fact we get no better health care for that amount, given the way we spend it, than we would if we had spent X-n, then the difference is wasted.<<

I question whether this would always, or even usually, be the case. From the point of view of GDP, yeah. But we're assuming that this is a socialist society, and we're not worried about being GDP size queens. If the quantity "n" in your example represents an easy afternoon on the golf course for a doctor, then from his point of view, it's not wasted at all -- it's been spent producing leisure. More generally, I think you and Hayek are going to be hard pushed to come up with a principled distinction between having workers slack on the job, and produce Y units of output for X units of input, and having workers work hard, produce Y units of output for X-n units of input, then spend n units of input on producing leisure. To me, this resembles a separation theorem, like the Fisher one.

So, I think, this means that I can avoid the implicit challenge to a planned economy that it wouldn't be *optimally efficient*, in some technical sense of "optimally efficient". I can get away with establishing that a planned economy could produce enough to satisfy peoples' needs, given the available inputs, and say that the rest is being spent on leisure. And slacking on the job definitely is a form of leisure, and often a rather agreeable one (can anyone tell I've just come back from lunch?). So unless planned economic systems are actually so inefficient that they are incapable of producing enough resources for everyone in the economy to have the necessary means to enjoy their life, Hayek's point and yours can't be established, and the modern left is right to ignore "waste". I'm treating the definition of "enough to satisfy peoples' needs" as if it were unproblematic, because the last time the issue was raised, we got twenty posts on the necessity or otherwise of toilet paper, half of which bounced off my firewall :-)


>>You also miss Heyek's point about planning, which, as you say, is
pragmatic and not logical. Hayek was aware of linear programming and he didn't die so long ago. But he would say (did say) this: no matter how powerful your computers are,<<

I remember hearing of Hayek's death, in 1991, I think. And I'm sure he was aware of linear programming (though it was the Soviets who invented it). But up until the late 1970s, linear programming models of any size had to run on seriously big iron, and took material amounts of time to produce an answer. I disagree that Hayek could possibly have foreseen an environment when it's possible for a single chap like me to have detailed financial models of 12 large European banks on my desktop, and to forecast their earnings to within 10% most of the time. So even if his argument wasn't about computer power, it gained a lot of credibility at the time from the actually existing lack of computer power.


>> even if they can do the whole input/output matrix for an
economy in a microsecond, the output is only as good as the input, and there is no way to get the input accurate in the matrix in a purely planned system.

That is in part because each unit in the planning system has an incentive to lie, <<

Having done a fair bit of work on the principal agent problem, in the context of the economics of traders' bonuses, I have to say that this "incentive to lie" is only created by a specific subset of the set of possible reward schedules. Particularly, the "to each according to his needs" reward schedule doesn't seem to create it.


>>to say that it has less resources and capability than it does,a nd that
it needs more resources and capability than it does. This is in part because the planning system rewards unbits for meeting targets, and the best way to make sure you meet your target is to say you need more than you in fact do to meet a target you say is lower than the one you can in fact meet. So the whole system encourges inaccurate information, promoting shortages and bottlenecks, which in turn amplies the effect just described. As the programmer's say, garbage in, garbage out.<<

Hmmmmmmm .... if this problem were really insoluble, it would be hard to see how a company like GM or British Petroleum could get off the ground. This problem clearly isn't large enough to cripple production; at worst, it might lead to some people getting a free ride. But that's a clear benefit to them; we're not in the realm of maximising shareholder value here.


>>Hayek calls attention to incentives to gather accurate information. It is
not raw compuing power that concerns hiim. It is incentives to get the costs right.<<

Nearly right will do. One shouldn't exaggerate the extent to which it's possible to pull the wool over the eyes of the corporate centre.


>> Market systems create those incentives because individuals profit by
accurate information about particular things. <<

This isn't my understanding of the Walras critique. The proof of optimality of a market system deals with the incentive problem by assuming it away -- under a perfectly competitive system, there's nothing you can do with an information advantage anyway. As soon as you get any degree of monopoly power, the monopolist profits by concealing his marginal cost of production, not revealing it. The advantage of a market system is in decentralised collection of information about consumer preferences, so that decisions about what products to make can be made better, not really about production efficiencies within industries. And that strand of the argument relies on some very dodgy theories about preferences.


>>>Planning systems do
not--everyone is better off if the information is accurate, but since each individual bebefits if it si not, we have a classical n-pesron prisoner's dilemma or collective goods problem.<<

I think it's a bit fast to claim "everyone is better off if the information is accurate" when all you really have is "more outputs can be produced for given inputs if the information is accurate". In fact, arguably, even this isn't really established by the Hayekian argument and what can be shown is "it is possible to make people provide more inputs if the information is accurate". I think that there's a big problem here with the tradeoff between production of goods and wellbeing -- Jerry Cohen has a chapter on this in one of his books, can't remember which.


>>This should be obvious. but it doesn't seem to be, at least it isn't
understood on the left. I have been waiting for 20 years for someone to face thsi directly and I am still waiting. Maybe you, DD?

--jks<<

I fear you will wait another twenty if you're reduced to asking the likes of me :-)

dd

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