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… is from page 85 of the 2015 2nd edition of Georgetown University’s Pietra Rivoli’s excellent 2005 book, The Travels of a T-Shirt in the Global Economy [2]:
A system that ignores market signals, that provides no incentives, and that subsidizes losers cannot be efficient in producing goods and services. Central planners will produce the wrong goods, use the wrong inputs, set the wrong prices, hire the wrong people, and ultimately produce shoddy products, and not enough of them anyway.
DBx: True dat.
One common error today is to insist that this truth kicks in only under central planning of the entire economy – only under ‘classic’ or full socialism. This criticism of central planning is said not to apply to less-ambitious modes of planning or intervention.
The fact is that while, of course, the economic chaos worsens the more complete are attempts to centrally plan, the knowledge problem that makes central planning of an entire economy impossible still plagues attempts to plan any economy’s sector, such as that of health care or banking.
Put differently, the knowledge problem is not triggered by a toggle switch that is turned on only when attempts to centrally plan expand to cover the entire economy. The knowledge problem – planners’ unavoidable ignorance of the all-important and ever-changing details of time, place, and circumstance – render attempts even to impose a top-down plan on a subsection of the economy doomed to fail (by which I mean doomed to perform worse over time than under a competitive market process).
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I recommend this video featuring Lynne Kiesling [3].