When we think of the astounding influence of economists such as Milton Friedman, George Stigler, Gary Becker and more, it is hard to remember just how much the socialist planning ideology was commonplace at the time.
“So my point is that while Central Planning and Socialism remained a topic of discussion with some momentum in times of crises, its importance had greatly diminished compared to the early debates in the 20th century.”
Yes, but Cochrane’s point is that *despite* the fact that it ias been discredited, the ideas still have not gone away.
Could you summarize exactly what were those people wrong about? It's a bit unclear to me if you mean they were wrong about planning being imminently in the future (which obviously was wrong) or whether planning can work at all (which is not obviously wrong to me).
It's totally understandable that people would think you need planning of the economy. If you are going on a trip don't you plan? If you are building a house don't you plan? It took someone like von Mises or Hayek to articulate why a macro economy cannot be run in that same way.
Nothing wrong with planning. It's the "central" part that is the problem, for various reasons, but first and foremost: it is oppressive and restricts people's freedom in fundamental ways.
“…first and foremost: it is oppressive and restricts people's freedom in fundamental ways.”
No, what Hayek brilliantly showed is that independent of the morality component, it can’t work better than a market system with prices not set centrally.
Heilbroner was a weak economist...where in the literature of serious economists does he fit? a journalist...not a real economist. The collapse of the Soviet Union underscored what we all knew at Chicago long before--in the 1960's with the the joke of the shoe quota being filled with only Left Shoes...and we had to wait until The Gulag was exposed in English in 1979 to know the real costs of "Planning". Even Kantorovich who was honored by the Swedes (1975) knew... Maybe thats why they gave him the prize...Prof S. Wellisz taught advanced Welfare Econ at Chicago ( I was his TA in 1963) and we covered a lot about planning. There was in the 1960's a large literature and Lange came (in 1963 I think) and gave a "misleading" lecture about the LL model to be used by planning...Quite a joke when he was asked what he would do now that we had "computers". I can't quote it exactly but he said,... "forget about the L L model---we would just solve the D&S equations and allocate among the producing firms...."Very easy, right? Ask the Fed about how well econometric forecasts do 60 years later? Better yet, ask Jay Powell!
Central planning is still quite popular with most voters. Spontaneous organization is not anthropologically natural to human beings. Whether nuclear or extended, almost everyone is raised in a family where they are subject to constant command and control. Today, most people do not experience any semblance of freedom until adulthood. And prior to the 20th century, many if not most individuals’ lives were severely constrained. The lived experiences of almost everyone on earth strongly suggests that someone somewhere must be “in charge” or chaos will result.
That’s why I don’t think the slavery of 1776 was nearly as evil as the slavery of 1861…in 1776 most people were essentially serfs tied to land. And I also wouldn’t have a problem with the 1619 Project being called the 1836 Project because Texas was a republic founded on slavery but America was founded on a less evil version of slavery.
I once attended a class in Germany where the professor argued that the Nobel Prize in Economics was introduced to spread neoliberal ideas, citing Hayek and Friedman among the winners as examples. But here, interestingly, we have figures like Harvard economist and former AEA president Wassily Leontief using his Nobel title to advocate for economic planning in the United States.
I lived through this era, and studied it, without ever becoming convinced, by the way. The telling bit is that the voting population was never, not even eventually, convinced either. The median voter may be irrational, but s/he's not that irrational!
Pretty scary stuff. I’m afraid the only difference is back then, they came right out and stated what they wanted to accomplish and how they would go about it. Now they cloak their plans in more palatable terms to free market ears with every intention of doing the same planning/control contemplated in these articles. Thank God for these two things…Americans will always value freedom above all else and they know nonsense when they hear it. Else this might have become law!
Central planning has been making large strides in Urban Planning, on the grounds of "saving the planet" from urban "sprawl" and its externalities, which externalities for some reason, the establishment does not wish to address directly with targeted taxes and fees and so on. There can be little doubt that as this form of Central Planning has advanced, so has a crisis in housing affordability and many associated social pathologies including inequality, seeing the shifts in urban land rent represent a zero-sum wealth transfer. The establishment has reacted by attempting to blame everything but the land-use policies that actually cause the paradigm change in urban land rent.
The crux of the issue is the allocation of land to uses of all kinds - urban versus rural. The beneficial trend during the 20th century, of flattened urban land rent, democratization of home ownership, and greatly increased average home size and quality, was certainly due to automobility rendering superabundant rural land (at very low prevailing prices) available to the "urban" economy as well. As soon as this superabundant supply of land potentially able to be offered to the urban property market by developers in competition with each other, and freedom of entry into this market; are interrupted by regulations, the urban economy reverts back to the pre-automobile process of deriving land rent: extracting the maximum that consumers can be forced to pay for a basic necessity. The classical economists before automobility became ubiquitous, regarded this as the normal state of things, hence Marxism and Georgism. They had no concept of "differential rent" in urban land, for "differential rent" to be the paradigm in any market, requires superabundance of supply of the essential resources and freedom of entry to the market, of any potential suppliers of those resources. Automobility did this for urban land. In almost all goods through the last couple of centuries, efficient global transport systems, refrigeration and free trade eliminated the ability of resource owners to extract monopoly rent. We need to be intelligent and have the integrity to work out whether we want monopoly rent to exist in housing "just to save the planet from urban sprawl".
Nothing wrong with planning. It's the "central" part that is the problem, for various reasons, but first and foremost: it is oppressive and restricts people's freedom in fundamental ways.
Consensus wrong....what a concept! So much for 'Trusting Science'
Living in NYC I like to ask people as they walk down the street to notice the shops that are there and ask them if they could choose what shops would they put on the streets? It's interesting to see what people would choose. Few would choose what's there.
When China was successful many in the US just a few years ago were lauding China's success... How about now? You do not need to go so far back in time. How about the USSR?
Economics is an empirical discipline that uses mathematical tools to elucidate patterns, relationships and correlations in the studied datasets. The biggest challenge for economists is to interrupt their politics before they start their analyses, otherwise their a priori political philosophy (e.g. central planning is good) introduces bias into the a posteriori conclusions.. Whether or not central planning is efficient for any economy cannot be answered as a thought experiment. Instead, economists should shine a light on the economies that have tried it and what the results were...
What makes anyone think that central planning is dead or a relic of the ‘70s? What are electric vehicle share-of-production quotas, renewable energy mandates, and the whole “race to net zero” except attempts to dictate economic outcomes with little or no attention to economic (or physical) realities? Stalin’s methods were more direct, but the intent and approach are the same.
EVs are essentially natural gas vehicles…we are the Saudi Arabia of natural gas and we should encourage EVs…unless you have such a short memory that you don’t remember 2004-2008 when we had an energy crisis and the elevated CPI was essentially a highly regressive tax that eroded lower class disposable income and ground the economy to a halt.
If EVs were such a compelling, affordable idea, they wouldn’t need subsidies and mandates, nor would we need caps on internal-combustion vehicles. Demand would be high, and that would in turn fuel development of the charging infrastructure. But none of that seems to be happening organically, does it? Instead — central planning.
(BTW, what makes you think the climate planners would let you burn natgas to generate electricity — even if it’s needed for EVs? The climate “plan” is to jack up demand for electricity while imposing unreliable, intermittent sources of generation—solar and wind—while banning reliable, steady sources. Great logic there.)
The fracking revolution happened under Obama and then under Biden we became energy dominant! I do believe AOC and Markey wanted to penalize fossil fuel producers but once Putin invaded Ukraine Biden wisely put an end to that and he instead promoted LNG exports to our NATO allies which made us energy dominant. And the fact that we are energy dominant after Bush/Cheney failed to solve the energy crisis that degraded lower class disposable income and contributed to the GFC is pretty crazy. But people like you could never admit the mistakes you made by supporting Bush/Cheney/Tillerson who wanted us dependent on Iraq’s oil and Qatar’s natural gas.
Planning … or the tendency for economists to perceive themselves as social engineers - is still very rampant. I’m just an undergrad but having read papers and blogs from all sorts of economists I still feel this tendency exists. Comes off as more Public policy than economics
Good point. But consensus is the best thing we have at any given time. To accept this, we must consider that science does not tell the truth. At a certain point, she says what has not yet been refuted. We have no better than temporary consensus. We may regret it, but there is no alternative. The alternative is tabula rasa.
“So my point is that while Central Planning and Socialism remained a topic of discussion with some momentum in times of crises, its importance had greatly diminished compared to the early debates in the 20th century.”
Yes, but Cochrane’s point is that *despite* the fact that it ias been discredited, the ideas still have not gone away.
I couldn’t agree more.
Could you summarize exactly what were those people wrong about? It's a bit unclear to me if you mean they were wrong about planning being imminently in the future (which obviously was wrong) or whether planning can work at all (which is not obviously wrong to me).
Go read some Hayek and you will understand that planning can never work at all).
This should be sufficient: “The Use of Knowledge in Society“ (it’s about 13 pages)
https://www.cato.org/sites/cato.org/files/articles/hayek-use-knowledge-society.pdf
Central Econ0mic Planning by governments has never worked well for the Citizens!
Ed, Hayek's point was that socialist central planning often degenerates into totalitarianism. Nazism, Fascism, Soviet Union are examples.
It's totally understandable that people would think you need planning of the economy. If you are going on a trip don't you plan? If you are building a house don't you plan? It took someone like von Mises or Hayek to articulate why a macro economy cannot be run in that same way.
The Fatal Conciet is a secular iteration of the Original Sin
Nothing wrong with planning. It's the "central" part that is the problem, for various reasons, but first and foremost: it is oppressive and restricts people's freedom in fundamental ways.
“…first and foremost: it is oppressive and restricts people's freedom in fundamental ways.”
No, what Hayek brilliantly showed is that independent of the morality component, it can’t work better than a market system with prices not set centrally.
Heilbroner was a weak economist...where in the literature of serious economists does he fit? a journalist...not a real economist. The collapse of the Soviet Union underscored what we all knew at Chicago long before--in the 1960's with the the joke of the shoe quota being filled with only Left Shoes...and we had to wait until The Gulag was exposed in English in 1979 to know the real costs of "Planning". Even Kantorovich who was honored by the Swedes (1975) knew... Maybe thats why they gave him the prize...Prof S. Wellisz taught advanced Welfare Econ at Chicago ( I was his TA in 1963) and we covered a lot about planning. There was in the 1960's a large literature and Lange came (in 1963 I think) and gave a "misleading" lecture about the LL model to be used by planning...Quite a joke when he was asked what he would do now that we had "computers". I can't quote it exactly but he said,... "forget about the L L model---we would just solve the D&S equations and allocate among the producing firms...."Very easy, right? Ask the Fed about how well econometric forecasts do 60 years later? Better yet, ask Jay Powell!
Central planning is still quite popular with most voters. Spontaneous organization is not anthropologically natural to human beings. Whether nuclear or extended, almost everyone is raised in a family where they are subject to constant command and control. Today, most people do not experience any semblance of freedom until adulthood. And prior to the 20th century, many if not most individuals’ lives were severely constrained. The lived experiences of almost everyone on earth strongly suggests that someone somewhere must be “in charge” or chaos will result.
That’s why I don’t think the slavery of 1776 was nearly as evil as the slavery of 1861…in 1776 most people were essentially serfs tied to land. And I also wouldn’t have a problem with the 1619 Project being called the 1836 Project because Texas was a republic founded on slavery but America was founded on a less evil version of slavery.
I once attended a class in Germany where the professor argued that the Nobel Prize in Economics was introduced to spread neoliberal ideas, citing Hayek and Friedman among the winners as examples. But here, interestingly, we have figures like Harvard economist and former AEA president Wassily Leontief using his Nobel title to advocate for economic planning in the United States.
Planning is good. Imposing a planning solution is bad.
We mean here governmental planning, right?
Democratic Centralism :)
I lived through this era, and studied it, without ever becoming convinced, by the way. The telling bit is that the voting population was never, not even eventually, convinced either. The median voter may be irrational, but s/he's not that irrational!
Pretty scary stuff. I’m afraid the only difference is back then, they came right out and stated what they wanted to accomplish and how they would go about it. Now they cloak their plans in more palatable terms to free market ears with every intention of doing the same planning/control contemplated in these articles. Thank God for these two things…Americans will always value freedom above all else and they know nonsense when they hear it. Else this might have become law!
Central planning has been making large strides in Urban Planning, on the grounds of "saving the planet" from urban "sprawl" and its externalities, which externalities for some reason, the establishment does not wish to address directly with targeted taxes and fees and so on. There can be little doubt that as this form of Central Planning has advanced, so has a crisis in housing affordability and many associated social pathologies including inequality, seeing the shifts in urban land rent represent a zero-sum wealth transfer. The establishment has reacted by attempting to blame everything but the land-use policies that actually cause the paradigm change in urban land rent.
The crux of the issue is the allocation of land to uses of all kinds - urban versus rural. The beneficial trend during the 20th century, of flattened urban land rent, democratization of home ownership, and greatly increased average home size and quality, was certainly due to automobility rendering superabundant rural land (at very low prevailing prices) available to the "urban" economy as well. As soon as this superabundant supply of land potentially able to be offered to the urban property market by developers in competition with each other, and freedom of entry into this market; are interrupted by regulations, the urban economy reverts back to the pre-automobile process of deriving land rent: extracting the maximum that consumers can be forced to pay for a basic necessity. The classical economists before automobility became ubiquitous, regarded this as the normal state of things, hence Marxism and Georgism. They had no concept of "differential rent" in urban land, for "differential rent" to be the paradigm in any market, requires superabundance of supply of the essential resources and freedom of entry to the market, of any potential suppliers of those resources. Automobility did this for urban land. In almost all goods through the last couple of centuries, efficient global transport systems, refrigeration and free trade eliminated the ability of resource owners to extract monopoly rent. We need to be intelligent and have the integrity to work out whether we want monopoly rent to exist in housing "just to save the planet from urban sprawl".
Nothing wrong with planning. It's the "central" part that is the problem, for various reasons, but first and foremost: it is oppressive and restricts people's freedom in fundamental ways.
Consensus wrong....what a concept! So much for 'Trusting Science'
Living in NYC I like to ask people as they walk down the street to notice the shops that are there and ask them if they could choose what shops would they put on the streets? It's interesting to see what people would choose. Few would choose what's there.
When China was successful many in the US just a few years ago were lauding China's success... How about now? You do not need to go so far back in time. How about the USSR?
Economics is an empirical discipline that uses mathematical tools to elucidate patterns, relationships and correlations in the studied datasets. The biggest challenge for economists is to interrupt their politics before they start their analyses, otherwise their a priori political philosophy (e.g. central planning is good) introduces bias into the a posteriori conclusions.. Whether or not central planning is efficient for any economy cannot be answered as a thought experiment. Instead, economists should shine a light on the economies that have tried it and what the results were...
“Whether or not central planning is efficient for any economy cannot be answered as a thought experiment.”
All due respect, Hayek answered in a “thought experiment” of less than 13 pages why central planning cannot work.
https://www.cato.org/sites/cato.org/files/articles/hayek-use-knowledge-society.pdf
And he was proven 100% correct.
What makes anyone think that central planning is dead or a relic of the ‘70s? What are electric vehicle share-of-production quotas, renewable energy mandates, and the whole “race to net zero” except attempts to dictate economic outcomes with little or no attention to economic (or physical) realities? Stalin’s methods were more direct, but the intent and approach are the same.
EVs are essentially natural gas vehicles…we are the Saudi Arabia of natural gas and we should encourage EVs…unless you have such a short memory that you don’t remember 2004-2008 when we had an energy crisis and the elevated CPI was essentially a highly regressive tax that eroded lower class disposable income and ground the economy to a halt.
If EVs were such a compelling, affordable idea, they wouldn’t need subsidies and mandates, nor would we need caps on internal-combustion vehicles. Demand would be high, and that would in turn fuel development of the charging infrastructure. But none of that seems to be happening organically, does it? Instead — central planning.
(BTW, what makes you think the climate planners would let you burn natgas to generate electricity — even if it’s needed for EVs? The climate “plan” is to jack up demand for electricity while imposing unreliable, intermittent sources of generation—solar and wind—while banning reliable, steady sources. Great logic there.)
The fracking revolution happened under Obama and then under Biden we became energy dominant! I do believe AOC and Markey wanted to penalize fossil fuel producers but once Putin invaded Ukraine Biden wisely put an end to that and he instead promoted LNG exports to our NATO allies which made us energy dominant. And the fact that we are energy dominant after Bush/Cheney failed to solve the energy crisis that degraded lower class disposable income and contributed to the GFC is pretty crazy. But people like you could never admit the mistakes you made by supporting Bush/Cheney/Tillerson who wanted us dependent on Iraq’s oil and Qatar’s natural gas.
Planning … or the tendency for economists to perceive themselves as social engineers - is still very rampant. I’m just an undergrad but having read papers and blogs from all sorts of economists I still feel this tendency exists. Comes off as more Public policy than economics
Good point. But consensus is the best thing we have at any given time. To accept this, we must consider that science does not tell the truth. At a certain point, she says what has not yet been refuted. We have no better than temporary consensus. We may regret it, but there is no alternative. The alternative is tabula rasa.