Monday, 10 September 2012

Manage the Economy Like the Olympics?

'Those union barons are so fucking dumb...
Dealing with Klingons is easier!'

So, I see the economically illiterate dinosaurs in the TUC still seem to think that we're living in the 1940s, demanding that we 'manage the economy like the Olympics'. Their contention is that the (largely publicly-funded and centrally-planned) Team GB effort shows that the private sector isn't the answer to everything, and that State planning and control can play its part.

Cue the obligatory Captain Picard facepalm.

Well of course it bloody well can. But just because you can do a thing, does not necessarily entail that you should do a thing. We could solve starvation in Africa by murdering everyone who lives there, but it's not really classed as a viable solution to anyone other than the die-hard maniacs like Idi Amin that pop up every now and again. He was a socialist, by the way. But I digress...

The reason that a centrally planned Statist approach to the Olympics worked so well is because it has fixed, measurable targets, and an established method of hitting those targets. The target was to come 4th in the medals table, ergo winning as many gold medals as possible. Very nice and clear cut. The next stage was identifying the sports that we were likely to do well in, and targeting funding at those areas to maximise our chances. The funding paid for personal trainers, medical staff, dieticians, training equipment and facilities, living expenses for the athletes and so on. Lo and behold, it worked. So why can't we do that with the economy?

Because there is no clear-cut goal for the economy, and no established method of reaching such a goal even if we had one. Which we don't.

You might argue, 'we need economic growth!' Really? From what sector of the economy? Construction? Agriculture? Retail? Dare I say it... banking? All of the above? You might find that the focused activity needed to create economic growth in one area may be the diametric opposite of the requirements for creating growth in another. In short, we have a strong element of uncertainty, which makes it very difficult for any single organisation - even one as complex and well-resourced as the State - to formulate any serious centrally planned economic management. For further details, see the Soviet Union, 1970s onwards.

So, if a centrally planned system can't assign funding and resources properly, on account of the variables simply being too complex to work out, what's the alternative? Well, the alternative is to let the people in the relevant industries exchange goods and services at their own rates. That way, resources and labour will focus into the hands of the people who are best-placed to produce the most efficient outcomes.

In the real world, we call this a market.

Here endeth the economics lesson.