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Comment by tdaltonc | Hacker News Reader

That perspective was Hayek's primary contribution to economics. Markets are not just short-term allocation systems. In the medium and long term, their primary function is to collect, compute, and communicate granular information about what is wanted where.

Bureaucrats can compile reports on the broad strokes in static systems, and by doing it without wastes like marketing, or redundant infrastructure they could maybe even do those parts more efficiently than markets. But nothing beats a market for realtime servicing of rapidly moving demand (unless you ask the techno-utopian communists).

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"The Use of Knowledge in Society" [0], Hayek's famous essay on the subject, is an enjoyable 12-page read. I first read it as an undergraduate economics major, and it remains one of my favorite economics papers for its clear and simple insight into the role of markets as basic mechanisms of social organization.

If you want to get a feel for what the other side of things was like in Hayek's era, I recommend a curious book written a few years ago by Francis Spufford called Red Plenty [1], which illustrates (partly in fact, partly in fiction) the immense ambition of economists at Gosplan, and the even bigger task they faced, as they tried to modernize the Soviet economy of the 1950s and '60s.

0. https://www.aeaweb.org/aer/top20/35.4.519-530.pdf

1. http://www.redplenty.com/Front_page.html

I'm a big fan of Hayek, however I don't think he ever discussed what I feel is the strongest argument against state-sponsored central planning - contingency planning. When the government decides it needs to be responsible for some basic human need because it is too important to be left up to the free market, such as food security or healthcare, it crowds out alternatives that actually behave as valuable insurance/backups to a primary provider of a given good or service. If/when the government fails at providing something as vital as food or water, there isn't much you can do when the government controls the means of production. If a natural monopoly exists, people are at least free to find alternatives on their own, and thus profit from them, should those managing that natural monopoly fail at their jobs.

I've been wondering if stuff like this was the reason for initial growth spur of soviet union. It was easy for Lenin to see in 1923 that the country needed steel, food, housing and railroads. If you just churn out that stuff, you can't go wrong too much. But once those markets we're saturated in the 70's, you had no data provided by the markets about what to do. So the soviet union was pretty much doomed to that level of GDP.

Now I imagine it would be still relatively easy to take a country like Peru, turn communist and simply churn out steel, food, housing, install internet cables and improve roads. But you would hit a wall in decade or two.

Today that's called "The State Development Capitalism Model" as opposed to the market-led capitalism model in "The Washington Consensus" and I think it has a lot to recommend it. But the hand-off to a first world economy and governance style is really really tricky (see the "middle income trap").

Ah the good old "national socialism". It worked good for Nazis for a short while. But I don't think we have no long term data? Francoist Spain suffered from trade restrictions and Baathist countries used to benefit "unfairly" from oil.

I suspect the problem is the same. Your indicators get skewed if you accept them as goals. Bit like if you go to school, not for learning, but for getting good grades. It's going to kick you sooner or later, but at latest in academia.

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