Prague Twin

Friday, June 15, 2007

School Time

So, I don't really have time to blog, as I'm back in school right now. But let me tell you this.

I got to speak with my professor of Managerial Economics over beers tonight. After some pleasantries, we got down to business. We explored the idea of world economic systems, and agreed that there was not one solution. He gave me a lot of leeway on a theory that we are living in an era of an overreaction to the last failed system which was based on central planing.

It is accepted, today, that free-markets and democracy are the best idea for economics and politics respectively. Now, they may well be the best we've come up with so far, but there is never a static state of human affairs. That is to say, if you come upon some solution that appears to be better than all systems which came before it, that is not cause to disregard other approaches to the human condition, even if they resemble the failed ideas of old.

The fastest growing economies in the world are nearly all directed by political systems that are inherently undemocratic. To say that central planning, one of the most important tenants of communism is a failed idea, is to throw out the baby with the bathwater. Planning is an integral part of every business. Businesses listen to the market, but in the end they plan. The more organized a company, or a country, can be, the more efficient it will run.

Now the market has a way of determining things at more nuanced levels for which there is not currently--and likely will never be--any substitute. To ignore consumer demand and the other principles of market economics, is at this stage pure suicide. But to profess that these forces are the end all, the solution to everything, is pure folly.

As human beings, we decided, we must always realize that the current system is imperfect. That systems that work in one place well, may work poorly in the next. When everyone starts thinking the same way, that is when everything will collapse. But, this will not happen so long as the spirit of open thinking, and acceptance for others customs and different ideas about how to do things, remains alive.

We must never get so satisfied with ourselves, or think that we have the answer. NO! We must always strive to incorporate the best, or most relevant parts of any system, past or theoretical, into the current one. There is no ultimate answer to the question of politics or economics. If there was, life would be boring.






16 Comments:

  • PT, I think we have discussed the idea of 'fair markets' over free markets.
    I think that will become a central part of the campaign I'm working on now.
    Free market really doesn't do a thing for equity or sustainability.

    By Blogger Cartledge, at 10:45 PM  

  • To ignore consumer demand and the other principles of market economics, is at this stage pure suicide. It's pure suicide to do that at any stage. How many times does socialism have to fail before you guys give up on it? Your praise of the former Communist nations progress seems weird. If you start from near zero with a repressed, talented populace, the only way to go is up with a market economy.
    Roger on his daughter's lap top

    By Anonymous Anonymous, at 4:43 PM  

  • I couldn't agree more, praguetwin. We Americans like to think we live in the best of all possible worlds. Our government and our economic system simply can't be improved on. Our arrogance will evenutally be our undoing.

    By Anonymous abi, at 6:24 PM  

  • Cartledge,

    One of the expressions I really like is free and fair.

    Roger,

    Do you have a crystal ball?

    I have not praised the former Communist nations in this piece in any way. What I said was that central planning, a tenant of Communism, probably still has some merit to it. My reference to "undemocratic nations" leading the world in growth was a reference to nations like China, Vietnam, and the U.A.E. among others. Yes, market economics have helped them, but central planning hasn't hurt.

    The former communist countries, including my resident country, should try a little planning. It could help.

    Abi,

    Thanks for the kind words. Your last statement was exactly what I was trying to get at.

    By Blogger Praguetwin, at 11:24 PM  

  • praguetwin, you wrote:

    "The fastest growing economies in the world are nearly all directed by political systems that are inherently undemocratic."

    Fidel Castro will die soon. If he is replaced by a monkey and someone shows the monkey how to stop human rights abuses in Cuba and how to normalize relations with the US, Cuba will set growth records that will make the country look as though it's on economic steroids.

    It could maintain much of its socialist posture. But if it chucked the marxist objection to private property, the sky would turn green as US dollars fell from above.

    But so what? Cuba is a country of 12 million. I look forward to the day when the island is free and prosperous. But Cuban prosperity will go almost unnoticed in the world. In a free Cuba, production of Cuban cigars may once again match worldwide demand.

    Meanwhile, I'm sure we would see a surge of Cuban baseball players entering Major League Baseball in the US. In fact, we'd probably see an expansion team in Havana.

    But Cuba isn't known for real innovation. That's not likely to change after Castro croaks and the island is free.

    In any case, your little tidbit about fast-growing economies shows that you think percentage increases mean more than aggregate increases.

    There may be economies in the world growing faster than the US economy, but they are small economies. Their impact on the world economy is negligible.

    Even the economy of China is shockingly small compared with the US. I fully expect and look forward to the day when the two are closer to parity. But we are decades from that point.

    Bottom line, the world is a busy place. No single person can know enough to sail smoothly through a single global market. The idea that a handful of people know enough to make all the important decisions for an entire country is laughable.

    The best you can hope for is finding people who possess enough knowledge of a market to operate profitably within it.

    The US is always tinkering with domestic markets as well as international markets.

    Ethanol has become big business. Gasoline in the US now contains 10% ethanol. But the US hits Brazilian ethanol with a big tariff. And it gives domestic ethanol producers a tax benefit.

    Nevertheless, domestic production does not satisfy demand. Corn is the feedstock for US ethanol. Worse, corn prices have risen, which has affected all other agricultural products that use corn, such as animals that eat it.

    Congress should eliminate the tariff on Brazilian ethanol and end the subsidy. If Congress wants to reduce our dependence on imported oil, an easy strategy is to impose small annual increases in the percentage of ethanol in gasoline. The price would rise to meet demand. The market price would ensure that the quantities of imported ethanol and the domestic product would meet demand.

    Instead, Congress wants to tinker. For that reason, the ground we're on is as shaky as ever.

    praguetwin, you wrote:

    "To say that central planning, one of the most important tenants of communism is a failed idea, is to throw out the baby with the bathwater."

    Nonsense. Kill that baby.

    Singapore is free in most ways. But the head of the country is a dictator. He's unusual among dictators, however. He doesn't fear a prosperous populace as dictators always have.

    However, Singapore is a city/state of about 5 million people. New York City is a madhouse of over 8 million.

    If dictators didn't fear wealthy citizens, dictators would have a better reputation.

    But all dictatorships require extensive policing systems to watch the people. Putting all that effort into thwarting creative thinking has been proven to work.

    Free markets and freedom equal prosperity. It's simple.

    By Blogger no_slappz, at 2:23 AM  

  • No_slappz,

    You make some decent points. I think the moment that Cuba is allowed to sell their products in America, their economy will skyrocket, communist or otherwise, so we agree there.

    As to the planning question, think of it this way....

    Corporations invariably have CEOs. Now, the CEOs listen very carefully to the market via analysts, but they still have a plan.

    Why shouldn't a country have a plan?

    G.E. is much larger than than most countries, but we don't say that the middle managers should have free reign to do what they want, do we?

    No, there is a plan.

    I'm not saying a country has to be ruled by a dictator to have a plan. However, to completely disregard the merits of planning is to overlook something so obviously beneficial, it strikes me as comical.

    Free markets and freedom equal prosperity. It's simple.


    This is the thinking that will be our undoing. I'm not saying that free markets and freedom are bad things.

    However, there are no ultimate answers in life. Dogma, even the best intentioned dogma, eventually leads to the stagnation of new ideas.

    And that, my friend, leads to failure.

    By Blogger Praguetwin, at 7:14 AM  

  • One thing that is missing in the so-called "free market" is the ability for people to move. Capital and business are going global but countries are putting up walls so people stay put. Adam Smith talked about the need for people to be able to be free to move from job to job, and in this globalization that means country to country. They can't have it both ways.

    By Blogger Graeme, at 8:10 AM  

  • praguetwin, you wrote:

    "Dogma, even the best intentioned dogma, eventually leads to the stagnation of new ideas."

    You need to take a close look at the definition of "dogma."

    A system that purports to answer every question that its adherents ask is dogmatic. Most religion is dogmatic.

    Free markets and freedom are not concepts bound by dogma. In fact, it is the inherent risks of freedom and free markets that result in their success.

    Free people in free markets can make reasonable estimates of what needs doing. Free people operating in free markets know there are no absolute answers. Thus, they must move as intelligently as possible. But that doesn't guarantee a desirable outcome for all parties.

    As for GE, you wrote:

    "G.E. is much larger than than most countries, but we don't say that the middle managers should have free reign to do what they want, do we? No, there is a plan."

    You mean GE middle managers develop strategies. Religions are based on fixed plans. Dictatorships are based on maintaining control over all else.

    GE is aimed at expanding, while navigating in waters it does not control, but must sail through anyway.

    The heart of corporate expansion and the heart of dictatorships are miles and miles apart.

    Forget central planning. The failure rate among centrally planned economies is 100%.

    Central planning is not a term that survives close examination. Centrally planned economies are never truly that. They are bureaucratic entities that quickly turn inward with all efforts aimed at maintaining power, not societal benefit.

    By Blogger no_slappz, at 3:20 PM  

  • Greame,

    The point you make is more than fair. Indeed, markets are only free for some.

    By Blogger Praguetwin, at 10:52 PM  

  • no_slappz,

    You've completely missed my point.

    I'm not going to get into a semantic discussion about dogma. What I meant was that free markets are seen as the only solution, the only option. All who oppose any aspect of the current interpretation of what a free market is are labeled heretics (communists, socialists). To me, that is dogma.

    The second point you missed is that if I talk about central planning, you equate that with a dictatorship. The two can be separated.

    Market socialism has never been tried. Aside for perhaps a year or so here in what was then Czechoslovakia, nothing resembling the system I envision has ever been given a try.

    Finally, all corporations have a plan. Sure, strategies are developed at lower levels, but everything is approved. A nation could have a plan and try to weave its way through the world just like G.E. does. In fact, that is all they are doing.

    You see everything in black and white in a world of gray. There are more than two options.

    By Blogger Praguetwin, at 10:59 PM  

  • I would be interested someday in your take on Singapore. Here people are forced to save for their medical care and retirement with help from employers, income tax is extremely low but other fees and taxes are everywhere, there are no slums, the city is ultra modern and the gov't operates on roughly a 100 billion surplus annually. It is of course a small nation of 4.2 million in a confined space but it seems to work well.

    By Anonymous expatbrian, at 5:59 AM  

  • praguetwin, you wrote:

    "I'm not going to get into a semantic discussion about dogma."

    You wrote:

    "What I meant was that free markets are seen as the only solution, the only option."

    You use the term "free markets" as though free markets are within the control of those who participate in them. The thing about free markets is that you never know exactly where they will lead. The evolution of markets is difficult to predict beyond the fact that they ensure change.

    But change is exactly what centrally planned economies cannot manage. They cannot manage change because the rapid pace of 21st century development leaves bureaucrats hopelessly behind.

    The best that can be hoped for is that governments prevent one free marketeer from gaining an unfair advantage over another, such as by stealing intellectual property or by inducing legislators to hobble a competitor with restrictive laws.

    You wrote:

    "All who oppose any aspect of the current interpretation of what a free market is are labeled heretics (communists, socialists)."

    I don't think there's a lot of disagreement over the definition of a free market. However, it is true that everyone has his own idea of how to tilt a "free market" in his own favor. That's where your problems start.

    You wrote:

    "To me, that is dogma."

    No. It is self-interest. Have you learned the definition of "rent-seeking" in economics class? Check it out. That's what you're referring to.

    You wrote:

    "The second point you missed is that if I talk about central planning, you equate that with a dictatorship."

    You are suggesting that a limited number of people reading charts and graphs can foresee all the patterns of production, consumption, supply and demand in an entire country.

    When a government engages in central planning it must exercise dictatorial control of production. But as soon as it does, it will begin to fail.

    You said:

    "The two can be separated."

    Dictatorship and central planning cannot be separated. The real-world proof is abundant.

    You wrote:

    "Market socialism has never been tried."

    What the heck is "market socialism"?

    No matter what you think it is, I can tell you that as soon as a handful of people establish quotas for the production of goods and services, you will see that they miscalculated.

    If their miscalculation involves excess production, you will see the hogs eating loaves of bread as happened in the Soviet Union.

    If the planners shoot low, the shelves in the stores will be empty, another common Soviet experience.

    Or Cuba, where very little, including toilet paper, is available in stores serving the Cubans who pay for goods with pesos. On the other hand, if you are a tourist in Cuba paying in other currencies, everything is available. That's central planning for you.

    Central planners have to look good and protect their turf. That's what they do instead of ensuring that citizens receive the service to which they are entitled.

    There is NO economy in which the government sets quotas for production and consumption that works. The failure rate is 100%.

    Meanwhile, if you think a bunch of workers in the collective are going to build cars to sell around the world at market prices, you are mistaken. No socialist country has ever manufactured a product of world-class quality.

    China is coming close. But success will require a joint venture with a company such as GM.

    You wrote:

    "Aside for perhaps a year or so here in what was then Czechoslovakia, nothing resembling the system I envision has ever been given a try."

    Well then perhaps you have the heart of a benevolent dictator. But you probably know the saying about Absolute Power.

    You wrote:

    "Finally, all corporations have a plan. Sure, strategies are developed at lower levels, but everything is approved."

    You mistake strategies for corporate growth and expansion with government strategies of retaining control. They are opposing forces.

    Corporations seek to change the behavior of consumers. They seek to attract new consumers while satisfying existing customers.

    Governments seek to stifle change and maintain control over the system by fighting innovation. Most of all, by prohibiting revolution.

    There are always revolutions occurring in capitalist free markets. Newspapers are getting killed in capitalist countries. The internet is cutting deep.

    In fact, information flow is one element of freedom that all centrally planned economies fear.

    It's not hard for centrally planned economies to control newspaper publication. They've all done it. But controlling the press is not only impossible in a free-market setting, it's undesirable.

    You wrote:

    "A nation could have a plan and try to weave its way through the world just like G.E. does. In fact, that is all they are doing."

    Which nations? Capitalist nations don't have a "plan". They have a philosophy that admits to nto knowing what people want, or what they should have.

    The goal of capitalism is to provide the platform for organizations (single-proprietorships, partnerships, corporations) to give people what they want.

    The goal of centrally planned economies is to tell people what they can have and restrict them to that limited view of what is allowable.

    You wrote:

    "You see everything in black and white in a world of gray."

    Quite the opposite. I know that individuals can decide for themselves what they want and need and are willing to work for. I know that as long as they don't cause direct harm to others (criminal harm) they are within their rights to enjoy whatever they want, including smoking cigarettes, driving motorcyles, drinking liquor, driving Hummers, living in huge houses, etc.

    On the other hand, I've got a feeling you have list of no-nos that would impinge on the rights of millions.

    By Anonymous no_slappz, at 7:57 PM  

  • :-)

    By Anonymous abi, at 3:02 AM  

  • Nicely said, pt.

    By Blogger reality-based educator, at 12:51 PM  

  • Interesting points. It's true that a country can be undemocratic (i.e. China) and still succeed economically. And it's also true that a government has to listen to the public and adapt. The Chinese government, even if it's a police state, does a lot of bobbing and weaving in response to public outcries. Even if all they're doing is coming up with better slogans without any real change, they're at least aware of the public pulse.

    The opposite extreme was the Shah of Iran. When he was overthrown in 1979, he was possibly the wealthiest person in the world, and Iran was one of the world's most brutal and tightly-run police states. Didn't help.

    Who Hijacked Our Country

    By Blogger Tom Harper, at 8:38 PM  

  • Thanks RBE.

    Tom,

    That is the point. It is not the system necessarily that leads to success, it is the skills of the people in charge. The Shah was an idiot, and look what happened.

    By Blogger Praguetwin, at 9:11 PM  

Post a Comment

<< Home