
Extreme concentration of wealth in US economy has led to central planning - ph0rque
https://plus.google.com/107033731246200681024/posts/D6SwChze4Vd
======
lionhearted
Central planning isn't bad just because it's bad, there's reasons for its
badness. Here's a few -

First, you get people who don't know about a profession trying to dictate to
people who do know about it. EX: Hitler and Stalin managing farm production,
even though they didn't know anything about farming - agricultural production
goes down leading to famines.

Second, you lose the price signal which says what people really want enough to
act on, given scarce resources. This leads to a feedback loop where goods
priced below the equilibrium have demand far in excess of supply. EX: Everyone
would love to buy a subsidized steak instead of a hamburger, so if steak is
subsidized to hamburger prices, there'll be shortages and you'll need to
impose rationing and coupons and things (which becomes a dual currency system
where the coupon/ration becomes the real constraint currency, and then those
become blackmarketed until an equilbrium is reached - but only with a lot of
hassle).

Third, central planners generally have incentives that diverge widely from the
people they're supposed to be planning for - ex, making sure those new
centrally planned jobs go to your political supporters. This has happened in
the majority of centrally planned economies.

You wouldn't expect a high concentration of wealth to have these same
problems. Steve Jobs having central planning ability over Apple, and by
extension, over a lot of the high quality glass and semiconductor industries
isn't the same as Brezhnev having that power. Jobs, of course, is much more
competent at building high end consumer technology than Brezhnev and not prone
to make some of the common errors.

~~~
_delirium
So in effect the main problem with the Soviet system was that the wrong
managers were in charge? What if they were selected meritocratically, e.g. if
the Soviets had put the best scientists in charge of central-planned
science/tech companies, instead of party stalwarts? You might argue that
that's hard to do, but is that really the only problem with the Soviet system,
that they didn't do a good job picking the right technocrats to put in charge
of a command economy? Most critiques argue that command economies are
inherently inefficient. But if it's really just a matter of doing a better job
picking the technocrats to head a command economy, maybe communism can work
after all, if it just develops a better assessment method for picking
technocrats...

~~~
mwsherman
This is definitionally backwards. It assumes that it can be known ahead of
time who the "best" are.

"Picking better technocrats" is impossible a priori. We don't know who the
best are until they have been selected by the market. It's like determining
ahead of time what the best species are.

"Best" is not defined, it is discovered. Until then, we don't even know the
meaning of the term.

~~~
_delirium
We _could_ define it, if you define what you want your outcomes to be. For
example, if we want to scientifically manage steel production in a way that
maximizes steel output per given cost, then we need highly skilled
statisticians and logistics supply-chain people in charge. Presumably it's
possible to develop objective tests for someone's skill at statistics or
supply-chain management (that's why we have technical education, right?), and
then put those skilled people in charge, rather than someone like Brezhnev.
Or, if you want to develop electric cars, then put the country's top engineers
on the project, rather than someone who happens to be the brother of the
oblast governor's wife.

(I'm not sure I actually believe that. But I'm not sure I believe the market
answer either, since on the scale of large companies, there are so many
factors involved, that luck and timing more than skill tend to be huge ones
determining who ends up in top management positions of successful companies.)

~~~
mwsherman
Well, I think that the most objective test is a market. Efficiency only
matters if we know what the goal is, and we don't. Why are electric cars the
correct outcome, a priori? Our choice of electric cars as a goal is
instinctual.

This is why we have ethanol subsidies. We "knew" the right outcome and tried
to make it so.

------
ordinary
The G+ link just lifts out some choice paragraphs. It links to the full
article at the end. For your convenience:
[http://globalguerrillas.typepad.com/globalguerrillas/2011/07...](http://globalguerrillas.typepad.com/globalguerrillas/2011/07/journal-
central-planning-and-the-fall-of-the-us-empire.html)

------
egiva
Good arguments but limited interpretation in this article - namely the fact
that growth in Soviet bureaucracy correlated strongly with a decline in
overall (real) productivity, while growth in US bureaucracy comes during a
time in continued GROWTH in productivity, not decline. Then the author mixes
in this observation/fact that the US experiences a quickly growing income gap
between rich and poor, and it's hard for most readers to realize that that
fact doesn't necessary support the idea that central planning is taking place.
Central planning is top-down (the central leaders have most say over what
industry does) and I'd argue that it's the opposite in the United States -
namely business has more political sway than our elected officials when it
comes to making policy and changing laws.

~~~
abstractbill
_...and I'd argue that it's the opposite in the United States - namely
business has more political sway than our elected officials when it comes to
making policy and changing laws._

I think you missed the main point of the article. This isn't about business
vs. government having more power, it's about few vs. many.

~~~
_delirium
Yeah, it's actually a fairly old (but still interesting) observation that very
large corporations are a form of top-down central planning. In fact many old-
school communists first got inspired by late-19th-century capitalism's trend
towards managed technocracy. There was a large movement in business that
argued that production could be scientifically optimized using statistics,
data collection, scientific management, etc. The communists just took it to
its logical conclusion and asked, why not organize all of society in the
optimal manner, using principles of technocratic scientific management? Even
_that_ argument was more or less originated by capitalists; some of the large
industrial trusts argued that there was no problem with monopolies, because
they were simply the most efficient, scientifically managed form of industrial
production, unlike the messy, inefficient web of competing small businesses
they had replaced. So really the only thing they disagreed on was how the
profits of the centrally managed monopoly should be distributed.

There's an odd amount of borrowing in the other direction, too. Many large
businesses _do_ realize that they internally are basically inefficient,
bureaucratic command economies, mirroring some of the problems with the Soviet
system. So they introduce some of the same attempted solutions that the
Soviets tried: intra-corporation pseudo-markets, competition and awards,
recently the trend of "gamifying" workplaces, etc. (At the risk of self-
promotion, I recently wrote a bit on the latter similarity:
<http://www.kmjn.org/notes/soviet_gamification.html>)

~~~
salem
Well, there are also companies that use full on market based systems
internally. For example Alcoa has an 'internal market structure' for sourcing
materials, and shuttering inefficient subsidaries if they cannot compete on
price internally.

------
tedsuo
I like the central theme, but there's not really a lot of facts and I would
argue the details. For example, he claims there has been a simultaneous growth
in wealth concentration and government control, resulting in misallocation of
resources. But it was deregulation and lack of government enforcement in the
financial markets that allowed them to misallocate capital so egregiously.

I would say that the checks and balances that kept our country strong have
been steadily eroded, with the result that he describes.

~~~
Astrohacker
Deregulation is not the problem. The financial industry is highly, highly
regulated. The Federal Reserve, a corrupt union of government and big banks,
controls the money supply, which is always used to bail out big banks. To
suggest that "deregulation" is the problem is to ignore the corrupt
regulations at the very heart of the financial system--and indeed the entire
free market in the US, and even the world--in the form of Federal Reserve
Notes.

~~~
tedsuo
It's true there's a great deal of corruption. But many kinds of activity that
lead to the financial crisis were impossible under the Glass-Steagall Act. You
might argue that corruption is the root cause, and lead to the
Gramm–Leach–Bliley Act and the Commodity Futures Modernization Act (key
enablers that were deregulatory in nature). But it was still the rolling back
of a successful regulatory system that paved the way.

BTW, It's interesting to look at the environment in which Glass-Steagall was
enacted and compare it to our own times.

------
chrismealy
It's called The New Industrial State and JK Galbraith wrote about in 1967.
It's also why companies hoard cash, so their managers can stay in control.

<http://en.wikipedia.org/wiki/The_New_Industrial_State>

------
nostromo
It's certainly true that a lot of central planning plays a role in US housing.
The income tax mortgage deduction and Fannie Mae are the two striking
examples. It seems they did play a role in the housing bubble -- however, I
don't see that specific example as a result from a concentration of wealth.

~~~
grandalf
The concentrated wealth that influenced the housing bubble came from a variety
of places:

\- the building trade (obvious)

\- the defense industry (less obvious... in order to "sell" an expensive war,
the masses have to feel rich, thus there was pressure on the Fed to let the
housing market heat up, and on the SEC to ignore Fannie and Freddie so that
Joe Homeowner felt rich enough not to worry too much about extremely high gas
prices. There was virtually no talk about the actual cost of the war (short or
long term) other than deliberately misleading statements by the leaders trying
to sell the war.

\- financial services industry (heat in the housing market improves consumer
credit ratings and ends up giving free money to banks (b/c the homeowner whose
house appreciated now has A+ credit and lots of collateral... and the boom
created lots of such homeowners)... all the while the losses are socialized
b/c the government will try to prevent large scale housing market price
declines.)

------
abalone
A large chunk of international free trade is actually centrally managed
transfers within multinational corporations.

The bigger they get, the more central planning we have... And they're gettin'
pretty big.

------
grandalf
One very glaring example of this phenomenon is how entrenched power (mostly
those getting rich from prisons, law enforcement, alcohol and tobacco, etc.)
have managed to create drug laws so at odds with the free market forces that
the entire country of Mexico is profoundly unstable... and it may come
crashing down.

~~~
jarjoura
Umm, Mexico's border city stability has such more more to do with our illegal
immigration policies than our war on drugs. Sure these thugs are funded by our
addictions, but should we legalize drugs tomorrow, they'll just find a new
revenue stream.

~~~
timmaxw
> they'll just find a new revenue stream

I find it interesting to model gang violence as a market. If drugs are made
legal, the demand for thugs will go down. If the supply of thuggery is
elastic, then former gang members will leave gangs and find other work. If
it's inelastic, they'll find other revenue streams.

~~~
cellis
I've heard that simply _decriminalizing_ weed in many states has had a
material, and in some cases profound negative effect on revenue for mexican
drug cartels. Furthermore, many consumers of narcotics are "moving upstream"
to prescription drugs. But with less revenue, comes _more_ violence initially
as the factions squabble fiercely over a bigger slice of a smaller pie.
Eventually this will reach an equilibrium and enough producers will drop out
or realize it's not worth it and we'll end up with a few kingpins for the CIA
to take out (a la Noreaga, Escobar, et al.).

------
siglesias
For reference, here's a study that was recently conducted that compares
Americans' perception of the wealth distribution against the actual wealth
distribution. Surprisingly, participants of all stripes badly estimated the
current distribution and proffered an "ideal" distribution even more out of
whack with reality.

Before clicking, take your guess. What percent of total American wealth does
the top quintile control?

Summary: <http://danariely.com/2010/09/30/wealth-inequality/>

Paper:
[http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20pre...](http://www.people.hbs.edu/mnorton/norton%20ariely%20in%20press.pdf)

~~~
egiva
I saw this a while back - REALLY interesting! I definitely give this a +1 to
anyone who has time to read it.

------
ph0rque
Intriguing... if true, I wonder if the 'central planners' could use this for
good, as China did in <http://news.ycombinator.com/item?id=2875800> ?

------
ChristianMarks
The Taxpayer Theorem

The finding that extreme concentration of wealth within the United States in
the hands of a few thousand people amounts to central planning is empirical
evidence in favor of the application to the US economy of a theorem in the
Theory of Games and Economic Behavior.

In Chapter 11 of The Theory of Games and Economic Behavior (TGEB), Morgenstern
and Von Neumann attempt to reduce the general theory of n-person games to the
theory of (n+1)-person zero-sum games through the introduction of a fictitious
(n+1)-st player. The payoff to the fictitious (n+1)-st player in the new game
equals the negative of the sum of of the payoffs to the n players in the
original n-player game. This defines the (n+1)-player zero-sum extension of a
general n-player game. In the discussion, Morgenstern and Von Neumann observe
that the introduction of the fictitious (n+1)-st player requires some analysis
to ensure that the zero-sum extension of an n-player game does not create
additional possibilities for interaction among the original n players–that the
‘”fictitious” player does not influence the game in any way. They rule out the
absurd possibility of receiving payments from a fictitious player, but have to
consider the possibility of self-denial among the n real players in the zero-
sum extension.

In the reduction of a general n-player game to an (n+1)-player game in which a
fictitious (n+1)-st player is introduced with no ability to form coalitions
with the n real players, and whose losses pay for the winnings of the real
players, Morgenstern and Von Neumann captured the plight of the lower 99.5% of
the population (the "taxpayer"), which collectively serves as the fictitious
(n+1)-st player in modern capitalism. The taxpayer is unable to influence the
outcome of the games of the real players–the upper one half of one percent of
the population (the "central planners"). The taxpayer's role is to passively
fork over whatever funds are needed to ensure the maximum winnings for the
real players, and the least for himself.

This outcome is established in a proposition on page 513 of TGEB, in which the
possibility that the n players may choose self-denial to exploit some
coalitional advantage is ruled out. The real players will never deny
themselves in any imputation to the advantage of the fictitious (n+1)-st
player, who always receives the minimum.

We might call that proposition the Taxpayer Theorem. Its application to
contemporary capitalism, in which the taxpayer insures the central planners
against losses, seems not to have been noticed.* In the case of the taxpayer,
unlike the fictitious player of the (n+1)-st zero-sum extension of a n-player
game, there is some slight possibility of influencing the n real players, but
in practice this effect is negligible, and in the strict terms of cooperative
game theory, irrational. In the case of the lower 99.5%, side-payments to the
upper 0.5% are ruled out because taxpayers are effectively unable to form
coalitions, since the concentration of wealth in the upper 0.5% is too
extreme. To almost any approximation, the taxpayer is the fictitious player in
the zero-sum extension of whatever game the important players in the upper one
half of one percent happen to be playing.

*It is inconceivable that Von Neumann would not have foreseen this application, but it is conceivable that he would chose to leave its rediscovery to posterity.

------
jarjoura
Umm, this "central planning" theory always comes after a great economic boom
period. It's just a collection of wealth at the top that will take a lot of
political might to break up and distribute more evenly. I think we all hoped
Obama was going to be the president to do it and unfortunately we will just
have to wait for the next guy.

~~~
nkassis
I don't foresee any future guy doing any better. The reality is the president
doesn't have much power to improve it but as we've seen with the last
president they do have a great amount of power in making it worse.

------
Astrohacker
Good insight. I would just add that the concentration of wealth has a lot to
do with fractional reserve banking and the Federal Reserve. Since these are
highly regulated institutions, it's not as simple as saying the concentration
of wealth created the central planning. The central planning also created the
concentration of wealth.

------
ars
Non logarithmic graphs of money, how I hate them!

This entire premise would go out the window if he only knew how to graph money
correctly.

~~~
Dove
A logarithmic graph is the right way to graph money? Why is that?

~~~
corysama
Because you almost always care about proportional changes not absolute
changes. If you buy at stock a $1 and it goes to $10, you have made a ton of
money. But if I then buy in at $10 and it goes to $20, I have merely doubled
my investment. Logarithmic graphs convey this clearly. Linear graphs make our
returns look too similar.

It is very common for inflammatory articles to use absolute numbers that
(intentionally or not) ignore inflation, changes in GDP, etc... because it is
both simpler to explain and more effective for inciting outrage.

~~~
tryitnow
?I don't understand why there would be a need for a logarithmic graph in this
case. The author is not discussing proportional changes or even absolute
changes, unless you want to consider income as a change in wealth, but that's
not quite accurate and adds an unnecessary layer of complexity.

The author's main goal is to show how a proxy for decision making power (viz.
household cash income) is highly concentrated.

I don't think the author's graph is the best visualization of his point. I
would like to see a graph of the proportion of national wealth owned by
households at each percentile. The would deliver the point the "power is
highly concentrated" in the top percentiles. Wealth is a better proxy than
income and understanding the proportion of wealth each percentile holds claims
to is better than seeing the absolute amount of wealth held by that group.

------
darksaga
Unfortunately, this is the beauty and the beast of a capitalistic economy. One
the one hand, you have incredible opportunity to achieve success. While on the
other, you end up with a concentration of wealth and power to a small group of
individuals or corporations.

~~~
Astrohacker
Every industry in the US is highly regulated. The worsening economy has
correlated with more regulations and bigger government. I don't think this is
a coincidence. It is the decrease in capitalism due to an expansion of
government that is creating our present problems. Capitalism is not the
problem. Government is.

~~~
BarkMore
Don't forget about the bailouts. The wealth conentration in the finance
industry would be much lower without the government bailout of AIG and others.

------
dr_
What the country really needs now, more than ever, is coming together to solve
problems and less hyperbole, or convenient political rhetoric.

There is no central planning in the US. There is nothing even close to central
planning. Our politicians cannot agree on anything - the political parties are
almost as divided as they've ever been - and we are only beginning to see the
effects of that. How is this central planning? The examples the author gives
at the very end of the article (the main article on globalgorillas), is the
result of the free market at work. The political situation we were in in 2008
and we are in today, is the response to that. That's democracy and, as gut
wrenching as it seems right now, it will eventually work itself out.

------
rdtsc
On a side note there is Cybersyn

<http://en.wikipedia.org/wiki/Cybersyn>

The Chilean attempt at realtime computer controlled planned economy.

------
dangoldin
If anyone is interested in this stuff try reading Hayek's "Road to Serfdom."

He wrote it in the 30s as a response to the push for more central planning.

------
guelo
It's an interesting idea but ultimately weakly supported with very few
numbers. Just another ideologically driven fact-less polemic.

------
wcoenen
Images of smoke-filled rooms secretly steering our lives may speak to the
imagination, but it all sounds a bit too much like silly conspiracy theories
to me.

There are simpler models if you want to explain the current economic malaise.
Just look at the fundamentals: we've run out of cheap energy!

~~~
tryitnow
? Who mentioned "images of smoke-filled rooms secretly steering our lives"

Again, who?

How is this relevant to the article above? Did you read O'Reilly's article?

It would be really cool if folks read the article before commenting. Sehr
kool.

~~~
wcoenen
Yes I did read the article.

The article doesn't literally mention "smoke-filled rooms". It is an
expression: <http://en.wikipedia.org/wiki/Smoke-filled_room>

The article does show a graph of the concentration of wealth according to a
power law. It also mentions that "All it will take is is one extremely bad
decision and the cascade of failure that follows will catch everyone off
guard."

So the article is suggesting that the decisions of a small group of a powerful
elite have a large influence on our lives. Unless you are saying that these
people don't talk to each other, that's what the "smoke-filled rooms"
expression is all about.

