Economic planning, in which governments use policies such as taxes, subsidies, spending, and nationalization, to guide economic outcomes is back in vogue. Its proponents often liken economic planning to the plans made by individuals working in the economy. The difference, they argue, is that national economic planning can help achieve larger economic, national, and social goals that cannot be achieved by individuals.
However, humans are not infallible. Even the best-laid plans of mice and men often go awry. All plans, whether individually developed or centrally derived, have the potential to fail. Of course, economic planners are aware of this fact. In the event of failure, they often argue, economic planners, like individuals, can simply scrap their current plans and readjust them. At first glance, this argument seems reasonable enough. But this is a case where economic thinking shines. Incentives are important.
Sometimes it’s easy to identify failures in planning (although, as Donald Boudreau points out, not always obvious): If some goal is set and the goal is not achieved, the plan is said to have failed. but, why The question of failed plans is often a difficult question to answer. In other words, did the plan fail because it was an inherently bad plan, or did the plan fail because the plan was poorly executed?
Individual planners and economic planners face different motivations for understanding why plans fail. The individual planner will be faced with most, if not all, of the costs and benefits of his or her actions, so figure out why the plan failed and whether it should be abandoned. face a strong motive. If my get-rich-quick scheme is to sell tobacco-flavored toothpaste and no one buys it, I’m faced with the urge to figure out why. If I continue to invest my resources in tobacco-flavored toothpaste, my situation will definitely get worse. Those resources have other uses, and the benefits of using those resources to produce tobacco-flavored toothpaste outweigh the costs. In other words, I dedicated too many We will provide you with the resources you need to develop this product. Given my goal (get rich quick) and the fact that I am faced with the full cost of using those resources, I have no choice but to abandon the plan as a failure and use the resources in other ways. There is a motive.
Economic planners do not face similar incentives. They do not receive all the costs and benefits of the plan. As a result, they are faced with the perverse motive of figuring out why their plan failed. If economic planners decided that selling tobacco-flavored toothpaste was a national priority, how would they react to the failure of the plan? Perhaps, if they were lucky, people would buy tobacco-flavored toothpaste. You will realize that you don’t want it and will abandon the plan completely. But perhaps planners will conclude: too little Rather than too many resources, they were devoted to producing tobacco-flavored toothpaste. Planners may devote more resources to advertising and other means to achieve their plans. This is especially true when their jobs, such as that of the head of a federal agency promoting tobacco-flavored toothpaste, depend on the plan’s success. In other words, economic planners It was done If you realize your plan has failed and abandon it, the incentives that make this outcome possible are not aligned.
Tobacco-flavored toothpaste is a silly example, but we see this practice all the time. One example in particular that comes to mind is the price controls imposed by COVID-19. During the coronavirus disease (COVID-19) outbreak, the federal government and many state governments have price management About essentials. The rationale was to maintain necessary equipment in hospitals and prevent price gouging. However, these items were predictably in short supply, and hospitals struggled to obtain the products. Rather than recognizing that the scheme had failed to increase the availability of goods, the government doubled down, blaming companies and starting to prosecute “hoarders” and “price gougers,” making the problem worse. . Shortages continued, and the very policies that caused the failure remained in place (indeed, This policy actually made the pandemic worse). I didn’t look at the planner. why Their plan failed.
Bad policies persist in both the private and public sectors. Planners are unwilling or unable to admit that their plans have failed. If managers are ineffective, companies will go bankrupt, and if managers lack the ability to make adjustments, individuals will go bankrupt. However, if an individual plan fails, those resources are freed up for other uses. When economic planning fails, government planners often raise more resources and waste increases.
In conclusion, at the same time, Possible Economic planning may function as a series of experiments in which the “good” is kept and the “bad” are discarded, but there is little reason to think that such an outcome will occur. probably. There is no motivation to understand why the plan failed.
John Murphy is an assistant professor of economics at Nicholls State University.
