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64 sats \ 8 replies \ @SimpleStacker 30 Jul \ on: MMT: Feeding the economically inferior machine econ
Here's a good lecture on the calculation problem. I show clips of it in my Econ 101 class. Very important for students to understand why centralized allocation ultimately fails, and why entrepreneurship and profit-making actually serves a useful purpose
Thanks. It's hard to convey because ultimately it's about the incomprehensively vast amount of information that gets aggregated by prices. People lack the intuition for it and assume a handful of really smart people could just make good allocation decisions.
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He does a great job making things concrete with examples from the Soviet Union.
For example, he talks about how production targets for clothing were quoted in yards, which means there was little incentive for producers to make clothing for small people, since that was more costly per yard of clothing produced. Thus, there was always a shortage of clothing for children and for petite ladies.
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Good example
More proof that incentives matter in a socialist or communist system
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My dad's favorite example was how initially nail factories were given quantity quotas, so they produced many tiny nails. Then they were given mass quotas and they just made really big nails.
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Quotas don’t work unless you are trying to motivate a sales team
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Even then, commissions work better.
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Meet your quota and you get a bonus or higher commission
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Impossible
Hayek calls this the conceit of central planner
Another problem with central planning was illuminated by Friedrich Hayek in “The Use of Knowledge in Society” and in many other writings. The crux of Hayek’s argument is that the knowledge a central planner would need to efficiently plan the economy — even knowledge that isn’t directly related to prices, as in Mises’ calculation problem — is so widely dispersed among so many different individuals that there is simply no hope of collecting, understanding, and using all of it.
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