Wednesday, October 17, 2007

More Cato...

The July discussion at Cato Unbound is also worth a look. Titled The Politics of Abundance it contends that since the 60's America has undergone a shift toward a more libertarian society. At once the governing economic philosophies have assumed a more classically liberal character, and traditional cultural values have ceased to command as much respect.

Both of these are good, and I would argue inevitable. Cultural norms can never remain static amidst a dynamic economy that allows for personal choice and freedom in the labor market. The Soviet Union had some of the most draconian morality laws imaginable, of which the most famous is the treatment of gays.But that is another discussion.

The title of the article reminded me of a piece I read while writing a paper in college that provided the most elegantly simple example of why central planning does not work I have read. It had to do with the Soviet planners attempt to predict the demand for ball point pens. A trivial enough matter but it elegantly illustrated how demand can assume a rational and predictable character only in economies of abundance (where production is responsive to changing market conditions) as opposed to economies of shortage (where a fixed amount of goods must sustain the population for a given time regardless of changes in the market).

My synopsis will be a bit crude but what happened was that the planners predicted the entire country's demand for ball point pens for an entire year and produced just that number. The surplus of pens on the shelves caused the Russians, accustomed to waiting in bread lines and general scarcity, to begin hoarding the now abundant pens in anticipation of a coming shortage. As a result the entire supply of ball point pens was concentrated among the few who had been lucky to find them early, while the rest of the country was left without a quill and loudly demanding the now scarce pens. The Soviets, through their history of unresponsiveness to changing market conditions, had created demand where it needn't have been, and had no way of easily meeting it. The lesson taken being that the only way to ensure predictable patterns of demand is in an economy where production is continually responsive to demand and an excess is can be expected. A free, decentralized, market economy.

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