|June 2009 Newsletter|
must compile an enormous network of simultaneously interlocking equations to express production goals and prices of all goods and services
relies on inadequate knowledge of a few remote planners in a highly complex economyThese cannot reckon with the mass of detail in each economic situation, lack enough technical expertise to handle from afar each unique local production problem as competently as can the many on-site specialists in decentralized market economies.
raises prices and lowers productivityWithout price competition in open markets with other producers whose production costs may be lower, resource misallocation continues uncorrected.
makes prices less sensitive to nuances of product differentiationIn fixing prices of each category of goods, central planners overlook "special advantages of time, place and quality."
retards price changes to balance supply and demandDelayed adjustments cause shortages and surpluses while price changes move through a central bureaucracy for prior approval.
discourages entrepreneurshipDisapproval by the central authority would certainly follow any loss of capital from unsuccessful risk-taking, but approval for the manager who increases capital through successful risk-taking may not follow.
encourages inefficient investmentsOver- and under-investment multiply because the central planner is insulated from the harsh penalties in competitive markets on inefficient allocations of resources.
avoids responsibility for bad investmentsA central planning committee is harder to penalize than individual entrepreneurs or private companies.
slows innovation and problem-solvingSmall decentralized units can react quicker and better than large centralized bodies to sudden changes or special local conditions.