The Return of the Planned Economy?

Fenster writes:

Jack Ma, the Chairman of the Board of the Chinese internet giant Alibaba, suggests that big data may herald the return of the planned economy.

Over the past 100 years, we have always felt that the market economy is excellent, but in my opinion, in the next three decades will be a significant change, the planned economy will become increasingly large. Because we have access to all kinds of data, we may be able to find the invisible hand of the market. … [I]n the age of data, it is like we have an X-ray machine and a CT machine for the world economy, so 30 years later there will be a new theory [on planned economy] out.

Here is the article from the Chinese press.  You’ll need to translate it.  Imperfect but you will get the gist of it.

And here is commentary on the idea from Xiong Yue of the Mises Institute (link courtesy of Zero Hedge).

The notion of a return to a planned economy goes against the grain to be sure.  Capitalism beat communism fair and square and most all agree that the main cause is the simple ineffectiveness of a command economy in comparison to an economy that relies on complex and uncontrollable consumer preferences for its cues relative to investment and capital allocation.

Now comes Ma to suggest big data may change that.  Might is be possible that large technological changes may do a better job than the invisible hand of consumer choices?  After all, technology has disrupted one industry after another.  Might it not disrupt the very system that drove industry disruptions?

Yue argues no.  He argues that any technological approach can never replace the market since 1) data reflects past activity not the dynamic of ongoing real-time preferences and 2) the methods for collecting data, such as questionnaires, do not capture real preference nearly as well as actual consumer behavior.  As result, Yue sees Ma’s argument as just one more flight of fancy of elites who delude themselves into the belief that “seeing like a state” is feasible.

Fenster finds Yue’s argument persuasive but.

In the broadest sense I am suspicious of ideological thinking.  Practice hardens and magically becomes a path.  It hardens further and becomes a doctrine.  It hardens further and becomes some sort of Platonic truth.  Somewhere along the way I part company.  Things work until they do not work any more, something suggested by Steve Sailer when he pointed out that humans are not that well equipped to think in terms of diminishing marginal returns.  We seem built to think more in binary terms: good/bad, true/false, correct/incorrect.

Under this way of thinking, the primacy of the market approach is mostly due to its superior performance in a given period against given opposition .  Is it possible that Mises’ market has now become Mantra?

It is not as though the market is a perfect mechanism.  Even supporters recognize that there are limitations to its working perfectly.  Maybe big data is not an enemy of the market but an ally.  Yue suggests that the futurist view is that it “we can finally achieve a planned economy.”  Maybe some hold to that rigid formulation but Ma himself (in this admittedly bad translation) seems to have a more modest view: that the planned economy will become “increasingly large” and that we will have a “new theory” on it.  That seems compatible with a certain measure of co-existence with human preferences in action.

Consider also Ma’s separate reflections on Asian modes of thought relative to Western modes.

I said, I have read the Bible six times, after reading I understand the difference between the West and the East, the West pay attention to black and white, or black or white, or you believe me or do not believe me, and oriental culture stress integration , Taoist emphasis on the integration of black and white rather confrontation.

In this regard it may make sense to make a distinction between a command economy and what Ma refers to as a planned one.  In our experience there is not much of a distinction.  When you plan you plan from the top.  That suggests command, and command will fail because it is too thin a reed on which to rest large and complex systems.  But does planning need to denote command?

I think Sailer is right that our minds–at least our Western minds–resist marginal thinking.  They also resist being able to embrace the complexity of systems.  We think: what is the cause and what is the effect?  Can I do a statistical analysis that demonstrates the arrow of causality?

Any integrated system is not just bottom-up.  It is, in the words of computing, distributed.  Consumer preferences are a key component to an economic system but the system can nonetheless be envisioned as an integrated (though still inherently unstable and dynamic) system.  Is there a role for big data in there?  Might that role not get appreciably larger as conditions change?

Then there is the always pesky problem of what consumer preferences actually reveal. What they reveal is a pretty narrow thing when you consider the totality of human existence: what purchases to make under conditions of scarcity occasioned by the presence of money.

Maybe that’s as good as it gets.  Yue quotes Mises approvingly:

One cannot add up values or valuations. One can add up prices expressed in terms of money, but not scales of preference.

As Yue comments:

The role of prices in the market economy is unique because money prices offer an indispensable tool in economic calculation.

As Mises’s own comment seems to indicate there is a world of preference out there that goes beyond “prices”.  But they can’t be captured.  Or can they?

About Fenster

Gainfully employed for thirty years, including as one of those high paid college administrators faculty complain about. Earned Ph.D. late in life and converted to the faculty side. Those damn administrators are ruining everything.
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