Central Planning and the Decline of the US
Here’s some thinking that draws on decision making theory. It’s very much in line with how the late John Boyd (America’s best strategist) would approach it, but with a twist.
One of the most interesting underlying reasons for the decline of the Soviet Union, and soon the US, is misallocation of resources due to a reliance on central planning.
Misallocation in this context means that year after year, decade after decade, the wealth of a nation is spent on the wrong things. The wrong projects are funded. The wrong infrastructure is built (or not built — the US is 38th in the world in Internet connectivity and falling). The wrong things were bought and so on. Eventually, the accumulation of bad investment made the USSR so fragile that even the smallest shock could topple them.
The reason for this failure was that the Soviets relied on central planning. A system of economic governance where small group of people — in the Soviet Unions case bureaucrats — had all the decision making power. They decided what was spent and where. Even with copious amount of information and an extremely good educational/science establishment, they decided badly.
Why did they decide badly? The massive economy of a modern superstate is too complex for a small group of people to manage. Too much data. Too many uncertainties. Too many moving parts.
The only way to manage an economy as complex as this is to decentralize the decision making. A huge number of economically empowered people making small decisions, that in aggregate, are able to process more data, get better data (by being closer to the problem), and apply more brainpower to weighing alternatives than any centralized decision making group.
Of course, the misallocation due to centralized decision making that gutted the Soviet Union, wasn’t supposed to be a vulnerability of the West. To allocate resources in our economy, we had a conceptually more efficient mechanism: markets. Free markets are supposed to unlock massively parallel decision making.
Those assumptions are proving false. The succession of financial bubbles, the global financial catastrophe of 2008 (which risked a complete meltdown), the economic stagnation/collapse in Europe/Japan, and the intensifying US debt problem is prima facie evidence that gross misallocation has occurred for decades.
The wealth of the West, particularly the US, is being spent on the wrong things year after year, decade after decade. We are now as fragile as the Soviet Union in the late 80′s.
Central planning took over the decision making process in the US. This process started with an increase in government sprawl. It accelerated under the management of clueless central bankers. But it became disastrous when wealth concentration became so extreme, at the expense of the majority of citizens, that it reduced economic decision making to an elite few.
This extreme concentration of wealth at the center of our market economy has led to Capitalist politburo — a group that is out to lunch ideologically, protected from the real world by layers of privileged, and loyal only to their peers.
With a Capitalist politburo in place, it’s easy to see why the economy is doing so badly. It’s impossible to make good decisions when there are only a few thousand extremely wealthy people making all of the decisions over the allocation of our collective wealth.
To see what this extreme wealth concentration looks like as a distribution, we don’t have to look further than income distribution in the US.
For the lower 95% of incomes, the distribution is thermal exponential function, reflecting the slow accumulation of income through wages (additive and mechanistic). For the upper 5%, it is a power law reflecting a combination of structural advantages and financial accumulation (multiplicative). That’s why the curve goes nuts in the final section, and it’s getting steeper with every passing year.
The important part is that the liquid wealth of those on the extreme right of the curve completely outweighs the 99.5% of the population to the left. The comparison is even worse if we graph disposable income (the money you actually have left to spend at the end of the month). So, the logic goes, if money is the equivalent of a “vote” or decision making power, there aren’t many people making most of the decisions.
Not a good situation in a world that is becoming more complex and difficult to manage by the day.