John Robb connects the fall of the US Empire, like the fall of the Soviet empire, to central planning, but of a different kind:
The parallels between the rapid growth of US government bureaucracy and the Soviet bureaucracy is straight forward. As more and more of US economy was controlled by a narrow group of decision makers allocating government resources, the more sluggish the entire economy became (most of this was due to massive growth and mis-allocation in entitlements and defense). Further, the ability of government bureaucracies to extend their decision making to remaining majority of the economy through regulatory action, is also a form of centralization. However, even with all of this government growth, it’s is still not enough to account for the level of misallocation we are seeing.
There’s is something else at work.
The answer is that an extreme concentration of wealth at the center of our market economy has led to a form of central planning. The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy. As a result, we now have the equivalent of centralized planning in global marketplaces. A few thousand extremely wealthy people making decisions on the allocation of our collective wealth. The result was inevitable: gross misallocation across all facets of the private economy.
David Brooks says that the U.S. “meritocracy” is less functional than before, He says it is based on an overly narrow definition of talent, has created new social chasms and less of a sense of connection, has less solidarity as a leadership class, is less into long-term thinking and more into fast response – “less emphasis on steady, gradula change and more emphasis on the big swing,” which “produces more spectacular failures and more uncertainty.” He alos says that we’re too transparent – “the more government has become transparent, the less people are inclined to trust it.” I’m not quite on board with that last, as one who has pushed for more transparency. Government should be functional, not mythic.
In another conversation, at Thrivable, Scott Reynolds Nelson expresses another view of transparency, speaking of banks rather than government:
Openness of books, transparency, clarity aren’t just things that are nice to have – they can make or break any institution that relies on trust to function. That includes banks but also NGO’s, funds, etc. Much of the internal workings of banks for example had been invisible to most folks. The so-called “stress test” that the federal government used on the banks in 2009 exposed some of the problems with bank operations. It turned out that many banks had much higher reserve ratios than they claimed. Likewise many of the big banks were forced to take off-the-books vehicles back into their firms for accounting purposes. In banks, anyways, that transparency can remove that semiotic doubt.
Finally, this RSA Animate video explains “Crises of Capitalism”:
The first sentence from the Robb piece stopped me cold: “The parallels between the rapid growth of US government bureaucracy and the Soviet bureaucracy is straight forward.”
I do not understand what parallels are referred to. What is the purpose of this sentence? Does this infer a similarity among all bureaucracies? Or does it infer a similarity between the Soviet government and the US government? Any similarities are anything but straightforward, except perhaps from a theoretical perspective. From in a bureaucracy theory perspective as soon as an organization creates a staff position, such as secretary, or treasurer, or receptionist, it has a bureaucracy. So bureaucracy, by itself, is not necessarily a problem, and may be an adaptive solution to organization work problems.
The other points about the locus of control of the economy here in the USA are good ones.
Bill, I think if you read the Robb piece to get the complete context, it’s clearer. He says “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 solution he offers is ” is to allow massively parallel decision making.” I think the similarity he’s seeing in the bureaucracies is that a few people are making decisions for the many, without enough input from the more broadly distributed set of stakeholders. (It’s hard to get that input, and too easy to fall into “ivory tower” syndrome). He goes on to say that in the U.S., we have both growth of government and unparalleled concentration of wealth driving the concentration of power and decision-making. He says that central planning in the U.S. has finally hit the sort of wall that it hit in the Soviet Union, and our economic and political system has thereby become very fragile. A very interesting lens for the crises du jour.
Interesting reading. And a great video. Nice finds, Jon.
Towards, John Robb’s article. Of course there are similarities between the two systems. Central authorities cannot allocate capital perfectly because …. they’re not where the action is. The people who are on the ground level, trading value in their own self interest, know what the right price is for blank at when and where. (hellow Hayek)
Both inevitably self destruct to some degree.
But, there’s a big difference between the systems. When a socialist economy goes broke you have; revolution, war, possibly fascism, even national socialism. When a free market economy goes bust, a lot of people get hurt, go hungry, possibly die. It sucks. But the system is still in place for value to be created in new areas. Yes, inevitably, fast forward twenty years and you have another bust. But we’re still here.
http://www.nydailynews.com/money/useconomytimeline/index.html
@David Harvey
Very entertaining, and touched on a lot of key talking points on this latest crisis.
Financial innovation is key to allocating investment capital into the companies and people that make up the economy. And when the money is flowing, it allows innovations to occur.
And then human nature gets in the way and destroys all of our plans.
But we’re left with previous innovations. I still have an Iphone despite the recession.
Three steps forward and hopefully less than three steps back.
I’ll end my comment with something I read on cafehayek.com
… are, first, from page 123-124 of Thomas Cahill’s Mysteries of the Middle Ages (2006):
Plumbing was unknown [in the middle ages]…. Because individual bathing in a copper basin in a drafty castle could lead so easily to chill, then to fever and death, kings and queens seldom bathed more than once a month, those with neither washer woman nor ewerer at their command scarcely more than once or twice a year. Despite their silks and linens, their frequent changes of costume, their liberal burning of Arabian incense, the royals stank, as did their retinues. More than this, the chamber pot was the sole device for receiving human waste. A small castle – or even a large one – might become downright uninhabitable after many weeks of residence by such a throng [ellipsis added].
“And yet – and yet – Cahill here describes the stinkingest of the stinkingest rich of the pre-capitalist age. Let’s read Cahill a bit further, to page 188:”
“What appalls a modern dreamer about the Middle Ages is not so much the distance that lay between peasant and prince as that there was seldom any way of shortening that distance: the peasant would always be a peasant, the prince always a prince.”
And yet… the rigid stratification of social roles was shaken by the rise of the merchant class, the medieval bourgeoisie [ellipsis in the original].
http://cafehayek.com/2011/08/quotations-of-the-day.html#comments
Good thoughts, Patrick. I appreciate your optimism and hope you’re right. Despite the sloshy mire we seem to be slogging through, I still see creativity and innovation every single day.