# Economic Central Planning is Just Nuts

Occupy Wall Street, Democrats, the Obama administration, Davos, the Communist Party, and various and sundry fans of government have recently gotten on yet another predictable kick about replacing capitalism with some form of highly regulated central planning. When people are free to buy what they want and make what they want, they say, the marketplace goes wild, dogs and cats start living together, the poles melt, glaciers topple into the sea, polar bears float away, banks collapse, hedge funds steal grand-pappy’s Teamsters’ Union pension, and generally a whole boat-load of bad things happen. As an alternative to all of this chaos with people trying to maximize their own happiness, they claim, maybe just maybe we should have the government step in and regulate the amount of happiness that everyone is allowed to have, including controlling manufacturing so that everyone can get exactly as much stuff as they need in order to be happy, no more and no less.

At a high level, how complex would it be to program everyone’s preferences into a computer and just let the government plan how much stuff of every type the manufacturers are allowed to produce? This has recently become a big deal, since the US government is now trying to dictate to drug companies how much of various drugs they should produce, seeing as how one of the leading results of Obamacare is severe drug shortages of drugs that aren’t widely prescribed.

Let’s dive into the problem.

On any particular shopping trip, an individual has a list of P things that he or she could conceivably want (don’t forget saving some money to pay the mortgage and electric bill in a week as two of the choices). There are P! (P factorial) different ways that the individual can arrange his preferences. A factorial is what you get when you multiply a number by every single number that is less than that number, all the way down to 1. For instance, 2! is equal to 2. Two items can be sorted in two ways. 3! is equal to 6, and 3 items can be sorted in 6 ways. 4! is equal to 24, and 4 items can be sorted in 24 ways. Et cetera, et cetera, et cetera. This gets large quickly. For example, if there were only 100 things that a person might want he would have 100 factorial possible preference orders . This order is likely to change day to day since people generally don’t spend a lot of time calculating exact preference orders for things they want. They generally wing it. But the government can’t plan for “winging it.” The government needs to plan ahead! So let’s assume we want to make our central planning realistic so we can anticipate exactly what the people want at any time.

How complicated can it be?

Let’s start with a preference list of 100 items. That seems about the maximum that you could remember at any one time. 100! has been computed as roughly 9.3 times 10 to the 157th power (). Written out it is the following:

93,326,215,443,944,152,681,699,238,856,266,700,490,715,968,264,381,621,468,
592,963,895,217,599,993,229,915,608,941,463,976,156,518,286,253,697,920,827,223,
758,251,185,210,916,864,000,000,000,000,000,000,000,000

That is considerably larger than a google (10 to the 100th power), which Google the company took as its name because of the mind-staggering vastness of a google. And that is the number of computations that would need to be performed to determine one person’s preferences for a set of 100 items.

As a point of comparison, physicists have estimated the entire observable universe contains 8.8×10^79 atoms.

vs.

One person’s 100 item preference map is 10^78 times larger than the number of atoms in the observable universe. That’s pretty big! It is nearly the square of the number of atoms in the observable universe.

As a thought experiment, pretend we have a computer as big as the observable universe and every atom is a logical switch that performs logical/mathematical transactions on data. To process all the data from a 100 item list every atom in the observable universe would need to perform 10^78 transactions. That’s a transaction count per atom of nearly the number of atoms in the universe!

Onward

How many books are on sale at Amazon? As I write this Amazon offers 24,702,516 books in stock. This does not include kitchen items, electronics, MP3 downloads, or anything else offered by Amazon. In order for the government central economic planners to be able to compute the preferences of an inquisitive Amazon shopper of wide-ranging tastes who only wants to buy books that are in-stock, they would need to solve an equation with about 24.7 million factorial moving parts.

But wait! It gets bigger because there’s a problem. People are not all the same. Every one of us is a unique snowflake of individuality. We all have different incomes, different likes and dislikes, different utility bills and energy needs, different appetites for different things, different families with their own unique likes and dislikes. And we all shop at different places, times, and speeds. So is only big enough for one of us with our 100 item preference list. For N of us we need to multiply everyone’s complexity by everyone else’s complexity. And you thought that the factorial was bad! This gets even bigger even faster than a factorial.

To solve the equations for two shoppers, or two hundred, or two hundred million, or 7 billion, necessary in order to provide the right number of diapers, flip flops, cigars, Jack Daniels whisky, and Kia minivans for the population, we must solve a gargantuan multidimensional cross-tabulation of preferences. Calculate the product of over the individuals (i) from 1 to N where P is the number of preferences any individual i has and N is the total population. (Reminder: the product is ALL those factorials TIMES each other)

We long ago passed the number of atoms in the observable universe in our count and the numbers keep getting bigger. So… do you think this will crash any possible computer in the universe? I do. After all, it requires vastly more calculations than there are atoms in the known universe, even if there are only 100 products that any one person might have the privilege of choosing. And no computer can have more switches or memory registers built into it than there are atoms in the observable universe. That’s an impossibility.

Then add in two more facts.

First, people change their preferences on a whim. They don’t have a static set of preferences for all the things in the world. Circumstances change. They learn. They grow. They forget. New things happen to them. They think of new things. And so their preferences change all the time. Calculations of preferences from one day are no good the next day.

Second, people invent new things. These new things are either absolutely new and have no comparable products on the market, or they are better/faster/cheaper replacements for existing products on the market. Calculated preferences on the day before the iPad was released would have needed to be recalculated after the iPad was released. This happens every time that something new is invented and comes to market. New inventions are either better/faster/cheaper or they fail. Nobody would buy a new product that was worse than the existing, known products with which it competed, after all.

What must a government hellbent on implementing central economic planning do?

First, it must remove all individuality from its people. It must turn every citizen’s preferences into a clone of every other citizen’s preferences.

Second, it must stop progress dead. New inventions upset everything. You will need to be happy with what you can get today forever. If the government decides to cut down America’s car choices to the Chevy Volt and the Impala, then that will be your choice for the next fifty years. Remember that Cubans still have the choice of driving around 1957 Chevy Bellaires or nothing, and it is 55 years since that model was made. That’s how central planning works. Kind of ironic given that central planners claim to be so progressive, since the first thing they do is ban progress.

Third, it must reduce the number of products available from the thousands that are available now to very few. This is the real reason why some governments try to give people “free” health care, “free” housing, government mandated jobs, “free” heating and cooling, “free” transportation and so on. They need to reduce the number of choices people have and the resources people have to get stuff. Certainly there must be fewer than a hundred products, as even a hundred products require a calculation that is impossible for any computer to solve ever. Reduce the choices to twenty or so, and then the computers can do the work.

That’s doable.

But with only 20 items available, including one car, one bicycle, one form of public transportation, one brand of shoes, one type of bread, and so on, what has the government done? What do we call a state of affairs where we only have a vanishingly small number of choices available to us, and we are not ever able to exercise individuality because our existence is constrained so tightly?

 Unexpected shortages are inevitable

We call it poverty. We call it misery. We call it living in a cage.

That’s socialism for you. It doesn’t matter whether it’s the international socialism called communism, the national socialism called fascism, or the welfare state socialism called the European model. They all depend on controlling the people and reducing the choices they have. All socialism plunges the middle class into the poor class and creates equal poverty, equal misery for all.

That is what central planning must create in order to do its work. It forces us into uniformity. It creates poverty. It creates misery. And we, the people, would have to live with it the rest of our lives.

• Repair_Man_Jack

Alan Greenspan’s autobiography included a scene where Greenspan visited Russia after Yeltsin chased out the Politboro. The Russian Govt. had an office where a team of people tracked every single widget made by every single factory int he entire Warsaw Pact and kept it all on 1 huge database.

The Russian economists discovered that they lost track of almost 80% of the stuff within 48 hours after it rolled off the line. They were supposed to have tracked it from factory to end-user and calculated the utility derived from every single unit produced. That’s the story that came to mind from reading this diary.

• http://beaglescout.wordpress.com;http://news.unifiedpatriots.com/ Beaglescout

I wasn’t familiar with the story itself, having merely followed the numbers and correlated them with quite a bit of information about successful christian socialist communes, but it totally makes sense. With ISO 9001 maybe governments today believe they can track every item made, but even ISO 9001 doesn’t follow items once they are purchased. And that’s what the central planners would want to know so they could track utility and happiness, or whatever their putative goals are (other than controlling the populace).

• quill67

does not include the various ways in which a product can be made and from what resources. Will they use labor or machinery? What machine? Made out of what material and how many? How much labor should be saved by using machines? ETC. ETC ETC.

I really like Henry Hazlitt’s “Time will Run Back”. It is a fiction book that describes how a world that has been taken over by communism has to re-invent capitalism. (After first 1/3 of book creates a picture of what life was like under communism, then it describes wonderfully how and why markets work and why command economies do not)

Actually, your math would have been a nice addition to the book as the main character figures out why communism/socialism does not work.

• Flagstaff

Ron Paul: Welll, I-I-I think we wouldn’t be in this mess if we weren’t trying to force our choices on foreign countries. Let them find their own choices. That will leave more choice for us. And that includes Israel, too.

Rick Santorum: When I was growing up in the coal fields of Pennsylvania, I made lots of choices. So did my friends. Some chose to work in steel mills (closed down now). Some chose to work in the coal mines (rapidly closing down due to Obama’s Green friends). I chose to become a lawyer and work in government for all those people, even if they have to join unions to work in Pennsylvania and I don’t. My immigrant parents (or was it Grammy and Gramps?) are proud of me.

Newt Gingrich: Those numbers are fundamentally flawed. They aren’t BIG enough. You have to think BIGGER! You have to think about the number of food-stamps distributed by Obama in just his first term. And you have to remember that our precious free enterprise system will provide many choices for us, tempered by my own cap and trade proposal, my concern about global warming, and the alimony I’m paying to two (or is it three?) wives. (If I emigrate to the moon colony, will I still have to pay them?)

Mitt Romney: I recognize those numbers. I also know what an “exponent” is, and that it is different from a “proponent.” Some of those numbers are as big as the number of snowflakes that fell on the Utah Olympics that I saved. Some of them are as big as the bonuses my executives at Bain took while allowing 90% (there’s another number) of the companies we invested in to grow big and grow jobs. I’m not concerned about those bonuses–they have a safety net. On the other hand, Obama can’t count past 186-184, Detroit over Denver in 1983. But the man can count votes.

_____________________

Michelle Bachmann: As a tax lawyer and a foster mom, I’ve seen those numbers before. One, two, all of them. That is nearly the national debt, and the only way we’ll ever pay it off is on the backs of the average citizen. That’s why we have to change course today, and why I better get something done about this voice before I lose it entirely and there are no more EENT specialists available due to the ravages of Obamacare, which I sponsored the bill to repeal in the House.

Rick Perry: Hmph and pshaw. You think that’s big? In Texas we call that a “rounding error!”

Herman Cain: I’ll give you numbers–9-nine-NINE!

Tim Pawlenty: You remembered me? What are the odds against that? Some big number, I betcha.

Gary ????: Aw, heck, how hard is it to remember Johnson? Wait ’til you see my vote totals as the Libertarian candidate. Now THOSE will be numbers you can believe in!

Donald Trump: Let me tell you, my friend, that the Chinese have already eaten our lunch using those numbers. They have solved the choice problem just as you say–the government makes the choices for them, but they are still eating our lunch, because it doesn’t make choices for the favored few, of which there seem to be several million. I could go on, and I will, as ….. (sorry, Donald, time’s up).

Sarah Palin: Heck. Rick Perry (and I love him like a birther, oops, I mean brother) stole my line. Only I’d say “Alaska,” doncha know?

• http://beaglescout.wordpress.com;http://news.unifiedpatriots.com/ Beaglescout

The media, being utterly innumerate, would think it was crazy. Their idea of quantities is

one
two
many

And that’s about it. As far as their estimates of costs go, they are like Rain Man. Everything is about a hundred dollars.

• Flagstaff

Except for the math {I didn’t check your calculations–I wonder why I didn’t (^:^)}, this information is (or should be) imparted in every basic economics textbook. I know it’s in Thomas Sowell’s book.

Liberals, including the media, don’t understand that if ANYTHING is impossible, it is literally impossible for the government to provide any supply of goods needed/wanted by the general public more successfully than the free market can.

I don’t know about you, but I have noticed that “for the first time in my life” I now have to search for some products I want–they aren’t always on the shelves like they used to be, and I blame it on government intervention in the marketplace.

One final point: When Obama claims to have saved the auto industry, our geniuses need to counter that Obama did nothing more than SLOW DOWN THE PROCESS. His gift of billions of dollars to GM and Chrysler didn’t prevent their demise, it just delayed their bankruptcy filings. Instead, the government illegally (IMHO) took assets from GM and Chrysler stock and bondholders and gave it to other people. THEN the companies went bankrupt anyway, and it was the bankruptcy reorganizations that allowed GM to attempt to be competitive (along with the gift of billions of dollars, of course, but that just favored GM at the expense of Ford and other competitors). Meanwhile, the assets of Chrysler were effectively just GIVEN to Fiat, an Italian company. Are we guessing that Fiat will be (illegally) slipping some money under the White House door in the coming months?

ps. RE: Ron Paul, above–to give him credit, in his speech last night he emphasized the problems caused by government intervention in the economy and in our lives.

• Flagstaff

Eyes would glaze over. They’d say “We’re getting too deep into the weeds. Nobody understands this.” And they’d almost be right.

But they DO need to try to at least mention it when the chance arises.

• http://beaglescout.wordpress.com;http://news.unifiedpatriots.com/ Beaglescout

Samuelson’s book is the standard college intro to economics textbook. It continues to teach the micro/macro split of economics, Keynesian stimulus, Keynesian aggregate demand theory, and all the other lousy wrong economics nostrums that got us into this mess. And it gives students the impression that econometrics and central planning are useful/possible, instead of the counterproductive plagues they are.

• Flagstaff

I don’t remember my own grad economics textbook. What I use now I’ve figured out from experience and independent reading.