Thursday, November 12, 2009

Socialized Medicine Scheme and Central Planning: Purple Marbles.

The socialized medicine scheme that recently passed the US House of Representatives is an attempt at central planning. That is, socialized medicine is centralized planning. Central planning is an attempt to allocate resources by "scheme" rather than allowing the free market to allocate. The 1994 pages of the socialized medicine scheme should have been paired down to "1984" pages so one could more easily identify it with "misery".

All one needs to do is study the former Soviet Union’s central planning, decades and decades of central planning, and one will find the best intentions, elaborate schemes, “planning”, etc. failed miserably.

What does a central planning scheme look like?

If you didn't spend much time studying the former Soviet Union, central planning may be a foreign concept to you. The diagram above is a short version of a central planning scheme. Schemes inevitably gain a life of their own as the scheme can't allocate resources correctly. The final centralized planning chart will be much larger and much more complicated? Of course. Further, there will never be a "final chart". Schemes can not account for all the dynamics of free market allocation. Hence the chart will be amended over and over again yet never solving the problem of efficient resource allocation to competing ends.

Central planning always fails as regardless of the intricacy, elaborate modeling, planning, etc.: central planning always fails to allocate scarce resources to competing ends.

Regardless of the economic frame work, the ends are always competing. In the former Soviet Union, in the beginning of the fourth quarter of an annual cycle, the managers of different industries would on their own, outside the central planning frame work, begin to barter for scarce resources among themselves.

Why did they begin to barter for resources in the centrally planned system?

Every year, without fail, the central planners would mis-allocate resources. Some industries would have stock piles of unused items while other industries would have to halt production as they had no more inputs. Bartering would begin among the managers of the varied industries in an attempt to reallocate scarce resources. Of course bartering is a highly inefficient system. Hence some resources would be reallocated but most resources sat idle. The result was inevitably too many purple marbles and not enough eye glasses.

The allocation of scarce resources to competing ends is most efficiently done in a free market. Maybe the framers of the central planning document known as socialized medicine should read some philosophy from a fellow named Milton Friedman. They might find that economics is the study of incentives as well as the study of the allocation of scarce resources to competing ends.

However, when Economics is supplanted with politics, ideology, and agenda, when resources are not efficiently allocated.....well maybe the Picture Chart below explains the concept/result:

1 comment:

  1. I think that bartering is an amazing idea, I know in my company we had a little miscalculation last year and for some reason produced way to many products. What we did was post our products on and within 2 weeks we had bartered our stocks for things that we needed to run the company.