JOURNAL: Central Planning and The Fall of the US Empire
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.
One of the most interesting underlying reasons for the decline of the Soviet Union, and soon the US, is misallocation of resources due to 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 things are built. The wrong things were bought and so on. Eventually, the accumulation of bad investment made them so fragile that even the smallest shock could topple them. The reason for this the Soviet’s reliance 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. 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 allow massively parallel decision making. A huge number of 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 wasn’t supposed to be a vulnerability of the West. To allocate resources in our economy, we had a more efficient mechanism: markets. Markets are supposed to be a mechanism that allows massively parallel decision making.
Those assumptions are proving false. The succession of market bubbles and finally, the global financial collpse of 2008 is prima facie that gross misallocation is occurring. 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.
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 in entitlements and defense). Further, the ability of government bureaucracies to extend their decsion 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 still not enough to account for the level of misallocation we are seeing.
There’s something else at work.
The missallocation stems from an extreme concentration of wealth at the center of our market economy. The concentration of wealth is now in so few hands and is so extreme in degree, that the accumalitve liquid financial power of all of those not in this small group is inconsequential. As a result, we now have the equivalent of centralized planning in global marketplaces. A few people making decisions on the allocation of our collective wealth. The result is: gross misallocation.
To see what this looks like as a distribution, we don’t have to look further than a power law (see inset). The liquid wealth of those on the extreme left of the curve completely outweighs the 99.5% of the population to the right (the distribution is FAR more skewed than most people even imagine — Republican or Democrat). This graph would also be a good way to demonstrate how decision making in a bureaucratic dictatorship in a country like the Soviet Union looked like before it collapsed.
The result of central planning in the US has finally hit the wall. The list of problems is endless. Misallocations by our market’s central planners have led to the creation of an extremely dangerous $600 trillion derivatives market and have pushed tens of millions of US families to the financial breaking point. A stagnant economy due to a failing middle class has decimated tax receipts, and government central planners have responded with massive amounts of deficit spending.
We are fragile. All it will take is is one extremely bad decision and the cascade of failure that follows will catch everyone off guard.