Yikes! More Controversy! The Free Market vs Central Planning
What I’m going to share today starts with something posted by Brian in response to Part 3 of my Going To Hell in a Handbasket series. My response contains some important information, but is buried so deeply among hundreds of other comments that I thought I should create an entire post around it.
Here’s how it started:
I really liked the live video chat on facebook. I think it is a much better way for you to communicate information than through writing on this blog (though I still really like this blog). It’s just easier to tell what someone means when you see how they are saying something instead of just the words they are saying. Definitely do more video chats!
I have an economics question for you if you feel like taking the time. Harry Browne brings up an example in his book about the more expensive cost of using recycled paper vs. new paper. Browne explains this means that the resources consumed in recycling paper are more valuable to the market than the resources consumed in making new paper (aka trees). So basically the market should go with new paper since trees are less valuable than all the things that go into recycling paper.
What I struggle to understand is how you can judge the value of trees solely by their price in the market. Say we discovered that cutting down trees significantly affected oxygen levels that were unhealthy for people. How would the free market naturally account for this to make trees more valuable?
To me it seems regulations making trees more expensive would be the only way, yet I know this undermines the whole concept of the free market.
Sorry for the long question, but I had to ask it because this has been burning on my mind, as I’m really interested in understanding the libertarian viewpoint.
FROM BILL: First of all, you are assuming that what the green people say is true, that trees are disappearing. This is far from true. I don’t have the stats right in front of me, but (and this is a result of the market, too, as a matter of fact) timber companies plant more trees than they cut, and have for a long time. It’s in their interest to do so. The only place this isn’t true is in the Amazon, where socialists and other central planners are in control. This is the real reason why the trees in the Amazon are disappearing.
It was BEFORE capitalism (or, as I said, in places where resources are controlled by central planners) that people—including tribal people like the Mayans, Aztecs, etc., but also including Europeans, Asians, etc—would cut down all the trees in a certain place for one reason or another, until they were all gone, and then move on to another spot and do it again. Modern people in a capitalist society have a vested interest in maintaining and husbanding resources, and they do. So, first of all, we are not running out of trees. Not by a longshot.
The question about how the value of something is determined is an important one. Here is the answer: people determine the value of each commodity, service, item, or whatever, by their willingness to part with resources to have it. When you have resources of some kind, and you want something else, you do what everyone else does: you decide if you want to hang onto your current resources (which is often money, but could be other things, or even time) or trade it for something else. In other words, what is the item in question worth to you? How much of your resources are you willing to part with to have it?
If you don’t think something is valuable enough to trade resources for, it must not be that valuable–to you. Billions of collective decisions about what is valuable, and how valuable, determine the value of items–at least in a market economy. In a command economy, with central planning, someone else decides for you what you should want, and how much you should want it and therefore pay for it (whether in money, other resources, time, or something else).
This is highly inefficient and a huge waste to a society. And, it’s one of the reasons why command economies are seen as lacking in freedom–you have less freedom of choice in such a society. It’s also why the Soviet Union was famous for long lines of consumers waiting to get a little bit of toilet paper, meat, shoes, or whatever. In a command economy, shortages and rationing are common.
Not only is it impossible for central planners to forecast what or how much people want in the efficient way this is accomplished in a market economy, there is no way for shortages to cause prices to rise, which causes entrepreneurs to say to themselves, “Ah, I should make more of this,” or for surpluses to cause the same entrepreneurs to produce less. In this way the prices and amount of goods fluctuates around an equilibrium point, and whenever it is out of balance natural forces bring it back into balance.
In the example Harry Browne gives, he is right (I’ve seen the studies). For most things, more resources are used to recycle than are saved by the recycling (not in all situations, though–in a few cases recycling saves resources). Plus, as I said above, trees are a sustainable and renewable resource, and timber companies are quite successfully increasing the number of trees, despite what the Al Gore’s of the world say. It would be stupid of them not to.
Only in a centralized economy, where central planners try to call the shots, would a society end up using more resources than necessary. In a market economy, where each individual is making his or her own decisions based on the best way to allocate their own scarce resources (including money), the collective decisions of all the people sort these sorts of things out in the best way. Though some people make bad decisions and waste things, overall people are smart enough to make the right decisions–or to learn from their mistakes when they make bad ones.
Central planners, though, do not have the same immediate feedback that you have about your own situation. They are flying blind, so to speak—or, they have a political agenda, or are acting at the behest of some special interest group. In other words, they are corrupt. Central planning is legendary for producing the conditions for corruption—another huge waste to society.
Central planners make decisions based on what they think you should want (or, based on some corrupt agenda they have). They are not particularly concerned with what you really value.
The government takes a lot of money from you in taxes (unless you’re one of the 47%—in the US, at least—who pays no taxes). How often does the government spend the money they take from you on what you actually want or what you would spend it on if you still had it? It would probably be a complete accident if they spent any of it on what you would buy with it. Multiply this spending on what you would never buy, or what is your 525th choice of what to buy, by millions of people and you have huge allocations of resources to things that people don’t want.
This is incredibly wasteful to a society, and to the degree this happens, people suffer. In the socialist societies where this happens the most—China, Russia, Venezuela, North Korea, etc—the suffering is obvious. Look at what is happening in Greece right now as another example of central planning gone wild. Or, for that matter, most of Euope.
What’s more, you have a strong vested interest in using your resources wisely. Central planners are allocating someone else’s resources. They don’t care about them the way you do. That’s why there is such a huge (HUGE) amount of waste in government.
The value of an item is determined by the person who is deciding whether or not to trade resources for it. The more he values the item, the more he will give up to have it. What other possible method of valuing things would work well? Should the subjective view of some OTHER person (one who often has a personal—and corrupt—interest in the matter) determine whether you should pay a certain amount for something?
Finally, you say that trees becoming more expensive undermines the free market. Not so. Trees would be more expensive if people wanted them (including the products made from them) more, less expensive if people valued them less. In such a case their value would be bid up. And, seeing this, timber companies would be motivated to plant even more of them. This is exactly how a market economy allocates resources.
Those who want something more, or need it more than others, are willing to pay more for it if or when it become scarce (which motivates someone to create more of it). Those who don’t want to pay more, or can’t pay more, shift to using other products, materials, etc. In the case of trees, those who can’t afford them might use bricks, perhaps, or something else.
When something becomes more scarce, its price goes up, and entrepreneurs are motivated to create more of it. If too much is created, prices go down and entrepreneurs are motivated to stop creating so much of it. This is a pretty slick system (and totally natural and needing no regulation to work)—a system that results in prices reaching a level in every case that works best–certainly better than any central planner could create.
When central planners screw with prices–as they did, for instance, with oil price caps in the 1970s–it creates artificial shortages (the motivation to create more because the price goes up is gone). This created gas rationing in the 1970s, with people lining up around the block to buy gas, and only being able to by on alternating days. As soon as they removed the price fixing, the problem disappeared. This is the same mechanism that caused the lines in the Soviet Union.
Thanks for that response Bill, that helps a lot. I wasn’t saying I think cutting down trees is depleting our oxygen, I was just saying it hypothetically. If such a thing was proved to be true (even though it certainly isn’t), then would the price of trees go up in a free market? I don’t understand how it would since in a free market price is determined solely by supply and demand. Yet it would be in society’s best interest for it to go up, right? In such a case it seems there is a disconnect between the price of something and its true value. That’s what I don’t get, but I have a feeling I’m missing something…
FROM BILL: But value isn’t some intrinsic thing. It’s determined by the person who is exchanging resources for the item. You’re assuming that if trees do X, that’s a sign of value. It might be, and it might not be. It depends on who’s buying.
Consider this. When I was growing up, the air and water were filthy. Now they aren’t (despite what Al Gore says)–except in socialist countries, ironically, where central planning is king. This happened because people discovered that the air was dirty, didn’t like it, and began to patronize those who didn’t make it dirtier. The government tried to make it look like they made everything cleaner, but they really didn’t.
If you think the air is cleaner because of the government (and that the market couldn’t possible keep it clean), you are mistaken. The government may have rules about these things, but they don’t/can’t enforce them, except with a few people (anymore than they can keep people from smoking pot, or keep burglars from breaking into houses). They don’t have enough regulators to do it. The same is true with food laws, financial laws, and so forth.
And, the whole government regulations thing is crooked, anyway. If someone who is their buddy violates the laws, they put on a big show of doing something, but ultimately give them pass. The air is mostly clean, the food is mostly disease free, the restaurants are mostly clean, and the workplaces are mostly safe because people demand it, and because it’s in the best interest of the owners of the companies, and the market complies.
Yes, there are some companies that stupidly don’t maintain a safe workplace, or who pollute, or who don’t maintain food safety, or whatever. The market weeds these people out eventually. Yes, they are a problem while they exist. You can see, though, that they exist despite all the government regulations. The regulations do not solve this problem.
There is no way, however, to make everything perfect. It is impossible. Since the government wants power (over you), anything that goes wrong is an excuse to add more laws and regulations. It’s like the TSA. Does it make it safer to fly because they scan everyone and do these invasive pat-downs? I don’t think so. It just makes a lot of people THINK it’s safer. People get through the screening with weapons all the time—often just to show it can be done.
I suppose if no one knew that trees create oxygen (and enough of them were disappearing that it really was a problem, which isn’t even REMOTELY close to being true) it might be possible that the trees could disappear and we’d all die. But if people knew that it was happening, and didn’t like it (ie, they valued the trees), the market (not the government, which doesn’t have the horsepower to do it anyway) would make it stop. In fact, though, the government is telling us that there is too much CO2, most of which is made by trees!
Why does regulation make everything worse? (food, air ,water ,workplace etc) I can see how regulations are a waste and how they are ineffective but I dont see why they make everything worst than it was before.(I mean the specific thing that is regulated).
FROM BILL: a) Regulations don’t solve the problem they are supposed to solve; b) they cause many unintended consequences, many of which are wasteful, harmful, and expensive, c) they increase the cost of everything because they require a huge government bureaucracy and because business owners must spend a lot of money to comply with regulations; d) they reduce the choices of consumers; and e) they reduce the overall level of freedom in a society.
I’m not saying there shouldn’t be any laws about these sorts of things. However, the idea that government regulations, of any kind, have ever solved the problem they were designed to solve, is just not true. So you have a non-solution, with many serious and negative side-effects. Probably 98% of businesses act in a responsible way because it’s in their interest to do so. The 2% that aren’t responsible would still be irresponsible with or without the regulations.
Yes, it should be against the law to pour sewage in the river. However, the regulations around such things DO NOT prevent the few who would do this from doing it, and they have many negative consequences.
FROM GLORIA THE SUPER-LEFTIST:
“I don’t have the stats right in front of me, but (and this is a result of the market, too, as a matter of fact) there are many times more trees in the world today than ever before.”
Of all the rocking horse manure you’ve spouted so far, this takes the prize! You of all people know that statistics can be doctored to prove anything. If it wasn’t so irresponsible to be telling gullible people who look up to you nonsense like this it would be laughable.
No doubt I am inviting one of the characteristic vitriolic replies that you seem to enjoy targeting your critics with but I couldn’t care less. Your credibility rating has finally bottomed out as far as I am concerned.
FROM BILL: Why, then, do you keep hanging around, if I’m spewing so much manure and I have no credibility? Perhaps you are a masochist, and you just love to hear all my lies and misinformation? Were you anticipating as vitriolic a response as, for instance, my characterizing what you’ve said as “rocking horse manure?” Or would that be over the line so far as “vitriolic” is concerned? At least your posts are characterized by civility and the avoidance of vitriol. Thank goodness!
As a matter of fact, the number of trees in the world IS much higher than it was several decades ago. The one exception is probably the Amazonian rain forest, which is unfortunately under the control of South American socialists who don’t care about the environment. Tell me–if you owned a forestry company, would you just cut down all the trees, or would you make sure you were planting enough to keep your industry in business?
If anyone is falsifying statistics it is the green types. They’ve now been caught with their pants down lying about climate change, just as they were caught lying about the number of homeless people a few years ago, the number of poor people, and anything else that would help their “let’s put the government in change of everything in your life” cause. I’m sure you can go to any number of progressive-run websites and find all kinds of statistics that we’re down to our last 17 trees.
Re: Number of trees
I found one of the largest, recent studies on this topic from the Sunday Times of London. Link below. The bottom line is that the number of trees is increasing in all industrialized countries but falling in the Amazon area, just like Bill said. The net number of trees, including the Amazon, fell 2.5% from 1990-2006.
Two points. The study was done in 2006 and this is 2011. The net number of trees including the Amazon has likely gone up by 2010 by extrapolating the data. China has planted massive numbers of trees over the last decade which was not fully on-line for this study.
I could not find another more recent study of this depth and scale. But even using this 2006 study, the US tree population has increased from 1990-2006, contrary to the deforestation theories.
It’s ok to use a lot of trees as long as you plant as much or more. The key is to study tree “density” using satellite photos rather than tree “acreage”. Tree acreage has decreased due to efficiencies while tree density has increased. Tree density = tree count. Tree acreage = propaganda count.
Personally, I do not waste resources, I recycle, use efficient light bulbs, bought a residence close enough to allow me to walk to work (using zero gallons of gas during the week, except for date nights), etc. But even though I might appear on board with the green crowd, and I am in some ways, I want the truth. I want reality. And when I’m lied to or, let’s just say, mislead enough, as with the global warming cadre, they have zero credibility in my eyes. I try to live my life ethically. But based on reality—at least, as near as I can determine it.
FROM BILL: What bothers me is that I was able to find many websites giving supposed data showing that we’re down to our last two trees, etc. Very offical looking, etc. I’ve seen enough Green propoganda, however, to spot this sort of thing. Thanks for finding the London Times survey. Gloria? Are you out there? Oh, wait. You aren’t looking for the facts. Never mind.
FINAL NOTE ABOUT SOCIAL MOOD: It’s been more than seven months since I first posted information about social mood turning negative and described many of the things that were likely to happen as a result. I invite you to review what I said and notice that it’s all happening. Please review Part 3 and prepare for the future. We are entering a long period where what was spent (on credit) must be repaid. This repayment will either be by the borrower or by the lender but, either way, it will happen.
This is called deleveraging. It is also called deflation. It means that the whole world will live at a lower standard of living for quite some time.
In my opinion, Holosync will be a life-saver during this time. Holosync raises your threshold for stress, making you more resilient, and the coming years, I suspect, are going to be quite stressful. Holosync is cheap mental health and well-being insurance. Use your Holosync!
Until next time, be well.
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238 Responses to “Yikes! More Controversy! The Free Market vs Central Planning”
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