It’s a weird time we live in. Many on the "left" — pundits and politicians, some of whom are running for president — call themselves socialist. They want Medicare for All, free tuition, a minimum wage of $15 per hour, and all sorts of other "free" benefits for families.
They also double down on their dislike of private companies and want, among other things, to bring back antitrust policies to break-up "big tech" companies such as Amazon and Facebook. They would also like to require some firms to prove to federal bureaucrats that "they're not paying women less than men for work of equal value" in exchange for an "Equal Pay Certification." A whole host of other similarly awful ideas are in the offing.
Meanwhile, a number of conservatives openly reject market solutions for what look like progressive proposals. Many today on the "right" have developed a serious tolerance for government intervention in the market for schemes such as wage subsidies, federal paid-leave policies, industrial policies, crackdowns on tech companies, and so much more.
And of course, many conservatives have also reversed their long-held support for policies of liberal immigration and free trade. Meanwhile, we are drowning in government spending and debt.
The bottom line is that when it comes to big government we have socialists on both sides of the aisle.
If like me you despair a little — or a lot, depending on the tweets I am reading or the conversations I am listening to — I have the perfect book for you. It is called National Economic Planning: What Is Left? It was written by the late George Mason University economist Don Lavoie and was first published by the Cato Institute in 1985, before being reprinted in 2016 by the Mercatus Center.
But before I tell you why I love Lavoie’s National Economic Planning, I want to tell you about Lavoie’s other important book, Rivalry and Central Planning: The Socialist Calculation Debate Revisited, published by Cambridge University Press. Remarkably, both books were published in 1985, a year in which communism still had a stranglehold on Eastern Europe and Russia. As Lavoie’s student — and now himself a professor of economics at GMU — Peter Boettke described this double publication: "It was like a one two punch, there wasn’t a delay, it was like a Mike Tyson combination."
Part of the power of the dual publication of these books is that it occurred just in time to explain, in full and understandable language, what intellectuals were finally beginning to notice — namely, why the socialist dream had everywhere become a nightmare.
By all accounts, Lavoie was the most informed and insightful of modern economists on the socialist calculation debate. This debate began in the 1920s when Ludwig von Mises first explained why socialism cannot possibly produce its promised economic outcomes. Mises was soon joined by F.A. Hayek, who made the argument even sharper. Hayek also generalized Mises’s original insight to explain that government officials’ inescapable ignorance of the detailed bits of information that must be used for economies to succeed is in play at every step of their interventions. This is commonly known as the knowledge problem.
Sadly, many national leaders around the world ignored the Mises-Hayek insights and concluded that indeed socialism was not only possible to implement but could produce better results than capitalism. Enter Don Lavoie, who in a single year — after reinforcing, with his Rivalry book, the reality that Mises and Hayek were correct to argue that socialism simply cannot work — went beyond, in his National Economic Planning volume, academic theory to explore what happens when planning by government is implemented in practice. A one-two punch indeed!
In National Economic Planning, Lavoie explains how the knowledge problem — that is, the inability of government planners to access the detailed and decentralized bits of economic information whose use is required for an economy to achieve anything remotely close to an efficient allocation of resources and, ultimately, to grow — thwarts even the sort of piecemeal planning that was being advocated by many intellectuals even as late as the 1980s. In addition, Lavoie argued that inherent to government planning is the requirement that individuals grant to planners such enormous amounts of control and power that freedom itself cannot survive in their presence.
What makes this book so powerful, and I dare say modern, is Lavoie’s comprehensive and crystal-clear demonstration of how both the knowledge and power problems persist even when government planning is more modest than the comprehensive central planning of an entire economy of the sort that was all the rage in the first half of the 20th century.
Indeed, this generality is what makes Lavoie’s book so incredibly relevant today. It leaves us with no doubt that no form of government planning, no matter how different it might look from any other, can ever overcome these two problems. This reality remains true no matter who is in power, how smart legislators are, or whether or not they have business experience. In other words, whether the planning is comprehensive, partial, centralized, or decentralized — whether legislators claim that we need central planning à la the USSR or some lighter stepsister version wearing a friendlier mask, such as industrial policy, as a way to better "compete" with Japan in the ’80s or with China today — the knowledge and power problems remain.
And in fact, Mercatus’s timing in reprinting these two books could not have been better. At a time when politicians from both sides of the aisle are again talking about the need for industrial policy, active antitrust interventions, setting the perfect level for a carbon tax, or the minimum wage, this book provides a perfect reminder of why such arguments for government control over the economy are as wrong today as were the arguments of 100 years ago. Sure, the aspiring planners have changed the extent to which they desire the government to intervene into our economy — for the past half-century that desire has been less comprehensive and more specific-industry-focused. Yet, as Lavoie makes clear, it doesn’t matter: government officials are simply unable to overcome the knowledge problem.
And in a world where it sometimes feels like free market advocates are tolerating more intervention in our economy than we would have ever predicted, Lavoie calls upon us never to forget the abiding importance of remaining true to one’s belief in the power and humanity of markets. As he demonstrates so powerfully, the free market is the only system that simultaneously avoids both the knowledge problem and the power problem. It is the only system that decentralizes control and decision-making all the way down to individuals, where this control belongs. It is the only system that takes advantage of dispersed knowledge and shields individuals from the dangers of concentrated power.
This humane, productive, and proven system is truly worth fighting for, without apology.