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"Really fascinating piece by +John Robb (via +Glyn Moody (@glynmoody)) outlining the idea that concentration of wealth in the US has led to what is, in essence, a centrally planned economy, with all the ills that entails. This is one of those eye-opening connect-the-dots pieces that everyone should read.

Robb writes:


"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 conceptually 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, the global financial collpse of 2008, and the recent US debt problem is prima facie evidence that gross misallocation has occurred for decades. 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.

"What happened?

"Central planning took over the decision making process in the US, both through the growth of government and through an unparalleled concentration of wealth...


"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 and mis-allocation in entitlements and defense). Further, the ability of government bureaucracies to extend their decision 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 is still not enough to account for the level of misallocation we are seeing.

"There's is something else at work.

"The answer is that an extreme concentration of wealth at the center of our market economy has led to a form of central planning. The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy. As a result, we now have the equivalent of centralized planning in global marketplaces. A few thousand extremely wealthy people making decisions on the allocation of our collective wealth. The result was inevitable: gross misallocation across all facets of the private economy."
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+Tim O'Reilly this is like he was describing the situation in Israel point by point. This isn't free market failure it is rich people taking over the market. In Israel it is even a smaller group so the effects are even more obvious and severe.
 
This was what I thought about the Bush bailout back in 2008. At that moment the Fed/Bailout funds etc. effectively became the allocators of risk - taking responsibility off of the market to pick winners. Banks which were refused TARP or institutions which were not eligible died. The chosen few including Goldman Sachs remained. And what follows is an economy in which competitive selection can no longer operate as it is expected to do so. To a fairly large extent this was already the case as a result of the circumstances mentioned in this post... however in 2008 it got even worse.
 
Seriously?

The parallels between the rapid growth of US government bureaucracy and the Soviet bureaucracy is straight forward.

I certainly agree with where the author ends his journey, but some of the stops along the way are not completely aligned with reality.

It's not so much that the government regulation controls large parts of the economy, it's that, through regulatory capture, large parts of government are controlled by those who they seek to regulate.

We've ended up with a kleptocracy, with entrenched interests siphoning off all the wealth they can, living a life very much detached from the rest of us.

This won't end well.
 
The current bubble was caused by many players, with the biggest being the US govt pushing home ownership. A noble goal no doubt, but it did not turn out so well. Mortgage with less than 3% started taking off in the 90s.
Ian Atkin
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+Saul Tannenbaum "It's not so much that the government regulation controls large parts of the economy, it's that, through regulatory capture, large parts of government are controlled by those who they seek to regulate."

Nailed it!

I hail from the UK where 'de-regulation' for certain utility and phone service providers was granted with the caveat that a government watchdog would ensure fairness for the consumer.

Imagine my shock when I found out that in the US 'de-regulation' means all the reigns are off and anything goes.
 
+Ian Atkin There has been little deregulation in the US. There has been a lot of re-regulation. There is more regulation now than ever.
 
"centrally planned economy" LOL I hope The Daily Show reads this and makes it into one of Jon Stewart's monologues.
 
+Chris Harrison I'm interested to learn more. Can you point me in the direction of some information. I'm always the first to admit when I'm wrong. I'm not puffing out my chest and daring you to prove anything; I genuinely wish to learn more of what you say.
 
But are regulations enforced fairly and consistently? What good is the SEC? There is obvious corruption in both corporations (like Enron) and in the regulatory agencies. Pushing home ownership was a stupid idea, when so many of the buyers were falsifying documents, had no income, signed up for variable rate loans, and even realtors and mortgage companies were being fraudulent.
 
Great article, you don't have to agree with every part , but you can't deny it stimulates our thinking about this issue
 
"That the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy." In economics there is a word for all of those people: customers. I think if you were to ask someone who works in the retail, autos, real estate, health care, or software industries, they just might dispute the notion that the collective will of those millions of people has no effect on the direction of the economy.

This is the worst kind of hyperbole -- the kind that people want to believe.
 
+Ian Atkin it all over the place. Sarbox that was passed after the dotcom boom has pushed many IPOs out of the country. More regulation on health care, more regulation on trucks now. It is not hard to find new regulation produced by the govt.
 
Tim, the missing piece is that government central planning is the major reason private wealth has become so concentrated. Any public-choice economist could have told you these trends are mutually reinforcing, and exactly why they are.

Free markets produce Pareto-like wealth distributions, which aren't anywhere near equal but are closer to it than what you see in highly regulated and centralized economies.
 
Fully agree with +Eric Raymond - without government-granted monopolies [IP, patents, etc] and other forms of c/overt regulation such concentration of private wealth is impossible simply because of the entropic effects of competition.

+John Robb is merely restating an argument developed brilliantly by Hayek and the rest of the Austrians almost a century ago.
 
Find a reasonably good writeup in this month's Atantic...

"the richest 1 percent of households earned as much each year as the bottom 60 percent put together; they possessed as much wealth as the bottom 90 percent; and with each passing year, a greater share of the nation’s treasure was flowing through their hands and into their pockets." ...

That top 1% segment of society is the central planner that is inevitably digging its own grave.

"America had been in this state twice before, they noted—during the Gilded Age and the Roaring Twenties."

I am becoming less and less hopeful that this time around we'll get peaceful restructuring of the social order to provide more opportunity and a decent life for the bottom 70%

http://www.theatlantic.com/magazine/archive/2011/09/can-the-middle-class-be-saved/8600/
 
I wonder if we see this effect at a smaller scale in lower efficiencies for large corporations vs smaller counterparts. The same effect of concentrating authority to dedicate resources via too narrow a perspective may also apply. 
 
Laissez-faire capitalism has never existed. Left to itself, business tends to put profit over people. But government bureaucracy generally is corrupt and, aside from some reforms and necessary ethical limitations on business, tends to make things worse.
 
Looking at this from the point of view of government control or corruption is completely the wrong angle. Capital absolutely depends on the state for its existence, remove regulation and it would have collapsed a lot quicker than it already has. Free markets only exist in abstraction, not in the actual operation of capital or its development historically. This is inherent in capitalism as a system, it is not some aberration that can be fixed by reform of government or making capitalism 'more pure'.
 
Regulation is a requirement of a market. There have to be rules and there must be stewardship. Then markets tend to degrade or improve with time, and then it would need interventions. Sometimes this has happened in the past (AT&T), but not often.

I think the article therefore lacks substance and is only a call for less regulation, without proving that unregulated systems are truly long lived systems. I know of none at all.
 
Back when the federal government was much weaker (19th century), you still had very unevenly distributed wealth. The percentage of national income taken by the top was as high in 1913-1920 as it is today. The common libertarian counter is to assert that natural monopolies or mal-distributions can't exist without government support somehow, and the tiniest of the tiny government inference is often latched onto as an excuse to explain away another failure of the theory.
 
One of the most common passtimes of the die-hard technocommunists is to pretend that they've found some Soviet-like or communist-like aspect to the capitalist system so that they can pretend that the critique of communism -- them -- will only rebound and be redirected to capitalism. It's really so transparently silly.

The very idea that the US spends on the "wrong" things (like Internet broadband so the Google ad agency can have more customers?) itself comes from the collectivist central-planning guidebook. That's why this article is just so laughable.
 
This is definitely the case with health insurers. Just like the soviet bureaucrats they are rewarded for inefficiency.
 
It's an interesting take, but the comparison isn't exactly accurate. USSR never had anywhere near the number of rich people US has. USSR didn't have ANY private businesses (which should be an excellent sign to Obama that moving the country into more government-based businesses won't work, just as it didn't in the USSR). The level of corruption in the USSR dwarfs what's going on in the USA business-wise. They did have +Sergey Brin , but there wouldn't be anything remotely similar to Google if he was there, innovation didn't really exist, at least not on any level similar to the US. There was zero incentive to create/produce anything and plenty of incentive to steal, be unethical, do under-the-table deals, illegally of course.

The whole notion that the economy is strictly controlled by the government in the US isn't true... if it was - Obama could easily make things better & waltz into the next term, clearly he isn't able to do so.

So, even though this article is certainly interesting & thought-provoking - it just doesn't pass the muster of reality.
 
First point: Isn't it so that the voters in california forced the government not to increase taxes a couple of years ago? And now they are forcing them to spend more at the same time? So obviously purely people driven government doesn't work either. Second point: The 'rich get richer' problem is btw not constrained to the US, it's everywhere. But certainly the lobbying mechanics are the strongest in the US so richs' effect on decision making is much stronger.
 
+Vukasin Toroman If your premise was true, considering the fact that most of the USA population wants a smaller government, that would be the case... unfortunately - it's not, i.e. it's not as simple as having people making it smaller. As for the capital - I agree with your main point about it, but without people - there is no capital & America became what it became because of the people striving to get capital. The non-capital approach was tried in many places, including USSR with miserable results.
 
The USSR was firmly based around Capital - just capital controlled by the state rather than private companies. For an in-depth analysis of this, look at http://libcom.org/library/what-was-ussr-aufheben

The reason the USSR failed was not because it wasn't capitalist, but because the particular form of capitalism it adopted was (even) less efficient than that adopted elsewhere.
 
+Nathaniel Catchpole The form they adopted is actually called 'socialism'. They were hoping to change it (boy, that sounds familiar) to become 'communism', although never reaching that ultimate goal. And I disagree that they were 'firmly based around Capital'. In Capitalism one tries to acquire capital typically through some sort of a business. That was NOT the case in the USSR.

+Vukasin Toroman Let's hope the transformation doesn't happen at the cost to the entire country.
 
+Oleg Moskalensky so you don't think the USSR tried to accumulate capital then? If a private company is nationalized does that immediately change the production relations within that company? Did Northern Rock become 'socialist' when it was nationalized? You're using dictionary definitions of terms (at best) then treating reality as if it neatly fits to them.

If people can grasp the idea that the American system is not actually a free market, while remaining capitalist, then they should be able to grasp the idea that various 'socialst' countries were capitalist, while not having a free market.
 
Not in the sense that America did/does, +Nathaniel Catchpole There were no private companies nationalized. I don't need 'dictionary definitions' - I lived in the bloody place and saw how things worked.

And for your second paragraph, speaking of definitions, how do you define an actual 'free market system'?

Also, when you refer to 'various socialist countries' - which ones are you describing exactly? Because there are countries that utilize many aspects of socialism, but it would be unwise to drop them in the same column as USSR - a different beast.
 
+Oleg Moskalensky: In the US there has been no formal nationalization, but the underwriting of private debt (with conditions) by the federal government amounts to much the same thing in practice - for example the Fannie Mae/Freddie Mac bailout and conservatorship. Once again this isn't about what happens in terms of formal terminology or legal status, it's about the actual control of capital.

There were numerous 'socialist' countries that were not part of the USSR, for example Yugoslavia and China. They have also made transitions to private capitalism (all of them bloody in their own ways, China's probably smoothest in terms of the regime).
 
The libertarians on this thread always neglect the fact that the free market is an artificial construct that is maintained by society via regulation and the legal system.

Corporations and the rich have the leverage to remove or corrupt regulations that are meant to maintain the free market, which harms the entire society. And that contributes to the problems described in this article.
 
I find it quite funny that the defendants of 'free markets' (capitalism) are reusing anti-soviet era propaganda concepts against their own (not so beloved anymore) capitalist states. The metaphor of the monster that devours itself when nothing else remains fully at play here.

It's hard to face reality when you start from an ideological premise that is defined as an unquestionable truth (paging religion!). Accumulation of capital is inherent to capitalism. The end game of capitalism is an oligarchy and monopolies. We are therefore at, or close to, the end of the game and that's the main problem. Every time this happened before the system had to reset, via state/society intervention (breaking monopoly, forceful redistribution, regulation) or some technology/economic breakthrough that created new 'capital'/production (double effect of adding more to share and initial capital/production being better distributed). Of course the 'winners' of the game want to remain winners, keep the booty, and try to keep the game going on for a few more minutes. But it won't work this time better than in all the previous occasions.

So I expect the solution of the current crisis to be a 'reset', some rearrange of initial start positions (winners of the old play and new entrants) and a new play of the same game. The problem is that there are very nasty scenarios before that reset happen.

As an a alternative, very unlikely, humanity will finally grow up and stop playing silly games with the 'stuff we live from'. I'm all for games ... in simulated worlds.
 
+Tim O'Reilly, I just want to say thanks.....the stuff you forward is usually very thought provoking, and I appreciate it.
 
1st of all, we are already there and we passed the point of no return. Class war was fought and won by rich. It took longer then USSR, because instead of 1 communist party, we are richer and can afford 2 communist parties: Republicans who are openly public enemies and Democrats who are pretending to care about non-rich people (we know it is not true: Bush tax cuts were prolongated, we still have 2 unnecessary wars etc.). US constitution was created by slave-owners and rich men for themselves and not for slaves and not for poor are even for disappearing mid-class. And this shows now and before it was clear too,

I do not see the solution within exiting 2-party system, which means that the author is correct by concluding we are observing the decline of US empire and our political system is not equiped to change it. And we do not see any leaders and leadership who can lead us out of coming disaster. Even if you exclude all these clowns and public enemies on GOPs side, even Obama shows NO leadership skills: he did not enforce Bush taxes to expire, he did not withdrew from Iraq and Afghanistan he did not use 14th amendment to hit tea criminals etc. An nobody on Democratic side is going to challenge him in 2012.... And don't forget: Obama was elected to fight and not to compromise with public enemies...
 
Like Tim'O better when quoting Dorothy Parker. What Anderstanding is Robb offering?
 
What I didn't hear in the article was a suggestion of where to go. His argument is persuasive and goes along with what I've been thinking, but like me he seems unsure of what we need to do about it.
 
I'm glad you posted this. It's making me think about our economy in a completely different way.
Jim Lai
 
Robb doesn't take his line of argument as far as he could have. If centralized decision-making is a risk, then an oligarchy of ratings agencies are also part of the problem when the majority of market participants base their decisions on said ratings. Ratings agencies can structurally promote the condition of information asymmetry, which subsequently leads to the risk of mispricing and consequent market failure.
 
Good article but probably the wrong graph. Someone who gets a big direct deposit every month, then sends the money out to the mortgage company and the 401(k) plan, is going to show up with a "high income" on there, but has very little capital allocation power.
The relevant graph is probably even more extreme.
 
This article doesnt take into account that the people in the 99th percentile will not remain there if they make bad decisions. Bad financial decisions = loss of wealth. These people have a vested interest to make the right decision. They obviously didn't get to the 99th percentile by making bad decisions, so I would argue that these people are some of the smartest and best decision makers in society. Nobody makes the right decision every time, but these people have a huge financial stake in making the right decision.

On the other hand, in government decision making, the decision maker has no skin in the game (other than reelection). This results in poor decisions leaving everyone in the graph suffering.

I totally agree central planning is a horrible idea but don't buy the argument that central planning could take place in the FREE market.
Jim Lai
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Ratings agencies don't have a "skin in the game" either, yet they are used in market decision-making. http://blogs.hbr.org/fox/2011/08/rating-agencies-are-the-darned.html Quote: The agencies thus constitute a government-sanctioned oligopoly that earns big profits from its special status. This doesn't mean their ratings are pure advertising; the agencies often say things that the issuers who paid them would prefer not to hear. They seldom, however, say it before everybody else in the world already knows it. They now exist to codify conventional wisdom, not give investing advice. And since conventional wisdom in investing by definition almost always ends up being wrong...
 
+Adam Cohen The piece doesn't have to be true for every industry to be true for society as a whole. But even as to seemingly distributed industries like retail, they are getting increasingly concentrated. I look at my own core business of publishing - there are very few retail outlets left. And what was really shocking to me on a recent visit to Harvard Square was how many of the retail spaces formerly occupied by bookstores (Wordsworth and Brattle Bookshop to name two) are STILL unoccupied, years after they closed. And this in what should be a vibrant college town. There is really no retailer who can use those spaces, even if bookstores are gone? There is a permanent hollowing out of our retail sector going on.

As for automobiles, don't get me started. The consumer choices are remarkable superficial, and the entire system is centrally planned. The auto industry is a classic case of regulatory capture. We are told that trains, for example, don't work without subsidy, without recognizing the built-in government intervention in the auto industry. The government collects gasoline taxes on behalf of the automobile and oil industries and uses it to build the infrastructure that makes the automobile the dominant form of transportation. The government also provides enormous subsidies in the form of tax breaks for oil and gas exploration, etc. Very much a case of central planning. Change "trains" above for all forms of alternative energy, and you can make the same argument. The oil industry got baked into the system, and when other entrants are trying to get a piece of the government pie, the entrenched industry calls foul, hoping people don't notice just how much of it they've already eaten.
 
+Brad Ennis I don't think you understand just how bad your decisions have to be to drop you out of the top, once you get there. But in any event, you're not considering the central point of the article, that those who have wealth also have privileged access to shape policy. If you're a technologist, you can see this in an industry like music, where the existing companies are using the legal system, and access to Congress, to hold back progress that would clearly take the market in a very different direction. The market is winning, but with a great deal of difficulty.
 
So the U.S. has become an oligopoly of the wealthy.
 
The Robber Barons will always be with us.
 
Very thought provoking perspective.
 
+Alastair Thompson can we please stop trying to pin this on one of the two political parties. The problems of influence by money over government are evenly split on both sides. Why must people try to divide The People further by bringing partisanship into play. That takes our eyes off the real problem of influence and places it on getting "my party" elected. Corruption is rampant, and it is evenly distributed on politicians of both ilks. Don't be fooled into playing the game they have directed you to!
 
I suspect the chart included probably even understates the disparity since those at the top actually have higher asset to "yearly income" ratio.
Jim Lai
 
Assuming that economic influence and bad decisions obey a power law distribution, the more powerful will decide badly less often, but the overall impact of a single misstep will be greater when they do. This scale-free behavior would apply regardless of ideological framework.
 
I feel like the thesis may be a causality/correlation failure. We have had a strongly centralized decision making system for 30 years and the accumulation of bad decisions that is hurting us is also helping a small fraction of the population at the top (not all of those at the top, but enough to skew the numbers).
 
Jim, this is only assuming "bad" decisions result in less economic influence... I don't think we need much more proof that powerful and wealthy agents have been repeated rewardedly for their bad decisions ("too big to fail"...).
 
Now that I think about it. The same idea of 'central planning is bad' is just another dogma, self-evident 'truth' (cue here reference to the demise of the Soviet Union) from 'free-marketers'. So central planning was bad for the Apollo Project, the Manhattan Project, running and winning WW2, building the pyramids ...

From this point of view 'central planning' is just code word for 'state' or 'social' planning in opposition to some 'private' (oligopoly) taking the benefits and socializing the costs for the same effort or task.

The purpose of the planning, the actual existence of plans, aren't they just as, if not more, important that how 'distributed' is planning (or decision making)?
 
+Jim Lai Thanks for that link. Those charts are far more illustrative of the gap (and when and how much it has changed) than the chart from the original article. I thought chart #8 was interesting showing the likelyhood of raising or lowering your economic bracket. Basically it's just as hard to FALL as it is to RISE.

+Victor Moya del Barrio I think the examples you gave are too small-scale to compare. The problem we have now is that economies are far more complex than any single human brain can manage. Too many variables. I don't know if 'central planning is bad' is necessarily ALWAYS true, but in cases where the system is so incredibly complicated it does mean that central planning has a severe handicap.
 
You start from a basic assumption that a lot of people will let go unchallenged, especially in the US: central planning = bad, local decisionmaking = good. This basic assumption is not true in all cases, and it has probably very little to do with the mess the US finds itself in. Your public sector is comparatively small (look at the list of OECD states with a solid economy), and the real level of taxation is low. The problem has more to do with de-regulation, i.e. the lack of central planning and control, which means a loss of checks and balances on the aggregators of economical power. As a result, these aggregators take over and destabilize the system, not by faulty planning, but by parasitism. In good times, your banking and finance sector sucked 30 percent of your GDP. Now, with the system askew, the are taking a multiple. Not because they are planning this badly, just because they can get away with it.
Jim Lai
 
Wal-Mart does central planning and has the data center to back it up. Their GDP exceeds 2% of US GDP and is bigger than some countries.
 
+Ray Cromwell I am not a libertarian, more of a progressive, and I even agree with you that libertarians regularly overstate the role of government in creating and enabling natural monopolies, that said; I highly recommend "The Triumph of Conservatism" by Gabriel Kolko for a really well research revisionist history of the time period you mention (http://www.amazon.com/Triumph-Conservatism-Gabriel-Kolko/dp/0029166500). Kolko was a New Left historian, and he makes a really convincing case that the inequality on wealth in that era had much to do with a collusion between big corporate interests and government, much like today.
 
The article begs the question: what do we do about it? Many problems (like this one) are obvious; the solutions, not so much...
 
The first few paragraphs were great!

Then he basically says "Free markets obviously don't work... just look at the misallocation and the bubbles."

But if you look at what he's pointing at, he's pointing at a NOT-free market. When the Federal reserve virtually decides the value of all assets through monetary policy... and decides which investments look good based on their interest rate manipulations, we are not in a free market, and it's no surprise that there would be "misallocations" of wealth.

He's probably right about the collapse. But it's not a flaw in free markets, it's that free markets are missing :-)
 
+Bill Horvath II THAT IS the question! You can start by not holding your wealth in corrupt places like Fed-chartered banks and stock markets.

All this corruption is financed by all of the money that most people readily GIVE to the corrupt people every day, week, month, and year.
 
Yes, I think this is true. This premise implies that there is no democracy at all. No economic democracy. However, Humanity only solves a social problems when the material conditions to solve them appears. That happened in American, English and French Revolutions. A new way to produce things uprose, the machines and industry. This disrupted the old economical and social organization. This is happening now. As John Boyd states, this central planning is done by a minority (who holds the majority of wealth), however there are increasing means to collectively manage planning, that is to say on a decentralized basis, policentric. The clash will be political. Two distinct ways to manage the social metabolism.
 
US Government spending is 40% of GDP. So even if, say, the wealthiest 1% do 10% of the private sector spending, then they only represent 6% of all spending, which pales in comparison to government spending. So I think it's a bit of a stretch to say that the wealthiest in the country wield the economic power of "central planners."
 
Is there really anything in the United States, other than the revolutionary war, that hasn't mirrored the ascent of Rome? It doesn't take much to see in Livy the parallels with where we (and our near carbon copy of Roman civilization) is headed. Again.
 
This is, in a word, ignorant. If you want to talk about concentration, as recently as the 50s, GM was 4% of GDP. The large centrally managed industrial enterprises were as close as anything we've seen to Soviet central planning. And yet wealth was far less concentrated. The two have nothing to do with one another. Concentration of wealth is indeed a cancer on democracy, but equating it to central planning shows ignorance of what centrally planned economies were. To say that all market failures are because markets were not sufficiently free is by definition not falsifiable. A communist would just as easily say communism failed because it wasn't communist enough, whatever that means. A big part of what got us into this mess was simple-minded ideological thinking untethered from simple observation and common sense. We need more foxes who understand the world as it is and fewer hedgehogs with big simple ideas of how it should be. For a couple of small steps toward the light, I suggest Galbraith's 'The New Industrial State' on the heyday of industrial concentration, and Frankfurt's 'On Bullshit'. And maybe the recent books on the crisis from Lewis, Nocera, Morgenson, and others that discuss how free market fetishism, moral hazard, and absence of adult supervision by financial regulators helped lead to the crisis. And for good measure, Kindleberger on the recurrence of panics, manias and crashes in those perfect 'free' markets,
 
The 'lifestyle' of the bottom 70% of American consumers, since 2000 or so, has been made possible by debt, and by low-cost Chinese labor. The first has already collapsed, witness the US savings rate and reversal of mortgage equity withdrawal, and the second is just starting to collapse, as the Chinese demand higher wages, and companies like FoxConn start to replace humans with robots.
 
The problem is not central planning per se, it's the misallocation. Angelo Mozilo and Dick Fuld (and their imitators and cronies) sucked a few hundred million dollars into their personal wealth, and trashed (arguably) trillions of wealth and GDP. They were allowed to do this and get away scot-free because of deregulation, abysmal malfeasance by regulators, and willful blindness by prosecutors. [to follow up on this topic, google William K. Black and control fraud].

And then there's the military and national security military-industrial-congressional complex, which eats quite a few percent of GDP, and is less worth the cost every year.
 
I don't want to push the debate ad infinitum, but there are another points worth to remark. The central planning of Soviet Union was done on the basis of a totalitarian society. This is not the case of USA, as far as we know. But the economic structure of soviet economy was that of a underdeveloped capitalism. The main point is that the dynamics of capitalism was preserved (just like China, today) under a fierce control. It was another facet of capitalist society. But now if we look from a prospective way we could ask: are there seeds or embryos of a different mode of production? Collaboration and sharing, as in free and open software, can be seen as this new trend? Is just a question, I don't know the answer.

BTW: as I am not an english speaking guy, forgive me if the english is bad.
 
What a completely nonsensical post.
Anyone who tries to do macroeconomic analysis and limits himself to looking at one country in isolation is missing the point. The US has and is resisting adjustment to the new realities in the global supply of labor. The 5th percentile in the US is the 95th percentile in India- a much larger country. There are people all of over the world willing to do the same work for less than people in the US, meaning US capital flows there. Our brief period of advantage following the destruction of the developed world's infrastructure after WWII is gone.
Yet, we continue to push up the cost of living by propping up real estate prices with taxpayer backed 3% down loans, pursuing foreign entanglements, and an overpriced third party payer health care system. The government even fights against companies building new capacity in lower cost locations in the US instead of building outside of the country. We're preventing ourselves from changing our model out of fear. We need to be able to disrupt ourselves.
 
Sorry to be cranky. A lot of people throw around big ideas with very dim ideas about how the system works at a granular level. For example, that the solution is we need to stop borrowing cold turkey or go back on the gold standard. I feel like when a computer-illiterate person asks me to fix an old computer and while I'm flashing their ancient BIOS they hit the reboot button because they have a theory that 'it always helps'. Maybe we should just try to stop doing incredibly dumb shit, and giving people irresistible incentives to keep doing them (leverage, moral hazard, too-big-to-fail, MIA adult supervision) instead of coming up with big theories. Anyway, it's good to see people come to a rediscovery that free or less-free markets sometimes lead to market power, imperfect oligopolistic competition, and rent-seeking (which is different and not necessarily related to 'central planning').
 
"The concentration of wealth is now in so few hands and is so extreme in degree, that the combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy. As a result, we now have the equivalent of centralized planning in global marketplaces."
 
+Druce Vertes 's point it well taken: any argument that modern capitalism suffers from central planning really should review John Kenneth Galbraith's "The New Industrial State". Galbraith argued (I think rightly) that large-scale industrial enterprise requires large-scale, long-term, centralized planning of R&D, manufacturing, logistics & marketing. A 747 simply cannot be built if every part is subject to the volatility of market price & supply. There is room, I think, for a derivative work on the "New Post-Industrial State", in which ICTs allow greater centralized planning of industrial activity, on a global scale, with less direct capital ownership (consider Nike & its "contractors" or Apple/Foxxcon).

Anyway: the "concentration of ownership causes centralized planning" argument smacks of first generation political economy, like the zombie "owners decide newspaper coverage" hypothesis, which keeps coming back to life no matter how many times it is killed by real scholarship. I'm sure the concentration of ownership, wealth & disposable income frustrates the healthy function of free markets, but I would expect that to be more evident at the level of consumer demand.
 
The major issue I have with this article is the misinterpretation of the power law graph. The author makes the apparently substantial statement that the "combined liquid financial power of all of those not in this small group is inconsequential to determining the direction of the economy". However, this is not supported by the power law graph, which only shows that the top 0.4% makes more than any individual percentile shown. In order to substantiate his claim, the author must plot out plot the cumulative sum of annual income vs percentile and show that the sum at least doubles after the 99.5%.

Maybe it does, maybe it doesn't. But without the proper analysis, this is just misleading.
 
This is complete garbage. The biggest misallocation of funds has been the housing bubble. how the hell is that centralized?
 
Marc, I admit to being a layman wrt to economics, but wasn't the housing bubble aided and abetted by exotic financial "instruments" developed by and for the finance industry? In that sense could the housing bubble not be seen as a centralized? These "toxic assets" were centrally held by investment institutions that aggregated other institutions' and individuals' investments. Without these fabricated financial products (which all piggybacked on each other) would that bubble have been possible (or at least, would people have been better able to tell what was going on)?
 
Aaron, yes you are correct that the creation of credit derivatives contributed greatly to the housing bubble. In broad strokes, by pooling assets and creating AAA tranches through securitization the banking system has essentially found a way to create almost infinite amounts of "money as debt" on top of minimal high powered money by the central authorities (FED/ECB/China), normally that ratio is limited by law. That much is true. To jump to the conclusion that these instruments are the result of the top 1% is going to raise a few eyebrows.

More to the point, when analyzing a system like the economy and the financial system I have found that classic 'scientific causal' analysis will fail. Most engineers (of the libertarian persuasion) will miserably fail. For a simple reason, the system is a NETWORK of nodes interacting. It is a web, causal analysis will get you going in circles. There are feedback loops everywhere (which is why the system is unstable to a degree). You can choose a starting point (say, income inequality in finance systems) and unravel the consequences (in this case, misallocation of funds because of hoarding by the top 1% instead of consumption and investment by the middle class) and you will weave a story that will fit a ideological framework. But that story is a thread, one thread. There are tens in the housing bubble that I can weave. Reality is that looking for ONE causal narrative is what leads most people astray. you can blame the banking system, the greed of you and me, the politicos, you can pretty much weave any story out of the complex web of interactions.

Back to OP. Most of the facts are valid. Most of the factual dominant theme seems to be that income inequality is a source of evil. That theme can be found is serious academic literature as well where the historical relationships between income inequality and bubbles are established. Personally I find that the causality is reversed, namely that financialization of an economy will lead to income inequality (the rich get richer) by the creation of asset bubbles, it them becomes tautological (asset bubbles are for those that have assets). This is a trait of financial capitalism, with equity and debt serving as pilars of the system. This in turn increases the gap between haves and have nots and has been widely recognized by most posters above.

The underlying structure however is one of debt bubbles, recognized as "minsky cycles". basically debt begets higher returns on equity, begets more debt and more returns until the debt burden is not serviceable. The point being that the economic 'aphrodisiac' is potent. One monetary analysis or modern US presidents, will say that carter was the last president to do the right thing (induce a recession (under volker) to control inflation) and that he paid the ultimate one-term price. Reagan on the other hand clearly opened the money valves, no president or administration has stood up after for obvious reasons. The money cycles work in decades, politics in years, corporations in month. Which means the money cycle trumps everything and we are mostly puppets. Everyone participates (who here who lives in silicon valley hasn't seen their home wealth appreciate with glee). When those bubbles burst we are quick to latch onto a narrative. IT IS THE OTHER GUYS FAULT AND IT AGREES WITH MY 2c IDEOLOGY.

Back to OP again, I find it naive and somewhat pompous to pin "top 1% centralized econ" as THE one narrative. It contributes nothing to the narrative in my opinion but underlying the narcissism and self-loathing of most silicon valley elite. Considering the circle this is circulating in, I find it intellectually hypocritical. Like I said, it is garbage.
 
I don't disagree with the consolidation of assets among the wealthiest x percent of individuals. Question: Why does this consolidation not meet the requirements of markets? Aren't these individuals investing their money in markets where they will either protect or receive the highest yield on their assets?

This argument of consolidation is routinely made. What I haven't seen is the actual allocation of assets demonstrating that free markets are no longer viable.

I'm not arguing one way or the other. I'd just like to see some relevant data.
 
Marc thanks for your reasoned and equanimous response, it's given me more food for thought.
 
I guess what we need is smaller government and a free-er market "... allow massively parallel decision making." It will also reduce our staggering nation debt.
 
Economist Michael Hudson says something similar: "Pro- and anti-government approaches both lead to central planning, but in different hands."  So the question is: who do you want doing your central planning?  Elected officials or banks, high finance, Wall Street and other financial centers eastward?  Seems like the banks etc. have been doing the job up until now and there doesn't seem to be much movement away from that because of the dreaded epithet "socialism".  The fundamental solutions are simple, taxation of economic rent/unearned incomes (35-40+% of GNP everywhere) and the end of private creation of money as debt to name just two.
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