Friedrich Hayek, the economist who followed the lead of Ludvig von Mises’ “Economic Calculation in the Socialist Commonwealth” with his own book, “The Fatal Conceit”, stressed that the Central Planner of a socialist or communist country had an impossible task: 1) find out what everyone wants, and how strongly they want each of those things, 2) find out how to allocate resources, to best meet those wants, 3) re-calculate these wants and allocations quickly, cheaply, and frequently.

To know what everyone wants, a Central Planner would need to continuously survey the entire populace. For the world of Mises, in 1920, that would have been an impossibly laborious and intrusive task. A survey-taker would come to your door every day, and give you more demand-surveys to fill out; a massive team of office workers would sort and tabulate the data, on a daily basis! How could Stalin hope to run a continent, without droves of overworked secretaries and towers of paperwork?

The second task would be equally impossible for a Central Planner; efficient allocation involves constant adaptation to new information, often with distant and seemingly unrelated impacts. The equations to be optimized are hilariously complex — no one in the 1920’s could expect to actually solve one before the answer became obsolete. New information would necessitate a re-calculation — a daily race to tabulate which company gets aluminum, and how much: soda cans, or car frames? It would take a crate of mathematicians, working non-stop!

Hayek and Mises argued that, because these tasks were impossibly hard, Central Planning would always fail. The cure they offered was price signal, which results from supply and demand in a market. Because each of us want stuff at different intensities, and we have some difficulty acquiring resources, the market lets us pool our knowledge as the price of goods and services. It acquires that price signal from peer-to-peer interactions and our personal, local knowledge. No one needs to survey all the details of your thoughts to determine ‘how much’ you want one car compared to another; No Central Plan necessary; information is decentralized, local, moving through a network. With a market, price signals display the outcomes of all our valuations, while keeping the reasons for our valuations private. Markets don’t require an All-Seeing Eye, while Central Planning does.

Central Plamazon

Computers are now fast enough that Walmart, Amazon, international shipping, financial firms,… heck, most of the global economy is only happening because a computer: 1) found out what we want, and got an idea of how much we want it, 2) determined efficient routes and allocations of resources, to best meet the surveyed wants, 3) gathered that data frequently, and performed an optimization to put our wants in place, with just-in-time delivery. Walmart and Amazon are the consumer superhighways because of their efficient prediction of demand, optimal routing, and allocation. If I respond to Youtube surveys, and Walmart loyalty cards track my purchases, and Amazon knows what was bought by customers with similar tastes, I do have the army of office workers Mises recommended! Amazon is the Central Planner that Mises thought would be impossible.

And, they have a privacy policy! So, our internal reasons for our wants are not on display; they are collated anonymously into statistics for Amazon’s warehouses, without the corrupt gatekeepers commonly found in ‘communist’ countries. I honestly can’t see how algorithmic trading, routing, demand forecasting, and pricing is anything other than Central Planning. Especially considering that the majority of the algorithms in use are essentially the same, we have a Monarchy of Algorithm. No human makes those choices; no human could possibly understand enough to make those choices so quickly; we have left that task to Deep Neural Networks and Random Forests. They are good at it. Let them be Central Planner. Long live the LSTM!

(All this was mentioned here, back in 2011.)

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Easily distracted mathematician

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