Oren Cass, senior fellow at the Manhattan Institute, has a wonderful essay in the spring edition of National Affairs. Titled “The New Central Planners,” the piece points out how the federal government’s attempt to fix alleged “market failures” in the realm of climate change assumes away all the traditional problems of socialism. In other words, if we could trust officials at the EPA to tell us the “social cost of carbon” and to levy subsidies and mandates to move us to an efficient energy mix, then we could likewise have those officials plan the rest of the economy too. (Remember, EPA’s highest-paid official felt it was his duty to “modify the DNA of the capitalist system.”) But if you don’t trust EPA officials to pick the proper mix of restaurants and movie theaters in your town, then you shouldn’t let them dictate the proportion of solar and natural gas either.
Austrian Economics and the Critique of Socialism
Before quoting from Cass’ eloquent article, some background: The traditional 19th century arguments against socialism focused on corruption and incentives. That is, conservatives warned that “power corrupts” and nobody could be trusted with control of the whole economy, and they also worried that laborers wouldn’t work as hard if their standard of living were determined by something other than contribution to the output.
However, the socialist theorists of the 1800s countered that democratic safeguards would ensure that only the “right people” took power in a socialist regime, and furthermore that people growing up in a Socialist society would not be as greedy and backstabbing as those growing up in a dog-eat-dog world of capitalism. Therefore, the socialist writers argued, we could look forward to a new type of altruistic ruler and citizenry in the socialist age.
In this context, the arguments put forth by Austrian School economists Ludwig von Mises and Friedrich Hayek in the early 20th century were totally different. In what has become known as the “socialist calculation debate,” Mises and Hayek argued that even if we stipulate for the sake of argument that central planners had good intentions and all of the relevant technical knowledge, they would still not know economically what was the best use of society’s resources.
Consider: Engineers and physicists could tell central planners numerous ways to build an apartment complex capable of housing 500 citizens. They could build it using mostly wood, or bricks, or stone for that matter. But neither engineering nor physics alone could tell them which design made the most sense, or indeed whether there should be a new apartment building at all at the particular location. These are not scientific issues but economic ones. The issue is whether those resources—wood, bricks, glass, labor-hours—are better devoted to other possible projects.
In a market economy, such issues are solved daily by recourse to profit-and-loss calculations. Various entrepreneurs enter the market and bid on wood, bricks, glass, workers with varying skills, and every other resource. Resources flow into those channels where the consumers, through their spending decisions, implicitly “vote” on the configuration of retail goods and services that they enjoy the most. Competition filters this information up through the pipeline, so that the dollar-figures attached to a ton of steel, a barrel of crude oil, and so on signify the relative scarcity of those resources, helping to ensure that they are allocated to the proper channels.
The market economy isn’t foolproof, to be sure. But Mises and Hayek stressed that at least it was a coherent system with a built-in feedback mechanism. In contrast, central planners per se would be “groping in the dark,” unable to determine even after the fact whether their grandiose Five Year Plans made wise use of society’s scarce resources.
Oren Cass and the New Central Planners
With the backdrop of the broader debate over socialism, we can appreciate Cass’ new article. Here he explains the connection between traditional central planning and the modern climate change socialists:
Analyses like [those of the IMF and EPA] are the counterfeit currency of the administrative state. To disguise the value judgments inherent in their regulatory agendas, economists and policymakers justify their proposals as hyper-rational, politically neutral responses to “market failures.” To prove these proposals enhance economic efficiency and societal welfare, they produce “cost-benefit analyses.” Free markets and price signals work better, they tell us, when we embrace their recommended taxes, subsidies, and mandates. Any rule that requires $1 million of equipment to reduce by 1% the risk of death for 100 people is just common sense; one requiring $1 billion of equipment to reduce by less than 1% the emission of carbon dioxide for one year is the only responsible choice.
By asserting that their frameworks, tools, and data prove government action will enhance market efficiency, economists are engaging in a new form of central planning. It differs in degree from traditional command-and-control socialism, but not in kind. It is less absolute — the market economy provides a baseline until an intervention occurs. It is less totalitarian — plans are executed through rules and incentives that alter the behavior of market actors instead of through the direct assignment of resources. But it is rooted in the same conceit that technical expertise can outperform market forces and deserves deference where applied. It suffers from the same challenges of incomplete information, heterogeneous preferences, and subjective values. It relies on the same refusal to acknowledge the inherent tradeoffs that underlie the allocation of scarce resources. And, as a result, it also reduces democratic accountability, economic efficiency, and total welfare. [Bold added.]
To give just one example of the problems with hiding behind “cost-benefit analyses,” Cass points out how an economist who wants the government to levy a large carbon tax can of course add up all sorts of “negative externalities” from activities that emit CO2. But what assurance do we have that this analysis is complete? Someone motivated in the other direction could of course find dozens of ways that emitting CO2 confers positive externalities on the world, even if we stipulate that this will result in a warmer planet in the middle of the IPCC’s latest estimates. These benefits include enhanced fertilization, longer growing seasons in colder regions, and avoided cold deaths among the elderly in the winter.
It is an unbelievable act of hubris to suppose that a group of natural scientists and economists, armed with computers, can today make quantitative predictions of how much massive new taxes and draconian regulations will make people better off in the year 2150. And yet this is precisely what today’s central planners do from 9-to-5 in the office. Although I do not endorse all of his views, I definitely recommend reading Oren Cass’ National Affairs article for a thorough critique of the modern socialist mindset.