The Spanish philosopher, George Santayana (1863-1952) is usually credited with the phrase, “Those who cannot remember the past are condemned to repeat it.” Nowhere is this truer than with the renewed idea and demand for the establishment of a socialist economic system.
A noticeable number of intellectuals inside and outside the ivy tower of academia, as well as a vocal segment of those on the “progressive” side of American politics are insisting on the desirability and necessity for ending the “neo-liberal” capitalist system and replacing it with a “democratic” socialism dedicated to “social justice,” “identity politics,” and relatively comprehensive centralized planning of economic and social affairs.
Listening to and reading the arguments of these proponents of the “new” socialism, you would think that nothing had happened over the last one hundred years that in any way, shape, or form had anything to do with the case for and likely consequences from introducing socialism into 21st century society.
In their minds, what have been considered to be “socialist” regimes in the 20th century were either “false” forms of socialism not representing what a “real” socialism could and would look like; or they were socialisms that went wrong because the “wrong people” were in political power in socialist countries around the world; or the full possibilities and potentials of those socialist experiments were undermined and weakened due to American imperialist interference trying to make them “fail;” or the “new” socialists just try to ignore the history of socialism over the last one hundred years, sending it all down an Orwellian “memory hole.”
Early Anti-Socialists Warned of Tyranny and Plunder
Their naïve optimism and confidence might have been understandable and even excusable before the First World War. Before then, socialism was still primarily a political ideal and dream of those wanting to make over society so mankind could have a beautiful and more just and prosperous future. But even then, in the 19th century, critics of the socialist promise warned in often amazingly prescient ways, given all that has happened over the last one hundred years, what socialism-in-practice would really mean.
Those earlier critics of socialism warned that a triumphant socialism would mean a terrible tyranny. Socialism would mean comprehensive government ownership and control over all the means of production. Such total control by those in political power and directing the central planning of all economic activities in the society would hold the destiny of everyone in their hands.
A socialist government would determine where and how you lived, the type of work and employment opportunities you had, the education that you and your children would be allowed, the types and quantities of goods to which you would have access, as well as the political, cultural and philosophical ideas you would be permitted to read and learn about and discuss.
Nothing would be outside of the restricting reach of the socialist state of the future. Each person would be nothing more than a cog in the collectivist machine, commanded, controlled and, when necessary, coerced to serve and be sacrificed for the wider and more important socialist good.
In spite of all the rhetoric and promise of the “liberation” of man under the socialism-to-come, the actual individual human being would be lost in the collective mass of “the people” as a whole, for which all that the socialist state implemented was the rationale and justification.
The critics of socialism also warned that “human nature” was not a moldable putty to be remade into a new “altruistic man” unconcerned with personal self-interest once common ownership had replaced private ownership over the means of production; and once a new generation had arisen that was sufficiently “re-educated” by the state to have been freed from “bourgeois” thinking, attitudes, and proclivities of focusing on the self rather than the group.
All that would have changed was the institutional setting within which human nature manifested and played itself out. Such extensive and monopolized economic power, as would exist under socialism, would merely mean the motives and incentives would be shifted to gaining political control over the state to use its power to benefit oneself and others important to oneself, at the expense of everyone else. (See my article, “John Stuart Mill and the Dangers of Unrestrained Government”.)
Early Criticisms of Economic Planning
Finally, a number of these critics of socialism pointed out the inherent unworkability of a socialist central planning system once private property, competition, and market-based prices had been abolished through the nationalization of the means of production by the government. How would producers know what to produce if competitive supply and demand did not generate the market prices to tell producers what it was that consumers wanted and the relative value they placed on those goods? Indeed, how could supply and demand be brought into coordinated balance if market-based and changing prices did not constantly and continuously adjust the two sides of the market?
How would competent directors of production be selected with the end of private enterprise, absent entrepreneurs to direct those enterprises who had proven their worth through winning profits and avoiding losses? How would labor be efficiently and effectively directed in their employments for assisting in the manufacture of the goods that consumers wanted, if in the name of “social justice” wages were determined by the socialist redistributors of income rather than by market-guiding wage incentives?
Every one of these worries and warnings turned out to be true in every instance in which fairly comprehensive socialist central planning was imposed and implemented anywhere and everywhere around the world over the last one hundred years. To enumerate them would be too gratuitous for anyone who possesses even a limited knowledge of the reality of socialism-in-practice. (See my articles, “Paul Leroy-Beaulieu: A Warning Voice About the Socialist Tragedy to Come”, “Socialism: Marking a Century of Death and Destruction” and “The Human Cost of Socialism in Power”.)
World War I Ushers in Government Central Planning
Virtually all of these earlier criticisms of socialism were ignored and went unanswered. For the most part, the socialists of that time set them aside as the misplaced rationalizations for those trying to defend the unjust, immoral, and exploitative capitalist system. They were rearguard attempts to hold off “the future” by confusing “the workers” concerning the truth of the terrible system under which they lived. There was a “right side of history,” and it was the socialist society-to-come.(See my articles, “Karl Marx and a Presumption of a ‘Right Side’ to History,” Part I and Part II”.)
But with the First World War and its immediate aftermath, socialism was no longer a dream, a promise of the future ahead of mankind. The future had arrived. During the conflict, the belligerent governments on all sides had introduced systems of government planning to one degree or another in the name of marshaling the resources of the nation in the service of “winning the war.” Then in the midst of the war, in November 1917, Lenin and his Bolshevik Party overthrew the Russian provisional government that had replaced the monarchy when the Czar abdicated in February 1917.
The declared goal was the overthrow of “capitalism” and the instituting of a socialist economy. Lenin’s government soon implemented what he called “war communism,” an immediate leap into full socialism as the means to harness and direct those parts of Russia under its control in the civil war that broke out in 1918 between the Bolshevik regime and the anti-communist “White Armies.” Then in 1919, short-lived Soviet regimes came to power in Bavaria and Hungary. The Democratic Socialists running the postwar German government in Berlin organized a “socialization commission” to study and plan the replacing of German private enterprise with a socialist economic system.
Ludwig von Mises Challenges the Workability of Socialism
In the face of all of this, in 1920, the Austrian economist, Ludwig von Mises (1881-1973), published an article offering a devastating critique of “Economic Calculation in the Socialist Commonwealth”. It was expanded into a full and detailed treatise challenging all facets and forms of collectivism two years later in a book that in its English translation has the title, Socialism: An Economic and Sociological Analysis (1922; revised eds., 1932, 1951).
Thus, the year 2020 marks the one-hundredth anniversary of Ludwig von Mises’s demonstration of the inherent and inescapable unworkability of a socialist central planning system. Though spiced in a few places with biting and satirical rhetoric about the socialist vision of the world, Mises’s 1920 article and the book that followed are serious and methodical analyses of the institutional nature of a socialist economic system, and the limits and barriers it places in the way of rational and efficient decision-making of the scarce resources of society for satisfying consumer wants in a social setting without private property, markets, and prices.
Mises wished not to question the benevolent sincerity of those wanting to establish a system of central planning. The core of his argument makes no presumptions or accusations that those in charge of the socialist society will be malevolent tyrants, or abusers of their political power to benefit themselves. In addition, he makes no assumption that come the socialist society, individuals will be any less industrious and motivated to be as productive as they currently are found to be in private enterprise, market-oriented societies.
Instead, he asked, when socialism will have nationalized the means of production and placed it in the hands of those directing the central planning of the society; when, as a result, markets and competition for the purchase and sale of the factors of production will no longer exist; and when, as a consequence, there will be no existing price system for the factors of production, how will the central planners know the most highly valued and cost-efficient uses and allocations of the land, labor and capital under their command and control?
Retail Prices Might Exist and Function under Socialism
His answer, in a nutshell: They will not know. It could be imagined that prices might still exist for consumer goods, instead of a strict allocational rationing by the state. The central planners will have decided how much of the various consumer items to produce in a given period and offer them for sale in the “people’s” retail stores at prices set by the government. Existing inventories might be bought up more quickly than the central planners had anticipated, or unwanted inventories might accumulate on the shelves because they were not the quantities or types of goods the citizens of the socialist society wanted to buy.
This would indicate the need for the central planning agency to raise retail prices to slow down the rate of purchase to prevent wanted goods from disappearing from the state retail stores too quickly until the next shipments arrived, and the need to lower other retail prices to clear out the unwanted inventory of those goods in lesser demand.
This would also indicate, Mises said, the need for the central planners to increase the output and availability of the former goods and reduce the planned production of the latter goods.
No Prices for Production Goods Means No Economic Calculation
But the real question was, in Mises’s view, how would the central planners decide how best to produce the various goods with the means of production at their disposal? “Land, labor, and capital” are made up of physically distinct, and technically varying possibilities for allocation and use. This is not merely in the general sense that some physical means of production might be usable for, say, making hats, but not for making cough syrup. But that there exists wide and intricate ranges of possible complementarity and substitutability in terms of what combinations of these physical means of production might be used to make any number of different and competing finished goods in varying amounts that consumers want.
How could their respective values be expressed for determining what relative quantities might be their highest-valued production use in one direction versus some other at the margin of decision-making? In the market economy this is made possible because rival private enterprisers compete for their purchase, hire, or rent in markets in which they are bought and sold; in addition all of these heterogeneous and physically different means of production are reduced to a valuational common denominator in terms of the money prices at which there are bids and offers for those factors of production on the supply-side of the market.
This enables the private enterprisers to estimate and appraise whether particular lines of production would generate profits or create losses. If they seem possibly profit-making, the money prices for those factors of production enable a working judgment about which combinations of them might provide the least-cost expenditures on the supply-side to bring the good in question to market.
The problem that the socialist planners will face is that they will have done away with all the institutional prerequisites for this type of rational economic calculation with the abolition of private ownership of the means of production, and therefore an end to markets and prices for their purchase, hire, or rent.
Existing Socialist Societies Did Not Imply Economic Rationality
In several places in his 1920 article and in his later book on socialism, Mises made the stark statement that this meant that socialism was “impossible” as an economic system. Many critics later ridiculed this “extreme” statement of his as patently incorrect. Was there not the Soviet Union and, after the Second World War, many other socialist societies that “existed” with systems of central planning that were producing, allocating and distributing goods and services? These planned economies had not “disintegrated” away into the “planned chaos” about which Mises had many times warned.
In retrospect, it is clear that Mises’s choice of words in the “excitement” of coming to his conclusions about a socialist economy was not perfectly chosen, and he, in fact, in several places found it necessary to clarify what he had meant in speaking about the “impossibility” of socialism.
First, he said that he was not suggesting that a centrally planned society could not exist. It could, and, obviously, did in the face of the Soviet experiment with central planning. The question was not whether a central planning agency could or could not allocate the factors of production under their control and command into various uses according to “the plan” designed and implemented.
The issue was whether the planning agency had the institutional ability to do so with the same rationality and cost-efficiency, in value terms, as a functioning competitive market economy. Would the scarce means of production be allocated and utilized in a manner of getting the most out of those means as was possible, not in technical terms, but in terms of their distribution among alternative productions that reflected their most highly valued allocation, expressed in the demands of the consuming public?
In a fully and comprehensive socialist society the answer had to be “No.” With no private property in the means of production, there is nothing (legally) to buy and sell. With no buying and selling, there are no potential gains from trade. With no potential gains from trade, there are no bids and offers, and no “haggling” of the marketplace. Without bids and offers, there are no agreed-upon terms of trade. Without established terms of trade, there are no prices.
Without market-generated prices, there is no way to know what individuals who otherwise could compete for the use of those factors of production in a market economy really think them to be worth as stepping stones to (hopefully) earning profits by producing what consumers want, and better than one’s closest rivals who are also competing for consumer business in the same or other markets.
Socialism is “impossible,” in the sense Mises was arguing, in that it was institutionally unable to create incentives and opportunities for rational decision-making concerning the use of society’s scarce means in service of the consumers’ ends in any way approaching the efficiency and effectiveness of competitive capitalism.
The socialist ship would be like a sailing vessel on a cloud-covered night, out of sight of land, without a working sextant or a functioning rudder to enable workable economic calculation. The socialist ship could be moving about, but had it selected the best means for moving the ship through the water, and was it getting to where it wanted to go in the least time with the smallest expense of resource use to get there? The central planning “captains” of the socialist ship would have no way of knowing.
The Soviet Economy was a Socialist Island in a Sea of Capitalism
In addition, Mises made the point many times over the years that the Soviet “experiment” was not occurring in a hermetically sealed economic environment, having to operate totally on its own in trying to decide what and how to produce. The Soviet “island” of socialism existed in an ocean of surrounding market-based societies. As a consequence, the Soviet central planners were able to make more rational decisions than otherwise would have been the case because they would use what, today, is referred to as the “shadow prices” of “neighboring” market economies.
Though the circumstances prevailing in those market economies did not have any one-to-one parallel with the conditions in, say, the Soviet Union, they did offer guides and indicators for the Soviet planners directing their methods for more rationally applying and using the means at their disposal for the ends they had decided upon.
This was no different, Mises explained, than those instances of “municipal socialism” that existed even before the First World War, in which towns and cities “socialized” various municipal services such as waterworks, gas and electric supplies, or bus and trolley rides within their local jurisdictions. Prices in the wider market in which these “socialist” services were provided for “free” or at a government-determined price could still sort out whether they were using the resources they controlled for the supplying of these goods and services in cost-efficient ways, because many of the inputs used were still bought and sold, and had prices usable for purposes of economic calculation.
“Market Socialism” Offered as a Reply to Mises
In the 1930s, a number of socialists tipped their hats to Mises for having emphasized and reminded the advocates of central planning that every economic system, whether capitalist or socialist, has to have an institutional mechanism for making rational cost decisions in determining how best to use the means of production to effectively fulfill the chosen ends. Prices were essential for making this possible, and to be expressed in a monetary common denominator.
Indeed, one of the most famous of these socialists, the Polish economist, Oskar Lange (1904-1965), even sarcastically proposed that in the socialist society of the future a statue of Ludwig von Mises should stand at the entrance to the central planning agency for reminding every good socialist how important prices were to successfully fulfill the socialist goals.
The “answer” Lange and others gave to Mises’s challenge was to propose versions of “market socialism.” The central planning agency would initially set prices for the various factors of production. The factory managers of the socialist enterprises would be told to act “as if” they were attempting to minimize costs and maximize profits. In other words, they were to “play” at being private enterprisers, “buying” the factors of production at the prices set by the planning agency, though they were working for and being paid by the state. And any profits earned primarily would be passed on to the central government.
If it was discovered that at the prices set by the central planning agency, there was experienced surpluses or shortages in the supplies of the factors of production, the central planners would change those prices up or down to move them into the direction of equilibrium, “just like private markets do,” it was claimed.
The central planning authority would retain ultimate decision-making authority, however, concerning the allocation of capital; otherwise, the managers of the socialist state enterprises might attempt to expand or contract their physical capacities to produce output in directions inconsistent with the “socially desirable” goals and “needs” of the people, as determined by the higher central planning decision-makers.
Mises Had Already Anticipated and Answered the Market Socialists
Lange and other socialists made their cases for “market socialism” as if they had found an undiscussed weakness in Mises’s original arguments against central planning. The truth is that already in the 1920 article, and certainly in the more detailed analysis in his book on socialism, Mises had anticipated much in the market socialist argument, and had already responded to it.
Mises pointed out that the real problems of market prices and economic calculation arose from the fact that we live in a changing world. If the world was in a stationary equilibrium in which what happened yesterday will happen exactly the same today, and tomorrow, in turn, will be just like the day before, the prevailing prices could be used as an indicator of what and how things should be done with the means of production.
It’s when yesterday’s prices no longer reflect real supply and demand conditions as they exist today that the problems of economic calculation rise to the foreground. First, any price adjustments introduced by the central planners will lag behind the changes occurring in the market; they will not be modified as quickly and responsively as when the price-adjustment decision-making is done by the interested and relevant private enterprisers in their respective corners of the market as they experience and discover the changed circumstances to which prices and production plans must adapt.
Second, markets and decision-making cannot be “played at.” The private enterpriser is risking his own capital (or the capital that he has borrowed from others, which he is under the obligation to pay back with interest). The state enterprise manager is not risking his own economic well-being and financial circumstance in the same manner as a private sector counterpart. There are no losses to be avoided or profits to be made by the state enterprise manager in the same way as with the private businessman and entrepreneur.
And, third, market entrepreneurs and investors are guiding and directing the capital they own and use, based on their estimates concerning where market profitability indicates labor, resources, and capital equipment should be redirected in those changing circumstances over time. Under “market socialism,” Lange and others were very clear that decision-making concerning the allocation of capital could not and would not be determined by the state enterprise managers.
The state enterprise managers’ horizons went no further than the affairs of the particular firms over which they, respectively, had oversight. The central planner’s perspective was the “socially necessary” capital uses and investment looking at the socialist society as a whole. Thus, the direction of the economy was assigned to the central planning agency, and neither to private entrepreneurs guiding capital investment according to market-based prices and profitability (because they were gone) nor by the state employees in charge of the government-enterprises.
This meant that the ultimate use of capital in the socialist society was outside of any economic calculation. And, thus, it was “arbitrary,” based on the judgments of what the planners and the political leaders “above” them decided was the socially “really needed.” The allocation and use of capital are outside of supply and demand, and hence outside of rational decision-making.
It was for these and related reasons that Mises stated in 1931 that:
“Inasmuch as money prices of the means of production can be determined only in a social order in which they are privately owned, the proof of the impracticality of socialism necessarily follows . . .It alone will enable future historians to understand how it came about that the victory of the socialist movement did not lead to the creation of the socialist order of society.”
With the end of the Soviet Union and the other socialist regimes in Eastern Europe in the early 1990s, the general belief was that socialism and central planning had been shown to be failures: neither freedom nor prosperity had been forthcoming. Government planning had turned out to be a disaster of economic wastefulness, with little connection between supply and demand, and misallocations and misuses of the means of production, overlaid with perks and privileges through a hierarchy power and position within the socialist system.
The Green New Deal as a “War Strategy” Against Global Warming
But in spite of all this, and the debates over the workability of socialism during the last one hundred years, the central planning idea is returning with a vengeance. It is reflected in the proposal for a Green New Deal. The planet is threatened with destruction due to “climate change” caused by man through the use of fossil fuels to feed the insatiable human appetite for material wealth and betterment.
With unhesitating hysteria, it is warned that humankind has, maybe, a dozen or so years to stop and reverse the mounting effects of global warming before the seas rise enough to significantly flood coastal areas around the world. Rising temperatures will disrupt how and where we all live. The death of Planet Earth is upon us.
The world can no longer afford the leisure of market-based prices, production and profit-directed decision-making. So how should the problem of climate change and global warming be tackled? The Levy Economics Institute of Bard College has recently published a paper, “How to Pay for the Green New Deal,” by economists Yeva Nersisyan and L. Randall Wray, who offer what amounts to a central plan for America.
They insist that the threat of global warming must be viewed as a “moral equivalent of war,” that requires single-minded determination and willingness to do “whatever it takes” to defeat the fossil fuel “enemy” threatening an end to mankind. America must think of the Green New Deal as this generation’s version of pulling all together to defeat the Nazis in World War II.
Back then there was no in between; either the Nazis won, or “we” did. Either global warming wins and kills all life as we know it, or “we” win and “save the planet.” In their eyes, that is the apocalyptic catastrophe and categorical choice facing humanity. Marginal decision-making has no place, clearly, in “wartime.”
If this vision of mankind’s situation is correct, no price is too great to succeed, the authors insist. Failure means, well, “the end,” similar to a Nazi victory, which would have meant the end to freedom and global civilization. The decision set is “either/or,” that is, categorical and not incremental, according to them.
The Technologically Possible to Save the Planet; Costs Don’t Matter
So, what is to be done? The economy will have to be directed from “the center” of political decision-making and centrally planned. They do not use the phrase, “central planning,” but a rose by any other name . . .
What matters, they tell us, is technical feasibility, not the “cost” of what is to be done. Or as they quote another proponent of such policies, “Whatever is technologically possible is financially feasible.” What is needed is a tabulating of what the resource needs would be to implement the technical requirements of replacing fossil fuel-based production with renewable energy sources, plus the resources and manpower to do the necessary infrastructure retrofitting and transformations in ways of living and producing that would be consistent with making over all the consumption and production activities in any and all ways that would no longer worsen the environment.
They admit that there must be some way to add up the costs of utilizing the needed resources and manpower to do all this, and they say the easiest way are the monetary expenditures to bring those means of production to bear for the fight against global warming.
But what becomes the meaning and significance of these prices in the implementation of the Green New Deal? They admit that undertaking this task requires shifting control and use of a significantly larger fraction of Gross Domestic Production (GDP) over into governmental hands and decision-making. Even when it does not require a literal transfer in the form of direct control, government spending to bring about the needed reallocations of labor and resources and forms of production means that any market prices would reflect the central planner’s demands for more and more of those resource uses through dollar spending, and less on the value estimates of the consuming public through their private demands for goods and services.
The Green New Deal is Also About “Social Justice” Goals
Furthermore, the authors say that the Green New Deal is not only about saving the planet from destruction, but reducing income inequality, guaranteeing jobs for all, assuring a living minimum wage for everyone employed, and fulfilling the promise of government-provided “health care for all,” plus a grab bag of many other “good things.”
Increasingly, the relative structure of prices and wages would no longer reflect market-based and generated estimations of private-sector consumer demands and market-based appraisements of the opportunity costs of the factors of production in their alternative uses. Instead, replacing it would be government-created, manipulated, and imposed price relationships increasingly representing nothing real outside of the wishes of the Green central planners.
In this circumstance, how will the government planners know if they are cost-efficiently using the scarce resources of the society for the competing uses of renewable fuel production methods, versus health care-for-all expenditures, versus infrastructure retrofitting manufacturing, versus guaranteed jobs for everyone that create value-added greater than the expense of employing them in ways directed by the government, versus all the other rival activities the government will be expected to undertake, plus in comparison to what remains as private sector demands and resource uses in society?
In other words, all the marginal decisions and economic calculations do not go away even under a “moral equivalent to war” to defeat global warming.
The Green New Dealers Presume Bountiful Idle Resources
So how will the Green New Deal central planners know how and what to do with the equivalence of market-based price rationality? The answer is: the planners will not and cannot know. They can assign money prices to various goods, resources, and labor services. They can use prices still partly set by markets where government demands still openly compete with private sector demands. But, at the end of the day, the resulting price structure increasingly has nothing to do with any real and reasonable basis for knowing whether the economy is being managed “cost-efficiently.”
It is true that the authors make dollar value estimates concerning all the savings that the society will experience from, for instance, the asserted lower costs that will come from government-provided and managed health care compared to the declared far more costly private sector provision of medical treatment. The government will bring into use vast amounts of supposedly unemployed or underutilized labor supplies and wasted and idle resources just waiting for government to bring them into production.
The authors view the situation, to use the jargon of the economist, as one in which the American economy is operating far within its production possibility frontier of maximum feasible output, so large quantities of land, labor and capital are idle and wasting away and can be brought into use with no required trade-offs of giving up some of one thing to have a bit more of another.
Taxes, Price Controls, and Compulsory Savings to Fight Inflation
To save the planet the government would only have to raise taxes if the economy reached full employment and price inflation were to set in. Higher taxes would siphon off the inflationary excess demand. Furthermore, in the government’s policy toolkit would also be general wage and price controls to fight inflationary threats. But they admit that price controls can create shortages due to prices being fixed at levels not able to bring supply and demand into balance.
If full employment were to threaten to bring an end to their scarcity-free war against global warming, they have a preferred method of assuring that inflation-causing spending does not get out of hand, while seeing to it that all the needed resources are freed up to do all the Green New Deal work to be done.
Inspired by a method proposed by Keynes during the Second World War about how to pay for the war, they advocate the imposing of deferred consumption accounts for the working population. Rather than any full money wage increases under the pressure of government demand for resources and the resulting inflationary pressures on prices in general, part of workers’ incomes would be shifted into mandatory savings accounts that sometime in the future when, one presumes, the war against global warming will have been won, the accounts could be incrementally cashed out.
In the meantime, income earners would be compelled to participate in a form of “forced savings” that reduces the level of consumption and the standard of living of the general income-earning public as part of the price for victory over climate change. But here, again, the government ends up dictating people’s consumption-savings ratios, rather than income earners’ deciding on their own subjective (personal) time preferences concerning present and future consumption, and therefore willingness to save.
All of this intensifies the underlying economic unreality and irrationality of Green New Deal central planning. Done away with are the values, prices, and costs, that are only knowable when “the people,” themselves inform each other what it is they want, what they think it would be worth paying, and what might be the reasonable costs to bring about the supplies of the competing productions to satisfy the market-determined and reflected patterns of consumer demand.
But, until (tragically!) scarcity reemerges and forces on the Green Planners the necessity to choose and trade off among all the wonderful things they want to do, there is the miracle of bank credit creation to fund and finance anything and everything that the government needs to do to save the planet and give the country a more intensive and intrusive welfare state – and all at the same time – according to the authors.
Tragedy of the Commons, Self-Interest, and Handling the Rising Tides
If global warming represents the type of danger and threat reflected in the authors’ hysteria, it will be in the personal interests of people as consumers and as profit-oriented producers to discover ways to mitigate at the margin the full impact of such environmental change. Not every inch of coastline is really worth “saving” from a rising sea, if we keep in mind that there are trade-offs, and marginal costs and benefits that people would and will make if confronted with such a problem.
If coastal properties are increasingly threatened in the ways feared, insurance companies will incrementally nudge up home and property insurance policy premiums to differing degrees depending on where and the estimated degree of threat to insurable real property. Home and other property owners in these coastal areas would make the needed marginal decisions about the costs worth incurring to reduce the damage risk or to move away.
Part of the futility of implementing an “American” Green New Deal to do away with fossil fuels is that global warming by definition is a global problem. But it is an element of the tragedy of the atmospheric commons that other nations and their governments might formally or informally decide not to implement any comparable Green New Deals.
Cartels are, historically, highly unstable due to cheating among the participants unless the government comes in and uses its threat of coercive penalty to assure an abidance of the rules. Governments are notorious on cheating when it serves their interests in terms of intergovernmental agreements. And there is no super-government to dictate terms and conditions, and there will not be in any foreseeable future, whether or not that is considered to be a good or a bad thing.
It seems better, then, to treat any danger from global warming as if it was caused by purely “natural” forces in the planet’s own cycles of heating and cooling. Something, in other words, not man made that we can stop, but to which we can only adapt and adjust, to the best of our ability.
Fully Privatization, Not Green Planning, to Deal with Global Warming
To assure the greatest incentives and flexibility to do so, we should take to heart the lesson from Ludwig von Mises’s critique of socialist central planning. That is, it is necessary to privatize as many such common areas and spaces as is in any way possible. To “internalize” the externalities caused by man and nature, and thereby create the incentives and profitable opportunities for people to discover the methods and find the mutually beneficial trade-offs to minimize the individual and therefore cumulative social damages that such environmental change may bring with it.
Privatizing as many of these common areas as is possible means that we bring them into the arena of markets and prices. By doing so, we introduce the rationality of economic calculation into areas in which that had not been possible before or far less completely. And once we do, we know the market-based cost and value of something; we discover what it is worth to have and to hold, to preserve or improve, or to set it aside because it’s not worth it relative to the alternatives.
It may be a century, now, since Ludwig von Mises offered his famous critique on the “impossibility” of rational economic calculation under socialist central planning. But the renewed call for a new “democratic” socialism and a Green New Deal of government planning shows that his argument remains as relevant today as when he penned it a hundred years ago.
This article is based on a paper delivered at the annual meeting of the Society for the Development of Austrian Economics in Fort Lauderdale, Florida, November 25, 2019.
Made available by the American Institute for Economic Research.