Free markets produce better results than planned economies.

[XJDenton]

What is the evidence supporting such a conclusion?

Note, I'm not arguing against the conclusion, I just wonder how people came to the conclusion. We have enough libertarians who would be able to input. My knowledge of economics in general is poor so I'd like to hear the arguments for free markets.

[rumborak]

Interesting question when (hopefully) discussed right.

Here's my $0.02: I think both forms, free market and planned market, suffer from the same problem, that of scope, but at different ends of the scale.

Planned economy has the ultimate scope, i.e. the whole economy. But, as such it has a hard time (essentially impossible with limited resources) to respond to the ever-changing nooks and crannies of opportunity and demand. That is, while it has the scope of view to mold the economy as a whole, it will always stay below the ultimate potential of the economy.
Free market, on the other end of the spectrum, has the agility to respond to all the nooks and crannies with the necessary speed. However, it too suffers from the scope problem, but on the other extreme, where each agent is only ever responding to the immediate necessities/opportunities. Because of that it has the problem of getting stuck in local maxima, like the "smoking in bars" problem that we discussed at some point, or the Tragedy of the Commons.

So, in my humble opinion, the question becomes "how much of each is right?", and that comes down to empirical evidence. I think both extremes have shown their propensity to fail massively, so the trick is to smooth the economy through planning enough to avoid panics and such, but do it little enough to allow for the agility that is the advantage of the free market.

rumborak

[jsem]

In a free market, the demand for a certain product rules in a real way - in a planned economy they have to take into account demand, but it's not as easy to plan it than just produce when it's needed. In soviet, they would often end up underestimating the demand of things because of the fire year plans - thus leaving people dead.

In a free market it's also going to be more efficient, because people wanting to make money will look for the cheapest way to do something to make more money thus improving efficiency - something that could be done in planned economies but it'd be at the expense of everyone's money instead of individual investors.


Smoking in bars problem? Shouldn't be illegal to smoke in bars. Let the bars decide themselves. The bars that decide to have no smoking policy will attract people that don't smoke and don't want passive smoking and that's how a niche is created.

[rumborak]

jsem, I think it would be good if you addressed stuff from previous posts. Your post was almost verbatim Libertarian credo. We all know the credo. What we're interested in is whether this credo actually has a basis in reality, or whether it just regurgitated wishful thinking.

EDIT: BTW, the "smoking bar" problem is from a discussion many months ago. My point in that discussion was that the bar market had locked itself into a situation where no bar owner was willing to take the first step of switching to non-smoking since it would hurt his business, even though all business would have liked to switch. Only through legislation, which kept the playing field level for all bar owners, could everyone switch over without fearing for a loss of business.

rumborak

[jsem]

There is no evidence of anything in economics. You can only disprove things, not prove - because time progresses. What we do now is that the specific model of Soviet Union didn't work quite well, but a marxist would say they didn't practice "true communism".

Milton Friedman blamed the fed for the economic depression, but no one can say for sure that's the way it happened or not happened.

Here is a brilliant case of efficiency:
After Katrina, at one point very close afterwards only four public schools had been reopened but 31 private schools were already up and running. A public school doesn't have the need to be up and running instantly, but private schools must to act as competition to others. (I know this is just the same "libertarian propaganda" all over again, but it's good stuff).


On the topic of "evidence" again, the only thing that could be used to support either side is circumstantial evidence... During the last 30 years, the general trend of the world has been a shift to the right. During the last 30 years we've also had a decrease of conflicts in the world. Do these things have something in common? You tell me 

[rumborak]

Jsem, this thread is (supposedly) is about proving the superiority of one system over the other. Sketchy anecdotal, and apocryphal, stories don't prove anything.
Private schools opened earlier? No shit, Sherlock, private schools are predominantly sponsored by wealthy families. Animosity between countries has gone down in the last 30 years? First, pick up the newspaper (there's wars everywhere),   second, people have gotten fatter, so please attribute this to the free market too.
Correlation != causation.

Bottom line is, if this thread is supposed to go anywhere, it has to rise above regurgitating well-rehearsed credos and anecdotal stories. Either convincing sweeping empirical evidence, or first-principle induction.

And yes, there is empirical evidence. There are more countries in this world than the US. Germany is right now making a remarkable recovery, despite its "oh no, how socialist" stimulus package. Consider all evidence, not just the one that fits your pet theory.

rumborak

[jsem]

Jsem, this thread is (supposedly) is about proving the superiority of one system over the other. Sketchy anecdotal, and apocryphal, stories don't prove anything.
Private schools opened earlier? No shit, Sherlock, private schools are predominantly sponsored by wealthy families. Animosity between countries has gone down in the last 30 years? First, pick up the newspaper (there's wars everywhere),   second, people have gotten fatter, so please attribute this to the free market too.
Correlation != causation.

Bottom line is, if this thread is supposed to go anywhere, it has to rise above regurgitating well-rehearsed credos and anecdotal stories. Either convincing sweeping empirical evidence, or first-principle induction.

And yes, there is empirical evidence. There are more countries in this world than the US. Germany is right now making a remarkable recovery, despite its "oh no, how socialist" stimulus package. Consider all evidence, not just the one that fits your pet theory.

rumborak

On germany: I'm not saying keynesian economics doesn't create recovering economies. I'm against it on the grounds of freedom. But still in the end of the day they're going to have a growing economy because they put some degree of focus on competition in the marketplace.



On the topic of this "evidence" and going back to the past. USA is pretty messed up - I could blame that on capitalism, on the same grounds you can blame the downfall of the Soviets the abandonment of "real" marxism - and an overpowered authority entered instead, but even then you can counter that by saying that during the 50s and 60s the Soviet Union was far from its Leninist roots but had a great economic growth.
It goes on and on you see, there is no end to the arguments and counter arguments about what happened in the past and who was right.

You can't prove superiority of one system over the other, because those that believe in the ideals of planned economy will still find counterarguments. It's like arguing with a freudian, if you know what I mean.


However I believe that the countries with the best systems will ultimately end up on top, and communism died out - Castro is abandoning communism, China left the communist ideals 25 years ago and began privatising. There have been so many systems tried that most today follow the same systems because they seem to work (yes, this "destroys" my libertarian arguments - but I can counter this by saying that real libertarianism has yet to be tried ).

Ugh, maybe this thread should just be closed - there can be no evidence for either side