You can consider central planning to be things that the government does which incentivize one form of economic activity over another. On the extreme form, you have communism, where the Russians had a 5-year plan to build more lathes than the US, in order to increase their industrial capacity. They ramped up the number of lathes in the country from less than in the US to more than in the US in a fairly short time frame. But the thing is, they didn't know when to stop.
They had far more lathes than we did, but we didn't need that many lathes in order to produce useful things that people actually wanted and needed. The market for lathes here decreased, and the lathe-makers started building something else instead. Over there, they just kept right on building lathes, in order to increase their country's industrial capacity.
In the US, instead of saying to Joe the plumber, "Thou shalt make lathes now." Our government gives a slightly softer touch, "Dearest Joe, if you make a lathe this year, you'll get $1000 back on your taxes. Your customers will also get $1000 back on their taxes too. We recommend you advertise this to them." (Cash for clunkers anyone?)
While I can certainly appreciate the softer touch to the forced labor, central planning still doesn't work for increasing overall economic activity, growth, and average standard of living of the citizens. I think our governments (state and federal) should do as little of it as possible.
I believe anything the government does, it has the potential to screw up and not notice. The incentives are not there for government employees to get the best value for their dollar when making purchasing decisions the same way they exist for private individuals and corporations. Perhaps it is important to give incentives to oil companies to produce more domestic oil, or farmers to produce more corn, but when to we discontinue those incentives? The way our political system works, once a class receives a privilege, they have lots of incentives to keep it. The farmers still want their ethanol subsidies, the oil companies want their refinery and exploration tax breaks, GE wants it's solar discount, and none of it makes any sense to someone who isn't a farmer, oil worker, or solar installer.
Even home ownership tax breaks, in my book, shouldn't exist. When the economists look at the actual effects, all they do is increase the price of housing. They don't actually result in a higher percentage of homeowners, more stable neighborhoods, or any of the other good deeds a tax break for interest on your mortgage is supposed to do for you. Ending those subsidies however, is extremely painful, and nearly everyone (except the renters) rails against it and calls their congress person with their own personal tale of woe if the tax break for mortgages is ended.
Why is someone like me, who is fairly wealthy, given a tax break for borrowing money against my house to gamble it in the stock market? Why is our government centrally planning and encouraging that? They did have a theory that there was some positive externality they were encouraging, but they were wrong about it. Now what? How do they test what actually works before they pass a law?
I'd really rather that the federal government stay out of all of it -- roads, home building/ownership, energy, and education. Let local areas decide what they really need, and build it. It made my stomach turn when I heard the local politician crow about how he got us$5M from the feds for a pedistrian bridge. If it's all local, with our local property taxes, then fine, build the bridge, but don't force taxpayers in Georgia to pay for this monstrosity.
With respect to oil, pollution is a true negative externality that can be influenced by the federal government, but the way they've gone about it so far is not the most efficient way to solve the problem. Cash for clunkers is not nearly as effective as a stiff gas tax, all cash for clunkers did was raise the price of used cars -- the value of my minivan according to kbb.com has gone UP in each of the last two years. That really did hurt poor people, the cash for clunkers money just went to wealthy people who could afford to buy a new car in the first place.
Central planning
They had far more lathes than we did, but we didn't need that many lathes in order to produce useful things that people actually wanted and needed. The market for lathes here decreased, and the lathe-makers started building something else instead. Over there, they just kept right on building lathes, in order to increase their country's industrial capacity.
In the US, instead of saying to Joe the plumber, "Thou shalt make lathes now." Our government gives a slightly softer touch, "Dearest Joe, if you make a lathe this year, you'll get $1000 back on your taxes. Your customers will also get $1000 back on their taxes too. We recommend you advertise this to them." (Cash for clunkers anyone?)
While I can certainly appreciate the softer touch to the forced labor, central planning still doesn't work for increasing overall economic activity, growth, and average standard of living of the citizens. I think our governments (state and federal) should do as little of it as possible.
I believe anything the government does, it has the potential to screw up and not notice. The incentives are not there for government employees to get the best value for their dollar when making purchasing decisions the same way they exist for private individuals and corporations. Perhaps it is important to give incentives to oil companies to produce more domestic oil, or farmers to produce more corn, but when to we discontinue those incentives? The way our political system works, once a class receives a privilege, they have lots of incentives to keep it. The farmers still want their ethanol subsidies, the oil companies want their refinery and exploration tax breaks, GE wants it's solar discount, and none of it makes any sense to someone who isn't a farmer, oil worker, or solar installer.
Even home ownership tax breaks, in my book, shouldn't exist. When the economists look at the actual effects, all they do is increase the price of housing. They don't actually result in a higher percentage of homeowners, more stable neighborhoods, or any of the other good deeds a tax break for interest on your mortgage is supposed to do for you. Ending those subsidies however, is extremely painful, and nearly everyone (except the renters) rails against it and calls their congress person with their own personal tale of woe if the tax break for mortgages is ended.
Why is someone like me, who is fairly wealthy, given a tax break for borrowing money against my house to gamble it in the stock market? Why is our government centrally planning and encouraging that? They did have a theory that there was some positive externality they were encouraging, but they were wrong about it. Now what? How do they test what actually works before they pass a law?
I'd really rather that the federal government stay out of all of it -- roads, home building/ownership, energy, and education. Let local areas decide what they really need, and build it. It made my stomach turn when I heard the local politician crow about how he got us$5M from the feds for a pedistrian bridge. If it's all local, with our local property taxes, then fine, build the bridge, but don't force taxpayers in Georgia to pay for this monstrosity.
With respect to oil, pollution is a true negative externality that can be influenced by the federal government, but the way they've gone about it so far is not the most efficient way to solve the problem. Cash for clunkers is not nearly as effective as a stiff gas tax, all cash for clunkers did was raise the price of used cars -- the value of my minivan according to kbb.com has gone UP in each of the last two years. That really did hurt poor people, the cash for clunkers money just went to wealthy people who could afford to buy a new car in the first place.
--Beth