goldmoney.com / By Felix Moreno de la Cova / July 5, 2012
The dream of developing a science that would allow wise philosopher kings to rule humanity from ivory towers is as old as Plato, but it received a significant boost during the 20th Century as “scientific” socialism searched for the tools to replace the market economy and the price system with a centrally planned “ideal” world. John Maynard Keynes’ equation-rich General Theory of Employment, Interest and Money gave many aspiring central planners what looked like the mathematical tools to do so, and they rushed to build both statistical and mechanical extensions that would bring practical policy applications to economic theory. Unfortunately when logic is absent and the theoretical foundations are a mish-mash of tautologies and fallacies, no amount of adjusting parameters or clever computing can solve the underlying flaws. The unseen hand of the market cannot be tamed.
The Phillips Hydraulic Computer or Chile’s Project Cybersyn could be as powerful as Skynet and still be unable to plan the economy using the Phillips Curve or a GDP equation. As all programmers are taught in kindergarten: Garbage In, Garbage Out. Any mechanical model of a complex, organic, emergent system will be as useless as the Ptolemaic system was in understanding a heliocentric solar system. Central planning is science fiction, plain and simple. It is something out of an Isaac Asimov novel and even in the Foundation Series it failed as Hari Seldon’s science of psychohistory broke down by the second book. Those Nobel Prize winners who were inspired to economics by Asimov should really take a step back and consider that even in fiction central planning is unrealistic, and also definitely stop calling for an alien invasion as an economic panacea (we all know what the subtext of that argument really is).