I ended the previous bit of this essay with these questions: First, why is it that central planning appears to work in familial situations and in firms but not in economies? Second, does planning really work for firms and corporations? Finally, if it is indeed true that centralized planning does not work at the economy level, why do petty despots (like Nehru) go for it despite the ruin it causes?
I will address the first two questions here and the third question in the next part.
Let’s see why planning works in families. The parents are emotionally motivated to do what’s best for the family and are best placed to plan for the family simply because they care. They know the preferences of family members, know the means available, the tradeoffs involved, and so on. The information and computing power required to get to an approximate solution to meet the objectives are well within their cognitive capacity. Though not trivial, planning for a family is a manageable task.
Continue reading “Planning Works but not Always”