[padobson]

I thought this paragraph was the most enlightening:

Chávez was an innovator in how he spent money, but he did little to improve how Venezuela actually makes money. He paid no attention to diversifying the economy or investing in domestic production outside of the oil sector. The country relies on imports for many of its most basic goods and services, include food and medicine.

You could probably put the greatest economic minds in the world in charge of a big country like Venezuela and they would still fail to diversify the economy.

Markets are necessary for successful diversification - avoiding shortages and economic collapses when key industries suffer downturns.

I'd say social democracies in Europe have shown pretty conclusively that the way to fund broad social programs to help the poor and middle class is via taxation of market economies. Let a healthy private sector self-organize the production of the economy, and let taxes pay for social programs.

[SilasX]

It was diversified ... until they slapped on price controls for everything, with its predictable effects.

[pessimizer]

Extensive price controls pre-date Chavez, although he predictably gets accused of originating them for ideological reasons.

[guelo]

And America is showing that if you don't tax wealth enough the inequality causes instability.

[whb07]

Well Venezuela has an income inequality of almost 0. I can’t look up the Gini coefficient but I can guarantee you that they are all equal save for the government cronies.

Income inequality is always parroted as the measurement for a healthy economy, but as my previous point suggests it’s not the end be all.

[guelo]

The point is that there is a balance somewhere between too much free market and too much inequality.

[whb07]

Surely, I agree with you but in the same manner you have freak athletes at what point do you tell Lebron James, Ronaldo, etc that they are “much too skilled and talented” compared to others?

America’s poor are rich in comparison to other countries’ poor. It’s a perception problem, even for the citizens of UAE (forgetting the second class workers for a minute). There’s going to be the random citizen who only owns 3 Ferraris and a small penthouse in London, while some others have 20 cars and two mansions in London and NYC.

There will always be those with less.

[dagw]

Well Venezuela has an income inequality of almost 0.

Not according to the World Bank or the CIA. At least not 5-6 years ago.

The World Bank had Venezuela's Gini coefficient at 44.8% in 2014 vs %40.8 in the US. The CIA has the number at 39.0% (2011) vs 47% in the US.

[wmccullough]

Not disagreeing, just curious. How much taxation is appropriate for the wealthy? When explicitly does the label of wealthy apply?

[guelo]

Who knows. I'm sure there are many economics papers addressing the question. But it's somewhere before you get to the historic inequality levels of today https://fred.stlouisfed.org/series/GINIALLRF

[thephyber]

To be fair, inequality levels were comparable in 1929, which falls outsize of the scope of that chart. Still historic by US standards, but not unprecedented.

[hetman]

Rather than a single cut-off you just scale this gradually so there is no single wealthy/not wealthy divide but an increasing expectation to carry social responsibility as your wealth increase.

[matt_wulfeck]

You’ve outlined our tax system as it exists today.

[matt_wulfeck]

Just take it all and divide it up equally. Then when enough people start to run out, take it all and divide it again.

[WalterBright]

I don't see evidence of historically high levels of instability in America.

[redial]

> Let a healthy private sector self-organize the production of the economy, and let taxes pay for social programs.

The problem occurs when the private sector is so overwhelmed by greed (always) that decides to make social programs part of their market, as can be seen in real time as they try to privatize NHS in the UK.

[padobson]

This sounds more like a political problem then an economic one. I won't suggest I have any idea how to alleviate the tension between market-forces and the government, and all the profiteers and rent-seekers in between.

But those problems are small compared to widespread food, medicine and energy shortages.

[redial]

I agree with everything you said, economically you are right, markets are the economy and you can't have a market with only one actor. But a market can turn unhealthy, at least from the point of view of a democracy. Many profit from its ever growing influence and usually the political class is not strong enough to counter its push.

[microcolonel]

> Many profit from its ever growing influence and usually the political class is not strong enough to counter its push.

And then when the political class is strong enough to counter it, it inevitably turns to tyranny because it enriches the political class in the short term.

[coliveira]

It is funny that people accuse the Venezuelan regime of being socialist, but then claim that the problem is that they didn't reshape the economy enough. In other words, their failure was in not planning the economy as much as their critics want! No standard capitalist regime would be able to do that anyway so you have here a clearly bogus criticism.

[padobson]

No standard capitalist regime would be able to do that anyway

I'm not entirely sure what you're saying.

If you're saying that no pro-capitalist government could have diversified Venezuela's economy, then I completely agree with you.

If you're saying that nurturing a market economy in Venezuela would have failed to diversify it's economy, then I have to disagree.

Markets tend to diversify on their own as entrepreneurs recognize new demand and respond to meet it. Because of the limitless variables that drive how this happens in different regions and industries in any given country, government administrators are not well suited to recognize and respond to such needs at a national level.

Government should instead cultivate market economies that produce economic surplus, and then tax some percentage of that surplus to provide the social programs their citizens request.

[coliveira]

This is unsupported by facts. China has a very tight control on areas that they want to develop or open to outside capital, and their growth has been stunning. On the other hand, undeveloped countries that have open their markets with little oversight have suffered tremendous economic problems, Mexico is a case in point. There is no correlation whatsoever between lax oversight of markets and robust economic growth, as most people tend to believe.

[CryptoPunk]

China's economy was rapidly privatised, starting with the privatisation of collective farms and legalisation of entrepreneurship in 1978:

https://www.bloomberg.com/news/articles/2005-08-21/online-ex...

Much of the economic growth happened in special economic zones that were free of much of the state economic control present in the rest of China.

Also, tight control can be consistent with market freedom when it is targeted at controlling violent crime, kidnapping and extortion. This is one area where China has outperformed other developing countries.

[padobson]

If you'll notice in all of my comments here, I've been careful to say "markets" and not "free markets". I've also tried to steer clear of specific opinions about levels of regulation or taxation or the value provided by certain social programs.

If you want to discuss the merits of a specific regulation, tax or social program, I'm happy to do that, but I haven't addressed any of those things as of yet.

Since China switched to a market economy, a huge chunk of their massive population has escaped poverty. Some of those markets are highly regulated, but they are still markets. Nothing about China's recent growth is incompatible with the views I've expressed in this thread thus far.

[nerfhammer]

this is why the term "competitive market" better captures what may intended by the term "free market".

"free" would seem to exclude regulation that increases market competition but would not seem to exclude subsidies that might decrease competition. All of the benefits of markets come from competition, not "free"-ness.

[pessimizer]

> If you're saying that nurturing a market economy in Venezuela would have failed to diversify it's economy, then I have to disagree.

Then how would you explain the lack of diversification that survived through all previous regimes before the Bolivarians?

[scythe]

>but then claim that the problem is that they didn't reshape the economy enough.

Another way to express this which lacks the apparent contradiction is: their socialist policies inhibited the natural tendency of the economy to reshape itself.

However the real problem in Venezuela was not "socialism" per se nor a lack of diversification -- in fact several countries, particularly Brazil and Argentina, experienced problems when they tried to forcibly diversify their economies (Peronism/import substitution), whereas Chile went all in on copper, and while they've suffered downturns, their long-run growth has more than made up for it, making them today the richest country in Latin America. And precisely this pattern (comparative advantage) is how capitalism usually succeeds, and Chile today is diversifying at a natural/gradual pace. But in Venezuela the biggest problem was that Chavez appointed his friends to run the oil companies, and refused to cooperate with the previous administration and employees of the oil companies, which resulted in a lot of skilled people in Venezuela's oil industry taking their ball and going home. In other words, the problem was not that Chavez was a socialist but that he was a strongman who had no respect for democracy, the rule of law, or the desires of anyone but himself, which was also reflected in his later attempts to silence his critics in the media and to sabotage the Venezuelan Constitution and its legislature. I think this is why we've seen post-Chavez socialists like Mujica and Moreno taking a more measured approach to economic reforms and working with, rather than against, preexisting institutions.

[MarkPNeyer]

> their failure was in not planning the economy as much as their critics want

The argument for capitalism is that _no single entity can do this_ planning. It's not as if capitalist economies have a 'capitalist planner' who's better at planning that the socialist planner. Capitalist economies don't have one person - or agency - in charge of planning or shaping the economy. Bottom up, not top down.

[coliveira]

Since most capitalist economies have never fully developed (especially in Latin America), this cannot be traced something that Venezuela did of not. It is, again, a bogus criticism.

[ue_]

>Markets are necessary for successful diversification - avoiding shortages and economic collapses when key industries suffer downturns.

Out of interest, why do you think this is true?

(Edit: Why does this comment have a score of -2? What can I do to improve the quality or relevance of my comments? Will the downvoters explain, please?)

[padobson]

Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it.

Historically I think it's true because broad central planning has generally led to unstable economies.

I think the Nordic states best figured out how to provide widespread social programs funded by taxation of market economies - with national programs working alongside of self-organizing markets instead of trying to organize production directly.

[ue_]

> Theoretically I think it's true because there are far too many variables at play in economies of any decent size for a national government to efficiently organize it.

This has been a common complaint, though it's not without response. As to what variables need to be taken into account, there's been discussion that not every product made would have to be. Here's a comment by "Keshav"[0] on Cockshott's input-output tables idea of economic planning, which came about in 1995:

"On a related note, Cockshott and Cottrell have a number of papers arguing that central planning is feasible with modern computer technology. As I understand it, the algorithm they present (e.g. in “Towards a New Socialism”) does not consider a linear programming problem; rather, it takes as given a target for final goods production (determined elsewhere in their model, which includes some markets for consumer goods) and solve for the gross output levels required to meet this target. They exploit the fact that the input-output structure of the economy is sparse (only a small fraction of the goods in the economy are directly used to produce any single good). Their algorithm’s complexity increases with n*m, where m is the number of direct inputs for each product, which seems manageable even with n=12 billion."

Cockshott talks at length about "The problem of scale" (the one which is your theoretical agrument) in his book in the chapter of the same name, which is downloadable for free as a PDF in its LaTeX glory here[1]. I last read it many years ago and refutations of it exist, though it's worth a read in my opinion.

[0] http://crookedtimber.org/2012/05/30/in-soviet-union-optimiza...

[1] https://www.researchgate.net/publication/299519892_Towards_a...

[padobson]

I suppose it's reasonable to suggest that if all of the variables in an economy could be identified and quantified, then it could be fed into central planning software.

But that's a very big if.

Furthermore, I'd suggest "If it ain't broke, don't fix it" applies here. We already know markets are good at organizing production, we should use them to do that.

Any social ills that result because or alongside of markets should be addressed directly.

[ue_]

>Furthermore, I'd suggest "If it ain't broke, don't fix it" applies here. We already know markets are good at organizing production, we should use them to do that.

Although not broken (if we're talking in terms of commodity production excluding what is necessary to cure social ills) then it could be greatly improved, though I'm not sure how, or rather, I haven't decided on an answer.

At the moment several firms repeat the same research over and over again in order to research new product development in secret to stay competitive; this is clearly an inefficient use of resources, and this is seen by the fact that there are two government-granted monopolies created in order to sustain this system: copyright and patents, which have come under criticism and scrutiny even from libertarian (Rothbard not Proudhon) authors.

There are also problems relating to how volatile the market is, held to the whim of mostly speculators, with the strong ability to throw out scores of workers onto the streets, depriving them of what they need to survive if not for the chrity of the State.

There is also the problem of nurturing genuine science and the advancement of culture which is hard to commodify; even State-sponsored research projects have their funding pulled if they go off track or try to find results the government doesn't like. This applies doubly for companies. Likewise the artist is controlled not by his own will but by the will of the market, having to restrict himself in materials and creativity in such a way to please rather than to advance culture and indviduality.

There are problems relating to the psychological effect of the market economy on its participants, both workers and capitalists both of which must make it their top priority in life to rack up sufficient money to stay afloat in their respective spheres, compounded with the worker's alienation, that he does not see himself in the products he makes beacuse of the excessive direction of the capitalist.

There is the problem of education in which students must become indebted to the State or a loan organisation unless already having enough capital on their parent's side in order to pursue education which in many cases is necessary to land a job, some of whose wages go back to repaying that debt; a student thus finds it is in his interest to optimise for a degree which will land him a job, regardless of his passions and interests - if this does not crush individuality, what does?

Then there is the effect on our human nature, the system which encourages greed at almost any cost in order to rack up capital, forcing our nature to see people as means to an end rather than people in themselves, I will relate this to the idea of commodity fetishism which proposes that rather than seeing the distinctive labour content of commodities, people only see the commodities themselves, focusing on the exchange value rather than the utility. People must search for social connection through commodities while ignoring the massive wastage and environmental damage that their production takes.

Relations between people are swapped by relations between commodities, although we see that capitalism has very greatly increased standards of living, its effect on quality of life is often ignored at the expense of the freedom to buy whatever goods one pleases, this freedom is taken to be the only important element of a society but close investigation reveals that it is a very hollow freedom.

I have avoided talking about sweatshops for they are an unfortunately contentious issue, but I hope that can be included in my analysis.

I probably haven't explained this very well, so here is a short list of books, mostly be Marxist or neo-Marxist authors who, rathear than focusing on Marx's primary mode of attack (exploitation via extraction of surplus value) they look at other elements of capitalist society:

- Guy Debord - Society of the Spectacle (philosophy-economics): https://www.marxists.org/reference/archive/debord/society.ht...

- Herbert Marcuse - One Dimensional Man (sociology): https://libcom.org/files/Marcuse,%20H%20-%20One-Dimensional%...

- Erich Fromm - Escape From Freedom (social psychology): https://libcom.org/library/escape-freedom

- Habermas - The Structural Transformation of the Public Sphere (sociology-history) - https://en.wikipedia.org/wiki/The_Structural_Transformation_...

- Peter Kropotkin - The Conquest of Bread - https://theanarchistlibrary.org/library/petr-kropotkin-the-c...

[dreamdu5t]

Processing inputs is not the whole of economic calculation. Me and you may value things differently – that's the problem. In other words, utility is unobservable a priori, as are my economic preferences.

[hueving]

There has never been a successful centrally planned economy. Perhaps with the assistance of massive computation and information spread via the Internet it could be conceivable. But without that it seems like every toy model a central planner uses is going to fail miserably.

[flukus]

How about ancient egypt (http://www.reshafim.org.il/ad/egypt/economy/)? A planned economy that lasted far longer than capitalism has existed.

[padobson]

Oh man, awesome reference!

I read biographies on Cleopatra and Julius Caesar a couple years back and was amazed how much planning went into Egypt's economy.

The similarities to Venezuela can be pretty interesting! In the ancient world when economies were highly reliant on wealth created by agriculture, the Nile delta was the most fertile land in thousands of miles in any direction. Each year the Nile flooded predictably. When irrigation was plentiful, all of Egypt prospered. When the Nile went through a dryer year, all the peasants working the land starved.

Excellent reference!

[vixen99]

You mean a planned autocracy that persisted - oh bravo! Maybe Kim will do that.

[Iv]

To be more precise, there were successes of centrally planned economies, but all in the same circumstances: under-developed countries trying to modernize themselves. It is hard for a central planner to be an innovator, but it is easy to be a follower.

USSR industrialized itself very quickly. China had some success and did not shut down its central planning but hybridized it. South-Korea's steel production is an example of success in state-planning that contradicts market logic. Depending on your metric for success, you can also cite Cuba's life expectancy as it planned to become a medical nation.

Central planning fails when you have to invent new things. New services, new products can't be planned. Very few anticipated internet, almost no one expected cell phone and then smartphones to be that prevalent.

But do not throw away central planning as a systematically failed decision process. It works for :

- big scale infrastructure projects that require little innovation. - wars - big research programs: Apollo, Operation Manhattan

Actually, I think that with a public funded, government-supported centrally planned program, we could have deployed a self-driving cars network as early as the 90s.

[padobson]

I don't know where the dividing line is between "regulated markets" and "central planning", but I think you raise the need for some distinctions.

The space program is a great example. Could the US have beaten the USSR to the moon without private suppliers like IBM? IBM couldn't exist in a centrally planned economy, and the Apollo missions wouldn't have been successful without private suppliers like IBM.

Apollo, Manhattan, WWII and South Korea via the Korean War and post-war American influence are all great examples of successful government programs, but I don't know that any of them would have happened without US markets providing funding and infrastructure. Ford was building a Sherman tank every 90 minutes during WWII.

There's probably a tipping point where large programs like these extract so much value from the markets that fund them that those markets cease to function, which is probably why wars are often funded with debt instead of direct taxation.

[Iv]

Yes, it is less about "central planification" than "total planification". The former can and did work in many instances, the latter never succeeded or at least never out-performed free markets (still I would have loved to see how Cuba would have fared without the embargo)

Intelligence is scarce, honesty too and information is often only partial. Some decisions are better done at a local scale.

I believe that NASA would have designed computers even without IBM. Possibly even faster but it would have been a tailored computer that would have been very expensive and of little civilian application.

We see it now with SpaceX: NASA sucked at cutting costs. But it excelled at skipping steps and it put a man on the moon in 1969, a goal that vastly outpaced the private space industry, that did not even exist at the time. The whole space industry was quickstarted by this centrally planned effort.

My personal opinion is that the red line that a state should not cross lest it has a complete information and huge stash of intelligence to process it, is price setting. It can have, for many things, a target and try to enforce it (in the case of oil, through some sales quota for instance) but it should use failure to achieve these targets as an indication that it misses some information about the economy or that its incentives are insufficient.

[padobson]

I believe that NASA would have designed computers even without IBM. Possibly even faster but it would have been a tailored computer that would have been very expensive and of little civilian application.

You don't have to guess at this - just look at the Soviet space program.

[caseysoftware]

Yes, "central planning" works for large projects. But running a large project is nothing like running an economy.

In large projects, you generally have a major single, measurable goal (interstate highways, a man on the moon, a nuclear weapon) and may have lots of little milestones and spinoffs along the way.

An economy is millions of little goals - some complementary, some competitive - that might add up to something larger but no one knows. But most of are okay with it because some portion of those people will be able to meet their goals and strive for bigger ones.

[Iv]

Yep.