Candidates for president of the United States are being judged on their “plans” for the economy, health care, retirement, housing, etc.
However, in 1920 the renowned Austrian economist Ludwig von Mises published “Socialism,” in which he pointed out that central planning cannot result in a prosperous economy.
One of his main points was that a planner cannot accumulate and process the information needed to allocate resources to their highest and best use. This idea was made in a concrete fashion by Leonard Read in his 1950 article, "I, Pencil," where he showed that a planner cannot possibly determine how to efficiently organize the manufacture and distribution of something as simple as a pencil.
Friedrich Hayek, in his famous paper, "The Use of Knowledge in Society," drew our attention to the amazing ability of markets to use the price system to solve this information problem. Hayek said that this system, had it been the result of deliberate human design, “would have been acclaimed as one of the greatest triumphs of the human mind.”
Yet Americans continue to seek the man (or woman) with a plan.
The Wall Street Journal recently printed Hillary Clinton's "My Plan for Shared Prosperity." She claimed that "In the 1990s we saw how smart economic plans could help spur the economy to create 22 million jobs and income growth across the board."
One would be hard pressed to relate what the "smart economic plan” was that created this prosperity. Having served as a chief of staff for a Republican congressman during part of that period, it is my recollection that the plan was to slow the growth of planning, reduce taxes and regulation, and allow the market to function.
Barack Obama has a Web site full of plans: Obama’s plan to reduce carbon emissions 80 percent by 2050, Obama’s plan for biofuels, Obama’s plan for early childhood education, Obama’s plan to combat poverty. The number of plans is so great that one wonders if there is any aspect of our lives for which the candidate does not have a plan.
The failure of planned societies such as the former Soviet Union, Maoist China, socialist India and those in sub-Saharan Africa – and the new prosperity of Estonia, China and India as they move to market reforms – should have made it rather obvious that Mises was correct. Yet Clinton assures us that she "will have a long-term economic plan that creates jobs, strengthens the middle class, and allows everyone to share in our economic growth."
This is typical language for presidential candidates, and yet it flies in the face of both theory and evidence. Our candidates for president should be assuring us that the federal government cannot create economic prosperity through planning. Economic prosperity can only be created through the market process. This requires rule of law, limited government, and the protection of property rights rather than a plan.
But candidates, such as Ron Paul, who espouse this are seen as interesting but fringe. After all, they have no "plan" on how to create wealth and prosperity for all.
John McCain might be in danger of being considered less serious than the Democratic candidates about planning our future. Under health care reform, his Web site states, “John McCain believes in personal responsibility.” A search of his site does not find any “John McCain’s plan” for anything other than his “tax cut plan.” Issues are discussed in terms of correcting for prior governmental failure. Yet the most recent intrade.com trades give a 50-percent to 40-percent lead for Obama over McCain. In other words, the market currently shows the candidate enamored with planning has a 10-percentage-point lead over the candidate who would rely more on Adam Smith's invisible hand to solve our problems.
The market system is so enormously powerful at producing wealth for the masses that it can function under the host of burdens and constraints that we place on it. But soon America will be paying the price for the economic plans of its governing bodies.
It will find that a corporate income tax above the rest of the world will result in a depressed level of the capital that is essential for economic growth. It will find that a K-12 education system based on government monopoly of production and provision leads to poverty for the underclass. And it will find that as the rest of the world realizes the wisdom of Mises and Hayek, it will be increasingly difficult to compete in a global market economy.
Dr. Gary Wolfram is the William Simon Professor of Economics and Public Policy at Hillsdale College and a Business & Media Institute adviser.