Americans have been conditioned to believe we live in a market economy where producers chase customers. The subtext to American politics for generations has been protecting the marketplace from the socialists. In reality, America is more of a command economy than a market economy. We do not think of it as a command economy because that phrase brings to mind commissars arguing about why the left shoe factory has a different quota than the right shoe factory.
While we have never had five-year plans or an official industrial policy, the people in charge have always had a tight grip on the economy. The primary lever since the 1980’s has been the money supply. The bank of all banks, the Federal Reserve, controls the flow of money in the system. While it does not decide how many shoes get made, it does decide the shoe maker’s cost of money. The Fed can create a recession to reduce demand and it can create plenty through cheap money.
This is not the only lever of our command economy. The regulatory state exerts an enormous amount of power on the economy. Right now, the EPA is plotting to kill off the gas stove market in order to please Gaia. The claim is gas stoves give people the cooties or something, but the real reason is the people in the EPA are primitives who follow a spirit religion. They can and often do change economic activity based on what their shaman has to say about Gaia.
It is not just the federal administrative state with power over the economy. The states have their own junior varsity administrative state. In Maryland, for example, they have decreed that all new homes must be equipped with sprinkler systems, like the sort you see in office buildings. The National Fire Sprinkler Association just happens to be located in Maryland. Their members, conveniently enough, have the exclusive right to install and maintain sprinkler systems.
That is the other level of the command economy. Large private operators can exert enormous pressure on the administrative and politics systems. They also get favors that small players cannot purchase. Every Walmart in America enjoys free infrastructure and tax abatements from local government. One reason the big box store eliminated the small retailer is they colluded with the state. Like the Bolsheviks in the 1920’s, America’s ruling party prefers consolidation into controllable industries.
The Bolsheviks liked large enterprises because they assumed they would be easier to control, and they would drive off the vestiges of capitalism. They were somewhat right about the last part, as we see today. The first part they never got right. By the 1970’s, the Soviet system grew increasingly complicated as it became less efficient, because the scale of the system outpaced the ability to manage it. There were too many variables and too many interactions between those variables.
The American command economy would have faced the same problems, and it was headed in that direction in the 1970’s, but a couple of big things happened. For starters, the decision was made to ship the manufacturing base overseas. Instead of trying to centrally manage an industrial economy, production was handed over to the third world so they could do it. The Fed could use the money supply to control the flow of manufactured goods into the system.
The other thing that happened was the microprocessor revolution. The Soviets recognized this as their way out of the complexity problem, but they were already past the point of diminishing returns by the time cheap computers and trained computer programmers were in sufficient supply. America escaped this fate, as the economic planners were able to harness these new tools to control the economy. The managerial state would not be possible without computers.
The trouble is our system is now suffering from the same problems the Soviets faced in their command economy. The complexity is overwhelming the system. The Federal Reserve has been fighting inflation for two years now. At the same time, spending has spiraled upward with no hope of arresting the growth. This forces the Fed to create more money through various means. The recent debt ceiling drama suggests there is no political way to solve the fiscal crisis.
It may not feel like a crisis as there are plenty of jobs and there is plenty of money to buy consumer goods. People have lots of complaints, but few of them are about the economy, as far as anyone knows. Given the monolithic nature of the media, we cannot assume that what we see in the press is reality. Even so, there are no bread lines and sales of houses and consumer goods are strong. Whatever problems that exist are not showing up in consumer behavior.
Of course, the years following the death of Stalin were good times in the Soviet Union, as their economy grew faster than any economy in the West. After recovering from the devastation of the war, shops were full of basic goods and the Soviet system seemed to be working better than capitalism. The Russians were ahead of the West in the space race, and they enjoyed a missile gap. Then red plenty slowly ground to a halt and their system fell into a generation long decline.
The fed plenty that American has been enjoying for the last thirty years may be about to turn negative for the same reasons. The system has become too complicated for the masters of the system to operate. In the Soviet times, the result was too many left shoes or mountains of concrete with shortages of winter coats. In this age, it means bans of gas stoves and diversity programs because companies care more about ESG scores than the desires of their customers.
This was always the argument against command economies. It was not so much that some unelected authority made decisions. It was that over time, they would always succumb to complexity. The lack of price signals subjected the economic trade-offs to political jockeying. In the Soviet system, the politically favored got what they wanted, even when it made no economic sense. In our system, we see the same phenomenon but colored with liberal jargon.
Perhaps this is where AI steps into the breech. The next great leap in data processing and decision making will overcome the complexity issue. Instead of armies of analysts with economics degrees pouring over data to draft reports for the managers, AI systems will do the work in real time, making changes to the flow of money and information in the system to overcome bottlenecks and political jockeying. Fed Plenty will become the objective of the robots put in charge of the economy.
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