Posted by Warren Beatty on 13 June, 2011 at 2:00 pm. 9 comments already!

Central Planning – a Definition1

Economic planning refers to any directing or planning of economic activity by the state, in an attempt to achieve specific economic or social outcomes. An economy primarily based on central planning is a planned economy; in a planned economy the allocation of resources is determined by a comprehensive plan of production which specifies output requirements. My addendum – Note that nowhere in this definitioin is “communism” mentioned.

Obama’s Central Planning

President Obama and his administration have had a difficult (at best) time with his economic policies, and those policy decisions will (if we do our job) have an effect upon his reelection prospects. So let’s examine his policies and be knowledgeable so WE are ready to spread the word. As Lao-tzu (604 BC – 531 BC) said, “People are difficult to govern because they have too much knowledge.”

Obama’s focus on economic policies and programs fall roughly into these five categories:

  • Economy
  • Obamacare
  • Stimulus
  • Bailouts
  • Energy

Let’s look at each of these policies individually.


Here is what President-elect Obama2 had to say on January 8, 2009. “I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years….” He continued, “…That’s why the American Recovery and Reinvestment Plan won’t just throw money at our problems – we’ll invest in what works….” [emphasis mine]

Well, his economic plans have NOT worked. The “Misery Index”3 is high, economic growth4 (measureds by the GDP) is slow, GDP growth5 is very slow, unemployment6 is high, bankruptcy7 is high, entitlement spending8 continues to grow, productivity9 is declining, and the deficit10 continues to grow (we’ll see how projections beyond 2011 go).

So how did we get here? One policy that the Obama administration actively pursued was anti-trust11 enforcement since he and his advisors know what is best for corporate America and us. Here is another example of how the Obama administration pursues central planning12 through anti-trust prosecution. Obama’s administration pursues corporations they don’t want to be competitive, and leaves their choices alone. And here is a very short post on the wisdom13 of the Obama administration.

Further, Obama’s tax policies14 smack of central planning. Since corporations (and small businesses) do not pay taxes, but pass the increased costs on to the consumer in the form of higher prices and/or less personnel, tax policy can be quite a weapon. And here he says one thing15, then refutes it in the next sentence. What we have is essentially the resurgence of central planning16. How ironic it is that Obama, the champion of “change,” is resorting to an age old economic doctrine which always originally draws popular support, always leads to a rise in the authoritarian state, and always ultimately fails. Here is an article17 about the NLRB and a drug company CEO. Now we have the NLRB telling a company where it can locate. We get a glimpse18 of what Obama meant when he told Joe the plumber that we must “spread the wealth around.” Finally, we have Obama redistributing wealth19 through his “green economy.”


The Patient Protection and Affordable Care Act (PPACA), more commonly known as Obamacare, imposes intrusive federal control of the American health insurance and delivery system.20 This massive health care law, passed in March, 2010, contains over 2700 pages, and constitutes the largest expansion of government since the Great Society. Americans have voiced their strong opposition, but the Obama Administration is determined to force-feed us Obamacare. The Administration’s vision of health care is based on the premise that the federal government can and must control the details of health care financing and delivery across the country. Obamacare also states that by 2012 doctors and hospitals are encouraged to legally join together to form groups covering at least 5,000 patients each that will be “accountable” for cost, quality and overall care.21 So much for the anti-trust laws cited above. Capitalism works better than central planning, and no amount of good intentions, propaganda or magical thinking will change that.22


All government spending has an agenda behind it, and there’s no reason to think the politicians’ agendas would make the best use of scarce resources.23 Stimulus money is no exception. Researchers at the Harvard Business School published a study in late May of 2010 that concludes that the Obama Administration arguments about the efficacy of stimulus spending is a failure.24 Barack Obama’s $787 billion stimulus package failed to stem the rise of national unemployment. In fact, unemployment turned out much worse than the Administration’s projection of an 8 percent maximum if the law was passed. The current stimulus bill will be the largest spending bill ever enacted by Congress, making the New Deal look small, accounting for inflation.25 On a family per capita basis, the stimulus is equivalent to borrowing $10,520 from every family in Amereica. If all families were asked to equally shoulder the burden of the stimulus, this debt would be equivalent to what they roughly spend on food, clothing, and health care in an entire year.


  • Bank Bailouts: Many of the existing pledges and policies meant to convince creditors that they will bear market losses when large banks fail are not credible and therefore are ineffective.26 Pledges not to bail out creditors are not credible. Other factors may also motivate governments to protect uninsured creditors at large banks. Incompetent central planning may drive some bailouts.[emphasis mine]
  • Auto Industry Bailouts: Obama’s proposal for a $50 billion bailout of the Detroit automakers is actually a plan for de facto nationalization which will turn the Big Three into permanent wards of the state whose purpose is not to make a profit but to serve the “social goals” set by government.27 Obama is planning to pump $50 billion into the big American automakers, while also establishing “a czar or board to oversee the companies” which will supervise “a restructuring of the auto industry.” That’s exactly what Detroit needs to recover: the benefit of government central planning. [emphasis mine] Here is the key phrase that sums up the outlook behind the bailout: Susan Helper, a professor of “regional economic development” at Case Western Reserve University tells the New York Times “From a social point of view, even if GM is not providing a return on investment, it is still providing a lot of good jobs.”28

The Obama Administration has failed to understand that markets, not bureaucrats, pick winners and losers.29 It is obvious that GM needs to reduce costs in order to compete, but the current round of layoffs only affect salaried employees. The choices made at General Motors reflect too much government control due to strings attached to bailout funds. Consider the fact that the government and unions may have a 75% equity stake in a restructured GM and Chrysler. This will result in a systemic drain on the U.S. Treasury as bits and pieces of these companies are put back into operation after the bankruptcy. It is likely central planning rather than the market will drive new product introductions to reinforce the administration’s “green agenda”.   [emphasis mine]


In American politics, everyone recognizes the disaster of socialism. Yet through its massive power to tax, spend, and regulate, the federal government can achieve central planning, where federal officials pick winners and losers.30 We see this pattern all too clearly in President Obama’s recent budget proposal and its impact on the American energy sector.   [emphasis mine] The most obvious example of government interference in energy markets is its explicit use of tax dollars to fund alternative energy sources. The Obama Administration follows the pattern of taxing energy sources that work, and subsidizing those that don’t. If the government wants to get serious about cutting the deficit, creating productive jobs, and protecting Americans from rising energy prices, it should get out of the energy sector altogether. If the government stopped subsidizing some companies, and if it stopped designing arbitrary tax rules to penalize others, then the most efficient energy sources would flourish in an open and competitive marketplace.

President Barack Obama’s 2012 budget request reflects a change on climate and energy policy.31 For the first time, an Obama budget does not include any mention of cap-and-trade legislation. The budget request boosts funding for low-carbon “clean” energy technologies and reiterates past efforts to increase the costs associated with oil and gas and other fossil energy production. The budget request includes $73 million towards the goal of issuing permits for 9,000 megawatts of new solar, wind and geothermal energy generation on federal lands by the end of the calendar year. The budget also proposes an additional $200 million in credit subsidy to support $1 billion to $2 billion in loan guarantees for energy efficiency and renewable energy projects.

Are we beginning to see the central planning theme in all of his policies?

What’s Wrong With Central Planning – an Economics Perspective

A very well known economists, Friedrich von Hayek32 has a few things, from an economics perspective, to say about central planning.

In his 1944 book, The Road To Serfdom, von Hayek states, “Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rates higher and which lower, in short, what men should believe and strive for.”33 He continues, “It is a revealing fact that few planners are content to say that central planning is desirable.”  [emphasis mine]  “This interaction of individuals, possessing different knowledge and different views, is what constitutes the life of thought. ”

It was his recogntion of the use of knowledge that made central planning impractable. Central planners never have as much knowledge as the private sector. He said, “If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic.”34 “The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” “Which of these systems is likely to be more efficient depends mainly on the question under which of them we can expect that fuller use will be made of the existing knowledge. And this, in turn, depends on whether we are more likely to succeed in putting at the disposal of a single central authority all the knowledge which ought to be used but which is initially dispersed among many different individuals, or in conveying to the individuals such additional knowledge as they need in order to enable them to fit their plans with those of others.”

Hayek’s skepticism about the effects of “big government” are rooted in an epistemological observation summarized in a 1945 article called “The Uses of Knowledge in Society.” There he argued that most of the knowledge in a modern economy was local in nature, and hence unavailable to central planners.”35[emphasis mine]

Other Economists and what they say:

In his book, The Problem With Central Planning, David Elton Trueblood wrote, “Planning for another involves factors which are totally absent in planning for one’s self. I can, for example, operate more adequately on the basis of foresight in regard to my own life than is possible when I am planning the life of another, because I have inside information about my own intentions, while I do not have such information about the intentions of any other person.”36

Mattheus von Guttenberg writes, “In the real world, there is a component of central planning that we all take into consideration that does not exist in this game: namely, the reality of selfish interests on the part of the ruling caste. It is abundantly clear in the real world that governments act primarily in their own self-interest, and so any claim that democracy/socialism is “for the people” can be considered naïve at best and cruelly propagandistic at worst.37

In Central Planning and the Limits of Social Control Helmut Schoeck writes, “Almost by definition a truly central planner must be able to delegate numerous functions to remote individuals. He must be able to count on reasonably faithful adherence to instructions and orders conceived by him for the sake of the plan. No matter what technological improvements are being used, essentially this problem remains one of basic social control.”38

None of us is as smart as all of us.Eric Schmidt, University of Pennsylvania Commencement Address, 2009

So, the hubris of central planning runs throughout Obama’s policies. Now it is up to us to get the word out about Obama and what he will probably continue to do if reelected.

But that’s just my opinion.

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