Kevin Rudd promises us economic planning

Gerard Jackson
BrookesNews.Com
Monday 8 October 2007

Whoopee! The Australian Labor Party has just discovered how to run an economy — otherwise called ‘industry policy’. Last September Kevin Rudd hosted a conference for businessmen during which they were handed a discussion paper modestly titled Fresh ideas for Australian manufacturing*. The brain behind this masterful grasp of economic theory, economics and the history of economic thought was none other than Kim Il Carr.

This character is so far left his Labor colleagues — they could scarcely be called mates — call him Kim Il because of his extreme leftwing views. Yet this is the joker to whom Rudd gave the industry portfolio and who thinks he knows what’s wrong with the economy. Carr and Rudd can call their economic meddling “industry policy”, “industrial intervention”, “picking winners”, “promoting sunrise industries”, etc., but it still amounts to dirigisme. This kind of economic policy should remind us of the folly and arrogance of would-be central planners.

(This lot should read Neff’s Industry and Government in France and England 1540-1640. Great Seal Books, 1957. The book givesa fascinating account of French Crown’s industry policies, the ones that helped impoverish the country)

It’s been nearly 17 years since the collapse of the Soviet Union and yet our socialists have learnt nothing. (To be fair to Rudd and Carr the Liberal Party is no better. It doesn’t have a clue about economics and market processes). Political cultists — and socialists are cultists — like to blame Russia’s economic problems on capitalism. All that is needed, in their opinion, is for Russia to implement genuine socialist polices and everything will be hunky dory, apart from a few minor errors.

This is delusional. They cannot grasp the fact that the enormous losses and mistakes that were made in the Soviet Union were not caused by planning errors, bureaucratic inefficiency, lack of enthusiasm, state capitalism — a contradiction in terms if there ever was one — or even mathematical ingenuity. What brought the whole rotten structure down was there from its very inceptions: The sheer impossibility of the economic task that is called central planning.

In a seminal essay Professor Ludwig von Misses explained why central economic planning would always fail. (Economic Calculation in a Socialist Commonwealth, Augustus M. Kelley Publishers 1975 first published in 1920). His insights were extended by Professor von Hayek. The work of these men provided a conclusive historic and economic case against planning. Naturally, Marxist cultists blinded themselves to the Austrian refutation of their addled dreams and hence to the “inner contradictions” of a socialist state. (See David Ramsay Steele’s From Marx to Mises: Post-Capitalist Society and the Challenge of Economic Calculation, Open Court, 1992)*.

The most depressing thing about the lessons of economics is that they are so quickly forgotten I don’t think this would happen if the vast majority of economists were acquainted with economic history and the history of economic thought. Instead we have economists who are largely free of economic theory. They learnt clever mathematical tricks at university but little in the way of genuine economics.

The result is that a great many lessons of economics and history have been completely neglected by mainstream economists. It is a great misfortune that the tragic lesson that is central planning was never really learnt in the first place. Rudd and Carr’s dangerous hubris that the power of the state, meaning politicians like themselves, can successfully do the work of the market would be comical if it were not a dangerous threat to our economic wellbeing. Unfortunately Rudd’s statist illusions are shared by a good many in the ALP, the media and the universities — not to mention the abysmal Liberal Party.

The intensity of their arrogance appears to be directly proportional to as their staggering ignorance of economics and economic history. One can only imagine the sort of plans that Carr — a thorough going economic illiterate — has for Australian industry once he gets his hands on what he and Rudd think are the levers of economic power. The first thing he would do is try and replace the “anarchy of production” with rational economic policies.

(The irony here is that it is the would-be planners who are the real rationalists while genuine free market economists understand the nature and enormous benefits of the spontaneous order that we call the market).

They would try to ward off criticism by arguing that their only intention is to eliminate market failures. (The definition of market failure is a result that lefties don’t like. This sthinking led to massive ethanol subsidies that have sending food prices throught the roof: see Government MPs plan to rip millions off in subsidies for ethanol producers). There is no getting around the fact they intend to subordinate the market to political hubris and left-wing bigotry. Such people are incapable of grasping the fact that the complex phenomenon that is called the market operates spontaneously and continuously to successfully allocate resources in a way that maximises economic welfare.

It was the market that brought the masses the car, plasma televisions, radio, computers, DVDs, airline travel, the humble biro and so on. The market — not politicians and bureaucrats — raised living standards to a level that would make Kubla Khan turn green with envy and abandon his empire. It isn’t governments that give us sunrise industries: it is entrepreneurship. Is anyone really foolish enough to think that a Kevin Rudd or a Kim Il Car could have created Silicon Valley? Does anyone even believe that Silicon Valley was the product of a single mind directing the energies and ingenuity of talented individuals as if they were automatons?

to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great rchess-boardr of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder. (Adam Smith The Theory of Moral Sentiments, Liberty Fund, 1981, p. 234)