Overcoming the Information Problem - Politics Forum.org | PoFo

Wandering the information superhighway, he came upon the last refuge of civilization, PoFo, the only forum on the internet ...

As either the transitional stage to communism or legitimate socio-economic ends in its own right.
Forum rules: No one line posts please.
#14459275
Infomation problem or the Economic calculation problem is the problem of how to distribute resources rationally in an economy.

In the free market the solution is the price mechanism, wherein people individually have the ability to decide how a good or service should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages and surpluses;

Unfortunately Socialism doesn’t have a solution to this problem

In socialist economies, if government owned or controlled the means of production, then no rational prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.

which is why socialist planned economy has never work.. is there any way Overcome this problem?
#14459407
Ahovking wrote:Infomation problem or the Economic calculation problem is the problem of how to distribute resources rationally in an economy.

In the free market the solution is the price mechanism, wherein people individually have the ability to decide how a good or service should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages and surpluses;

Unfortunately Socialism doesn’t have a solution to this problem

In socialist economies, if government owned or controlled the means of production, then no rational prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.

which is why socialist planned economy has never work.. is there any way Overcome this problem?


Why would a socialist economy need to assign prices to capital goods if they aren't ever going to be exchanged anyway?
#14470347
Ahovking wrote:Infomation problem or the Economic calculation problem is the problem of how to distribute resources rationally in an economy.

In the free market the solution is the price mechanism, wherein people individually have the ability to decide how a good or service should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages and surpluses;

Unfortunately Socialism doesn’t have a solution to this problem

In socialist economies, if government owned or controlled the means of production, then no rational prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.

which is why socialist planned economy has never work.. is there any way Overcome this problem?

Assuming a functional market with supply and demand setting prices for consumer ("final") goods, there's no insurmountable problem. The information conveyed by prices of capital goods is about demand for and scarcity of consumer goods. That information would be readily avilable, though translating it into production might be somewhat less spontaneous than under capitalism.

I'd dispute some of your definitions too. The idea is that workers control the MOP rather than an owner/investor class with antagonistic interests to workers. That might be via gov't, autonomous democratic workplaces or some combination. It doesn't mean all exchange and deployment of capital goods being internal gov't transfers.

Now some ppl (not me) think there's something inherently unsocialist about consumers rather central planners being the arbiters of what gets produced. Then you're right.
#14472962
Saeko wrote:Why would a socialist economy need to assign prices to capital goods if they aren't ever going to be exchanged anyway?

The point is that capital goods are going to be exchanged. If you have limited capital goods, then you need to make choice. Say your centrally planned economy just produced a conveyor belt. Should you assign that conveyor belt to the car factory, to the nail factory or to the bottle factory? Thats your exchange right there. Say a year later, you need to decide whether to continue using the conveyor belt at the same factory, or at a different factory. Again, thats another exchange (even if you leave the belt at its place).
#14473109
Nunt wrote:The point is that capital goods are going to be exchanged. If you have limited capital goods, then you need to make choice. Say your centrally planned economy just produced a conveyor belt. Should you assign that conveyor belt to the car factory, to the nail factory or to the bottle factory? Thats your exchange right there. Say a year later, you need to decide whether to continue using the conveyor belt at the same factory, or at a different factory. Again, thats another exchange (even if you leave the belt at its place).


What you're describing is not an "exchange" in the sense that certain amounts of goods or services are exchanged between two people where prices are a necessary outcome. Your use of the word "exchange" is an equivocation between a market exchange and a re-assignment of uses. For the latter, no prices are necessary. If I own a car, I can use it to go to work that day, go to the mall, go to a friend's place, or go for a leisurely drive, and I can re-purpose the car among all of these things without ever having to assign a price to it and re-sell it to myself each time.
#14473220
That last post makes no sense at all, the car belongs to you to use it as a means to get from A to B. Besides, using such a simple, singular example as that is pretty lazy to dismiss a whole economic practice that relies upon millions, billions of economic factors, prices, values, actual rates of output, scarcity of the artificial and real kinds, demand of the effective and artificial kinds.

Exchange happens as a basic function in every economy, you seem to think, perhaps moreso than the greatest socialist ideologues, that the whole system of exchange was done away with when the first planned economy was properly put into place (arguably mid-Khrushchev) - when the fact that prices and indeed capital did exist for capital investment in many sectors of the economy (I'm assuming the USSR here). A fund for capital reinvestment existed, to then place orders with whatever other enterprise dealt with that kind of machine tool or machine block, as part of the budget of the enterprise as much as your car might exist - and that was mediated through exchange. Both Saeko and Nunt seem to miss the entire point of Soviet style planning, which was at best a strange economy of scarcity that seemed to rely on in-house solutions to ease particular capital deficiencies that arose from the quota system.

The problem with information in a economy planned like this is that it relies on information that is dependent on a set number of people being at work for a set number of hours with a set, in this case enterprise bargained, amount of capital goods, often through inter-enterprise agreements that made no sense (e.g. the nail factory down the road might produce the 3" and 5" and 5 1/2" nails you need for the tables and chairs, but an agreement might only have been achieved with a shitty nail factory that only makes 2" ones that really don't do the job - so the company invests in its own nail production unit, halting overall productivity as 1/6 of the workforce have to make nails). The plan was at best only ever seen as a wishlist, and people at the enterprise level simply enjoyed the informalities of being at work and "storming" towards the end of the monthly/weekly order period. Information is practically meaningless without a guarantee of quality, flexibility and accurately reported inefficiencies.
#14473236
Luxemburgs_Pastry_Chef wrote:That last post makes no sense at all, the car belongs to you to use it as a means to get from A to B. Besides, using such a simple, singular example as that is pretty lazy to dismiss a whole economic practice that relies upon millions, billions of economic factors, prices, values, actual rates of output, scarcity of the artificial and real kinds, demand of the effective and artificial kinds.


My example only ever addressed Nunt's equivocation of the word "exchange", and it is not at all meant to be a general criticism of market economies.

Exchange happens as a basic function in every economy, you seem to think, perhaps moreso than the greatest socialist ideologues, that the whole system of exchange was done away with when the first planned economy was properly put into place (arguably mid-Khrushchev) - when the fact that prices and indeed capital did exist for capital investment in many sectors of the economy (I'm assuming the USSR here). A fund for capital reinvestment existed, to then place orders with whatever other enterprise dealt with that kind of machine tool or machine block, as part of the budget of the enterprise as much as your car might exist - and that was mediated through exchange. Both Saeko and Nunt seem to miss the entire point of Soviet style planning, which was at best a strange economy of scarcity that seemed to rely on in-house solutions to ease particular capital deficiencies that arose from the quota system.


I think once again you're putting words into my mouth and making my argument for me for the purpose of having a convenient imaginary strawman to knockdown with whatever it is you're peddling here and in that other thread.

Insofar as the Soviet system used prices to exchange capital goods between different sectors of its economy, I am not referring to it. I am only concerned with the question of whether prices are a necessary part of a centrally planned economy, and whether or not the Soviet Union employed a price system in capital goods is an entirely different question.
#14473243
If we are to take the notion that a communist society is one in which exchange ceases to function at all, we're not even debating that here and shouldn't even factor of any part of the calculation debate of a centrally planned socialist economy.

The devil is in the detail between these two radically different forms of social organisation, the Marxian communist of which is just a vague outline and impossible to even come up with any reasonable conjecture about, and the centrally planned socialist kind that we have already seen - and yes, prices do have a function, as both capital goods and consumer goods are commensurate with one another insofar as the idea of the LTV stood and still stands. After all, some goods are both potentially consumer goods or capital goods, it depends on what happens to them when they've been bought. The other thing is that the calculation debate makes no sense unless there are prices given to all goods, if that isn't or (as some might have it) wasn't the case, then that's defeating the whole purpose of calculating anything as there would be no proper yardstick to calculate things by according to the whole lattice of economic inter-dependencies.

The fact is, and necessarily so, is that the producer of capital goods in the system in question does get back what they put into the production and sale of Unit A so they can re-invest in Machines A, B, C and the other inputs, including labour and their attendant social costs, that were used to make it.

Pardon me, it appears Nunt made the assumption that things are simply re-assigned a purpose across different hands, and are exchanged that way. Nunt, that didn't ever happen, barring the war years. But it still stands that your weird car analogy makes as much sense as Nunt's, but I guess that was the point.

By the way, what I am "peddling in the other thread" is an exchange of knowledge on Soviet type economies, their strengths and weaknesses and analysing them to come part-way towards having a decent platform for socialists to stand on, rather than a moralistic one which it has sadly become.
#14473893
Saeko wrote:What you're describing is not an "exchange" in the sense that certain amounts of goods or services are exchanged between two people where prices are a necessary outcome. Your use of the word "exchange" is an equivocation between a market exchange and a re-assignment of uses. For the latter, no prices are necessary. If I own a car, I can use it to go to work that day, go to the mall, go to a friend's place, or go for a leisurely drive, and I can re-purpose the car among all of these things without ever having to assign a price to it and re-sell it to myself each time.


The difference is that you are using your own wishes and preferences to guide how the car should best be used. You can make this decision because it is your private decision. It is your car, you experience the benefits and costs of the things you do with that car. Your intuition and emotions are sufficient for you to make a good decision. If you are happy with the result, then you have made a good decision. If you are unhappy, then you will make a better decision next time.

But a central planner cannot use his emotions in such a way. If he assigns the capital good to one purpose, how is he ever to know that this purpose is the best purpose? He needs some way to calculate which purpose will bring the greatest benefit to society. Without prices, there is no way to make that calculation.

Luxemburgs_Pastry_Chef wrote:Pardon me, it appears Nunt made the assumption that things are simply re-assigned a purpose across different hands, and are exchanged that way. Nunt, that didn't ever happen, barring the war years. But it still stands that your weird car analogy makes as much sense as Nunt's, but I guess that was the point.

I was making the assumption that evaluating the opportunity cost of different uses is akin to exchanges. Just because you are not physically trading goods between different people, does not mean that a central planner is not making calculation decisions. The capital goods aren't magically going to appear in the correct factories. Someone is going to have to figure out whether its better to produce nails using machine A, machine B, alloy A, alloy B, etc.
#14473981
Saeko wrote:Why would a socialist economy need to assign prices to capital goods if they aren't ever going to be exchanged anyway?

I agree with you that they don't technically need to assign "prices" per se. What they need to do, however, if they are to achieve any sort of production efficiency, is to have some notion of marginal value of various goods, in order to make resource allocation decisions that make sense. Assigning prices to things is making those valuations explicit.
#14473988
Nunt wrote:The difference is that you are using your own wishes and preferences to guide how the car should best be used. You can make this decision because it is your private decision. It is your car, you experience the benefits and costs of the things you do with that car. Your intuition and emotions are sufficient for you to make a good decision. If you are happy with the result, then you have made a good decision. If you are unhappy, then you will make a better decision next time.

But a central planner cannot use his emotions in such a way. If he assigns the capital good to one purpose, how is he ever to know that this purpose is the best purpose? He needs some way to calculate which purpose will bring the greatest benefit to society. Without prices, there is no way to make that calculation.


how is he ever to know that this purpose is the best purpose?


Without prices, there is no way to make that calculation.


You implied that individuals have sufficient information about their own preferences to figure out the best possible use of the goods available to them. This is not the case because people simply cannot actually perform the calculation for any realistic number of goods they might be dealing with, or even, for that matter choosing a basket of just 10 items chosen from among just 5 different kinds of goods, a calculation which, even under rather generous assumptions, would take about 14 years for an individual to do. The space of all possible combinations of goods is so large that it is completely unrealistic to expect any individual to make the best possible choice. Individuals must make choices under circumstances where they can neither consider all of the possibilities nor can they even know what it is that they want exactly. The best that people can do is make decisions which only satisfice, i.e., are "good enough".

You may have also implied that individuals make merely satisfactory rather than optimal decisions, but you did not give the central planner the same amount of leeway. From what I can understand of your post, you believe that either both individuals and central planners must make optimal decisions, or that only central planners are required to optimize while the individual can get away with merely satisficing.

I'm sure you would agree that the second case is an unfair evaluation. The first one, however, is impossible for both individuals and central planners. What we're left with is a world where both individuals and central planners can only make satisfactory decisions. This is the context under which we will consider the second question quoted above.

Economic agents searching for the best possible uses of goods, in this context, are like blind men on a shifting mountain range searching for the highest peak (we assume that they have a way of ranking the peaks they've already visited, but only those peaks). When they detect a slope, they climb it, just as economic agents might make an improvement if they think there's a way to make an improvement. And when he blind men detect a peak, they're reluctant to leave it, just as economic agents might want to keep things the same after they've exhausted all of the known opportunities for improvement.

Prices are like walls that have been set all around them. They make the search for each individual easier by limiting the area to be searched but there is absolutely no reason to believe that the highest possible peak is anywhere within this area, nor even that they've been walled into an area that has higher than average peaks.

A central planner, however, is not constrained by prices. Nor is the central planner a single person, but rather a coordinated group of people who can communicate with each other and extend the search for the highest peak over a very wide area. They are therefore, far more likely to find the highest peak or simply areas with higher than hitherto discovered peaks.
#14473989
lucky wrote:I agree with you that they don't technically need to assign "prices" per se. What they need to do, however, if they are to achieve any sort of production efficiency, is to have some notion of marginal value of various goods, in order to make resource allocation decisions that make sense. Assigning prices to things is making those valuations explicit.


I don't disagree with the efficiency argument. What I reject unequivocally is the idea that humans should be prisoners of the market mechanism, and dependent upon it for survival. Let the 'price' be merely an expression of consumer's wants based on some kind of market voting system, but not the means of distributing wealth to persons.
#14473990
lucky wrote:I agree with you that they don't technically need to assign "prices" per se. What they need to do, however, if they are to achieve any sort of production efficiency, is to have some notion of marginal value of various goods, in order to make resource allocation decisions that make sense. Assigning prices to things is making those valuations explicit.


I don't see any reason to believe that prices actually do what you credit them with doing here.

EDIT: On top of that "marginal value" is a meaningless concept in the real world, anyway.
#14474002
quetzalcoatl wrote:Let the 'price' be merely an expression of consumer's wants based on some kind of market voting system, but not the means of distributing wealth to persons.

Prices of consumer goods is one thing, prices of factors of production is another. You need both to align the whole production process, it's not enough to assign values to consumer goods. It's the prices of factors of production that determine incomes in a capitalist economy ("distributing wealth to persons").

I don't know the specifics of the proposed "market voting system" to determine demand for consumer goods, but the name sounds like a reasonable description of the marketplace bidding that actually happens in a capitalist economy.
#14474139
lucky wrote:Prices of consumer goods is one thing, prices of factors of production is another. You need both to align the whole production process, it's not enough to assign values to consumer goods. It's the prices of factors of production that determine incomes in a capitalist economy ("distributing wealth to persons").

I don't know the specifics of the proposed "market voting system" to determine demand for consumer goods, but the name sounds like a reasonable description of the marketplace bidding that actually happens in a capitalist economy.


If you can do all that without eviscerating workers' share, that's fine. If it can't be done, or if for whatever reason is not done, then the only resort is to smash the system. There are many things worse than inefficiencies.
#14474212
quetzalcoatl wrote:If you can do all that without eviscerating workers' share, that's fine. If it can't be done, or if for whatever reason is not done, then the only resort is to smash the system. There are many things worse than inefficiencies.

'Smash the system' does not sound like it is a thought out strategy towards increasing workers' share of income... especially so if you explicitly say you don't actually care about the amount of income to share.
#14474400
I don't think capitalism solves the information problem.

I can go out and buy a cheap plastic toy that will break in a few weeks and will be impossible to recycle and will sit in a landfill for a thousand years, despite being used for less than an hour. I can not go out and feed the starving, shelter the homeless, heal the sick and wounded, and protect the innocent. Or, theoretically I could, but in reality, our global capitalist system has not done this. For evidence, please see the vast majority of the developing world.

If the information problem is about how the resource producers get feedback from consumers as to what is really needed, capitalism does not really work that well.
#14475431
Pants-of-dog wrote:I don't think capitalism solves the information problem.

I can go out and buy a cheap plastic toy that will break in a few weeks and will be impossible to recycle and will sit in a landfill for a thousand years, despite being used for less than an hour. I can not go out and feed the starving, shelter the homeless, heal the sick and wounded, and protect the innocent. Or, theoretically I could, but in reality, our global capitalist system has not done this. For evidence, please see the vast majority of the developing world.

If the information problem is about how the resource producers get feedback from consumers as to what is really needed, capitalism does not really work that well.

It does not work perfectly, no. That's not the point.

It just works better than everything else we have come up with.
#14475446
Nunt wrote:It just works better than everything else we have come up with.


The problem to me is that there does not seem to be much effort being invested in seeking better economic systems, assessments of what is or is not better all seem to be poisoned by ideological conflicts.

In my mind the Soviet system worked (it functioned) until the consumer economy got overly complicated but even then was still working quite well especially with respect to certain aspects of the economy like the Soviet preference of military production (probably because it was simpler to organize).

Considering today every product can be tagged and tracked over its entire life, I do think it would be interesting to imagine how the Soviet system would have fared with today's information technology. I understand there was considerable effort to automate the prediction of demand but that 1950's to 1980's computing would never have been up to the task.

In terms of a pricing mechanism I have favored using a physical value of energy (such as the joule) since pretty much everything can be calculated relative to this in a transparent manner.

EU is not prepared on nuclear war, but Russia,[…]

It is implausible that the IDF could not or would[…]

Moving on to the next misuse of language that sho[…]

There is no reason to have a state at all unless w[…]