{"id":232,"date":"2005-01-19T13:38:24","date_gmt":"2005-01-19T18:38:24","guid":{"rendered":"http:\/\/server97.snhdns.com\/~ravik\/wp\/?p=232"},"modified":"2005-01-19T13:38:24","modified_gmt":"2005-01-19T18:38:24","slug":"the-answer-to-how-would-you-do-it","status":"publish","type":"post","link":"https:\/\/www.ravikiran.com\/blog\/classic\/200501\/the-answer-to-how-would-you-do-it\/","title":{"rendered":"The answer to “How would you do it?”"},"content":{"rendered":"

I am happy to have waited for more than a week before answering the question<\/a>, because it gave me a lot of interesting responses. <\/p>\n

Everyone seemed to know the capitalist “solution” to the problem, which is to simply sell the available food to the highest bidder. The reason why this is good is not that the right people will get the food – I will not presume that people who can pay are in any way better than those who can’t. The reason the solution is good is that the right people get the money. The high prices will give people an incentive to produce more food next year. Because that is the only way you can salvage any good out of the bad situation. Given what I have outlined, people are going to die this year regardless of what you do. But if you follow the right policies, you can prevent the situation from recurring next year. What I have just outlined is the solution to that<\/i> problem under capitalism. To find whether it is the best solution or not, we need to compare it against the alternatives. <\/p>\n

(See? People, it is<\/i> possible to discuss complicated problems without using complicated phrases like “allocative efficiency” or indeed ontological<\/a>)
\n
\nOne alternative of course is socialism, and now is perhaps a good time to point out why the example I gave was unfair to socialism. You see, socialism claims that resources are available<\/i>, but they are unfairly distributed under capitalism. When food is simply not available, there isn’t much anyone can do – and perhaps (so socialists said) capitalism does do a better job. But when food is plentiful, but stocked in godowns or when farms are lying fallow because workers are busy building palaces for the rich, the solution is socialism – so say the socialists. <\/p>\n

So the problem with my scenario was not that it was hypothetical or unrealistic (all <\/i> scenarios are hypothetical and unrealistic) but that it was unrealistic in a way that is specifically unfair to the socialists. <\/p>\n

But even then thinking about this unrealistic situation tells us a lot about the problems with socialism, problems that won’t go away even if you make the situation more realistic. The problem you see, is that socialists tend to start their solution with the golden words “The government should”<\/p>\n

“The government should” do what? Pradeep and others assumed that socialism says that the government should distribute the food equally among everyone. Not really. Socialism just required that central planners distribute resources optimally<\/i> (as Pradeep did mention) If distributing the food among the healthiest 20% was the best solution, then “the government should” do that. (If you doubt me, think of George Orwell, a thoughtful and compassionate socialist who supported Britain getting into WWII. If he were convinced that the only way to avoid Britain being run over by the Nazis was by starving 5% of Britain’s population to death, would he have refused to entertain the idea absolutely?) Then of course, “the government should” take steps to ensure that such a thing doesn’t happen again next year.<\/p>\n

The problem is not with the ends, but with the means. You see, the price mechanism is replaced with the words “The government should” What is the mechanism to ensure that the government will<\/i> do what it “should”? Socialists used to<\/i> think of these things – and I will come to that in a moment – but now they don’t. They just say “The government should”. And right away, there is a serious problem, which is that you will have a shortage of food, regardless of your plan<\/i>.<\/p>\n

That is because the government will have a monopoly over food distribution – and if you have a monopoly over something, you will undersupply it to extract the best price. (By the way, “price” need not be denominated in money. It can be extracted in political patronage. It can be extracted in loyalty – as Kim Il Jong does in North Korea.) You can have beautiful five year plans on paper, but it won’t work. (“What about private monopolies<\/i>?” I hear you ask. Firstly, it is next to impossible to achieve private monopolies in food without government help. Secondly, the answer to that is to allow free imports – an answer you don’t want to hear. )<\/p>\n

Socialists knew this and some of them thought that democracy is the answer. Amartya Sen won a Nobel Prize for proving that a democracy has never experienced a famine. His thesis was that in a democracy, reports of large scale starvation deaths will get into newspapers, and politicians when faced with loss at elections, will act to ensure that famine is averted. All quite true, but as we have seen in India, democracy averts a famine, but doesn’t ensure that everyone will have sufficient food to eat. I am sure a few thousand people still starve to death every year in India. Who cares for a few thousand when we are a billion strong? Democracy just prevents headline-grabbing famines from taking place while Socialism continues to kill the few thousands we don’t care about. <\/p>\n

What about “combining the best features of both capitalism and socialism?” Many people like to ask. But unfortunately, problems in the real world cannot be solved using nice sounding phrases. You have to specify which features you’d like to combine and how – and why you think your combination is better.<\/p>\n

Now, when I had started this post, it was about price gouging – remember? The example of a closed economy and a severe drought was basically to illustrate the point that if there is a shortage of food, the problem is that food is short, not that prices are high. In our hypothetical example, reducing prices would have made no difference whatsoever. 80% of the people had to die. The only question was which 80. However, keeping prices low artificially would<\/i> mean that farmers wouldn’t have the incentive of high prices to produce more next year, and there would be greater chance of a “drought” occurring the next year too.<\/p>\n

What if I made the economy more realistic? What if I assumed that the drought had caused a local shortage, but food was available elsewhere? In this case, controlling prices would be an even worse idea right? The most important thing to do is to rush food to that place as quickly as possible, right? What would have made food rush to the area? High prices or low prices? Yes of course, poor people who have lost everything cannot afford the high prices – and we should help them – by rushing food there and distributing it. Not by keeping prices low by fiat. Rushing food there will reduce prices of course. So be it.<\/p>\n","protected":false},"excerpt":{"rendered":"

I am happy to have waited for more than a week before answering the question, because it gave me a lot of interesting responses. Everyone seemed to know the capitalist “solution” to the problem, which is to simply sell the available food to the highest bidder. The reason why this is good is not that […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":[],"categories":[2],"tags":[],"_links":{"self":[{"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/posts\/232"}],"collection":[{"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/comments?post=232"}],"version-history":[{"count":0,"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/posts\/232\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/media?parent=232"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/categories?post=232"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ravikiran.com\/blog\/wp-json\/wp\/v2\/tags?post=232"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}