A lesson never learned
In 1920, the Austrian economist Ludwig von Mises offered a proof of the impossibility of socialist calculation. This proof was based upon the idea that without information produced by market operations, central planners would not be able to establish prices at an equilibrium point that would adequately balance supply and demand. Friedrich von Hayek made a modified version of this argument in 1935, arguing that although socialist calculation was not theoretically impossible, it was impossible in practical terms.
Socialists rejected this argument by claiming it had been invalidated in advance by the Barone-Pareto equivalence thesis and subsequently by Oskar Lange in 1938. However, these arguments depended upon a static general equilibrium, not the dynamic equilibrium that is a more realistic approximation of the operation of a real-world economy. Needless to say, the performance of the socialist economies of the last seven decades, particularly their central planners' persistent inabilities to correctly anticipate the price-demand intersections, has offered copious evidence to support the Austrian position even though academics had declared the debate an intellectual victory for socialism.
But the dream of central planning springs eternal in the human breast. Only two years after the worldwide collapse of communism, Allin Cottrell and W. Paul Cockshott published a paper entitled Calculation, Complexity And Planning: The Socialist Calculation Debate Once Again. This was a central part of their book "Towards a New Socialism," which was reviewed by Len Brewster in the Spring 2004 Journal of Austrian Economics.
The essence of the "new" socialist argument is based on the idea that computers make economic calculation possible, providing both the necessary number crunching as well as data gathering. Cockshott and Cottrell write:
Admittedly, the above argument says nothing about the task of gathering the vast amount of data required to implement such a calculation – an issue of which Mises and Hayek make a great deal. We do not have space to address this issue here, but we have argued elsewhere (Cockshott and Cottrell, 1989, Appendix) that this should also be feasible, using an economy-wide network of cheap personal computers, running spreadsheets representing the conditions of production in each enterprise, in conjunction with a national Teletext system and a system of universal product codes.
One further relevant point should be mentioned here. Our argument for the technical feasibility of labour-time calculation clearly depends on both computer hardware and algorithms of fairly recent origin. It follows that those (both socialists and critics of socialism) who were arguing in the first half of the twentieth century that such calculation was impracticable, were probably quite correct at the time.
In other words, they are saying socialist critics who were ignored for 71 years were right all along, but now they're incorrect thanks to the wonders of capitalist technological advancement which make this "new" socialism possible. However, this betrays the same ignorance of the fundamental limits of computational modeling that is frequently demonstrated by those who attempt to model complex systems from climate change and the weather to macroecomics and macroevolution. In such complex, dynamic systems, the effect of each reasonable but inaccurate approximation is magnified by its multiplication with numerous other inaccuracies. As the butterfly effect shows, these systems are highly sensitive to even small changes in conditions, let alone the millions of inaccuracies inevitable in a massive centralized economy of the sort envisioned by the new socialists. The end result is hypothetical models which bear no relation whatsoever to the evidence derived from observing the actual process being modeled. Faster computers guarantee nothing but the ability to achieve the wrong answer more quickly.
This logical objection is strongly supported by evidence of persistent inability of the European health care systems to fix the supply and demand inadequacies inspired by their price perversions despite computerization. Unfortunately, neither the theoretical nor the practical failures of central planning have reduced the American enthusiasm for its expansion throughout the American economy.
Until Americans cease to indulge in the socialist fantasy that central planning is either desirable or even reasonably functional, they will risk seeing their health care system and their nation go the way of the Deutsche Demokratische Republik, the dodo and the dinosaur.