About This Blog

Ludwig von Mises (1881-1973) was the greatest economist of my time. His greatest works can be accessed here at no charge.

Mises believed that property, freedom and peace are and should be the hallmarks of a satisfying and prosperous society. I agree. Mises proved beyond a shadow of a doubt that the prospect for general and individual prosperity is maximized, indeed, is only possible, if the principle of private property reigns supreme. What's yours is yours. What's mine is mine. When the line between yours and mine is smudged, the door to conflict opens. Without freedom (individual liberty of action) the principle of private property is neutered and the free market, which is the child of property and freedom and the mother of prosperity and satisfaction, cannot exist. Peace is the goal of a prosperous and satisfying society of free individuals, not peace which is purchased by submission to the enemies of property and freedom, but peace which results from the unyielding defense of these principles against all who challenge them.

In this blog I measure American society against the metrics of property, freedom and peace.

Wednesday, August 29, 2012

An Austrian Economic Analysis Of "The Hunger Games"

The problem with most dystopian and science fiction novels is that economics makes the narrative implausible. Of course, most readers aren't bothered by this because most readers don't understand economics, and those that do are unfamiliar with Austrian economics.

The error most novelists make is their assumption that prosperity is the direct result of technology and that technology, by its very nature, advances in lockstep with time. Thus, a story set in the future never fails to feature wondrous new technologies and individuals enjoying endless leisure time and unheard of luxury. 

The Hunger Games, by Suzanne Collins, is one such novel, although with a slightly different twist.

Both the book and the popular movie depict the nation of Panem. The residents of its central city -- the "Capitol" -- are universally wealthy and prosperous by today's standards. The buildings in the Capitol are soaring skyscrapers, the streets pristine, the people idle and fashionable, the politicians powerful and ruthless. The Capitol is a marvel of technological wizardry. The Hunger Games -- a kind of high tech version of television's "Survivor" played for keeps -- take place in a vast, high tech bubble -- the Arena -- controlled by a room full of cyber nerds, reminiscent of Mission Control at the Johnson Space Center in Houston.

Collins' twist on this technological prosperity is that the ordinary masses of Panem are virtual slaves who live in primitive conditions of poverty in 12 outlying districts from the Capitol and who produce in low tech fashion all of the goods and services Capitol residents enjoy.

The economics of Panem are as follows: Each district specializes in the production of a particular good or service. For instance, the people in one district grow food, in another they mine coal, in another they catch fish, in another they harvest lumber, and so on.

The district residents have little or no money. They survive on government-provided rations of food and supplies. In the poorer districts -- those out of favor with the government -- the people are relegated to the life of hunters and gatherers in order to survive. In more favored districts -- those making weapons and supplying the government with police ("Peacekeepers") -- government largesse is generous and the standard of living much improved. Apparently, the black market thrives in most districts. Barter is the common means of exchange.

Since Panem is a brutal dictatorship and every aspect of individual life is managed by the Capitol elite, we must assume that all decisions regarding the production and transportation of goods and services are made by central planners in the Capitol. Thus, it is fair to assume that Collins envisions the economic system of Panem to be almost identical to that of the old Soviet Union or modern day North Korea, as opposed to say communist China of today or fascist Italy or Nazi Germany of yesteryear.

Given these economic parameters, are the economic conditions of Panem, as described in the novel and in the movie, plausible?

Centrally controlled command economies are notoriously inefficient. As Hayek made clear, information is the chief problem. Central planners are faced with a constant, logistical nightmare. Even when specific production goals are known, the amount of information involved in the production process is virtually infinite and unmanageable.

Because decision-making and information processing in a free market economy is localized in the extreme, the production process is highly efficient. Logistics is a breeze. Each individual entrepreneur concerns himself with one small piece of the production puzzle. Reacting to signals from other individuals in the market, each entrepreneur involved in the production process figures out the best way to satisfy supply and demand as it pertains to his own narrow interests.

If two heads are better than one, then thousands of heads in the marketplace, each concentrating on his own area of interest and expertise, all coordinated by the signals of the market, are vastly superior to one central planning head.

However, even if a single central planning head is assisted by an army of associate central planners, a command economy couldn't rival the efficiency of the market economy. Why? Because the quantity of information flowing back and forth in the nitty gritty of the production process is not only overwhelming but ultimately unintelligible without the mechanism of price which is exclusive to the capitalist market economy.

Production of a good or service is not a certain and linear process. Each step of the production process involves choosing one of several possible, alternate means of production. Each alternate has a special advantage to recommend it. Alternate "A" might be a perfectly efficient technical solution from an engineering standpoint. Alternate "B" might be a bit inefficient from an engineering standpoint, but it might have economic advantages, employing resources or materials that are more readily or immediately available.

Determining this economic advantage is no small task, as many, many production processes are intertwined and interconnected, each utilizing identical resources and materials. How would a central planning bureaucracy be able to sort this all out? Such a task is staggering to comprehend.

Of course, the free market easily sorts these logistics out by means of the interplay of available supply and current demand. The result of this interplay is a money price of the various, possible factors of production which entrepreneurs then take into account in their decision-making process. Of course, price isn't the sole, determinative factor.

What makes an entrepreneur an entrepreneur is his ability to make such decisions and his willingness to bet his own capital that his decisions will pass muster in the harsh judgement of the marketplace, which is comprised of many, many entrepreneurs, each trying to best satisfy consumer demand. In the competitive market the cream rises to the top. Entrepreneurs, who bet their capital on wrong decisions, fail. Entrepreneurs, who bet their capital on right decisions, profit and succeed.

No such market measure of success or failure (satisfying or not satisfying the consumer) exists in the command economy, wherein the only measure of success or failure is pleasing one's bureaucratic superior. In the command economy politics and cronyism substitute for consumer satisfaction.

The severe information problems inherent in a command economy cannot be solved by cyber technology. Even the most powerful computers armed with the most sophisticated and intelligent software and operated by the most creative technicians cannot make entrepreneurial decisions. Cyber system would still be plagued by the age-old truism: garbage in-garbage out. Computers may be programmed to decide what solution is best from the point of view of the natural sciences (physics and engineering), but computers are not capable of knowing what solution consumers will ultimately find most satisfying. Human entrepreneurs do make such judgements, often on the basis of a counter-intuitive, inspired hunch.

Moreover, whatever cyber power and genius exists in central command can easily be countered or neutralized by contrary actions of individuals in the hinterlands. Collins seems aware of this. Thus, she stipulates that theft is a Capitol offense in Panem, punishable by death. Theft in the hinterlands would compromise the production estimates of central planners and muck up the system.

Still, The Hunger Games is replete with examples of individuals risking death by defying the edicts of the central command. Poaching, participating in the black market, bribing petty officials and so forth are common activities in the outlying districts. All these individual actions contrary to Capitol directives make the central command economy hopelessly unpredictable and, consequently, inefficient.

Furthermore, as Ludwig von Mises often points out, the production of goods and services is not independent of their distribution. In other words, individuals are motivated by the expected outcome of their actions. If an individual knows that he will not be allowed to keep in full measure the product of his labor, he will decrease his productive output accordingly. If he knows he will not be allowed to enjoy any measure of the product of his labor, he will produce only what chains and whips coerce him to produce and no more.

Thus, the inevitable result of the central, command economy is unproductive labor, waste and inefficiency, the maldistribution of capital and, ultimately, capital consumption. Even if all the meager production produced by the various districts in The Hunger Games were transported to the Capitol for investment or consumption there, it is highly unlikely the Capitol would resemble the wealthy splendor of a capitalist metropolis.

Yes, dictators like Sadaam Hussein may plunder the wealth of the countryside and use that wealth to build a few luxurious palaces. He might even be able to equip an army and build a few impressive weapons. The pharohs in Egypt built the pyramids using slave labor. Tyrannical, Soviet technocrats managed to put men in space. Planters in the American South built gaudy mansions and amassed personal wealth by exploiting the labor of slaves. But such wealth is ultimately puny and short-lived as compared to the vast and enduring wealth of a community of successful, free market capitalists.

It is plausible that President Snow, the ruthless tyrant of The Hunger Games, could live in luxury by plundering the outlying districts, but it is not plausible that he could finance the building of his Capitol, that shining city on a hill. Nor could he keep the residents of that fair city living in the lap of luxury and leisure for long.

All command economies built on coercion and plunder eventually collapse under their own weight. Inevitably, the cost of the structure of terror needed to keep the system operating overwhelms its meager capacity to produce.

This economic truth applies not only to command and control economies in fictional nations like Panem, but also applies to real nations like the former Soviet Union and present-day North Korea.

Unfortunately, it also applies to nations like the United States, which cloaks its economic system in the language of free market capitalism, but which in fact controls and commands its economic system by means of laws, rules, regulations and edicts promulgated by a ruling elite in Washington, DC.


Jim said...

You, sir, are an excellent writer, as wellas, very knowedgeble. Only in fiction can planned economies work. Not long after the collapse of the Soviet Union I led a small team from the company I worked for to western Siberia to investigate the investment potential of mining gold there. I have a tonne of stories from that trip, but let me share just one.

We visited an operating underground mine not far from Sverdlosk (Now once again, Yekatrinberg). The management of the mine were fine people and were very ernest about finding a foreign company to invest in their mine. (One of the risks of investing in Russia at that time was that it was very hard to determine who had the legal right to negotiate with you.) At a meeting I asked through an interpreter what their cost per ton was. It was clear that my question had caused much confussion. I tried asking the question in several different ways, but without success. What we learned was that they had no idea of the concept of cost as it related to their mine. They would receive orders from Moscow each year telling them how much gold they needed to produce. Being ggod engineers, they would send back to Moscow a laundry list of everything they would need in terms of fuel and parts and other equipment. That was how they did a budget. They received whatever Moscow could arrange and they produced what they could with what they received. Amazing!

Sherman_Broder said...

Thanks, Jim. I'm grateful you took the time to slog through a long post. Your story is illustrative of why command economies fail.

The great thing about Austrian economics is that the result you describe can be deduced from premises. Thus, your experience does not "prove" Austrian theory; it corroborates it. In fact, Mises would say Austrian theory enables economists to understand and explain your experience in the Soviet Union.

You live a fascinating life.