well, we have always learn in text that planned economy against the mixed or liberal market economy robs innovation and the need to strive, compete and human freedom. i think the society's psychological nature and evolution has a lot to do with the economic methods adopted consciously or not. today the gap between rich and poor seem to widen, with no filling from established institutions or government, wars, revolutions and envy are raging all over the world, forcing a desperate need for control and check.....this cannot be done by letting dd and ss play out into survival of the fittest, especially with depleting. Hence the need for planning.....planning in this case, no longer comes as fitting central prices, not necessarily, rather a pull of policy strings and activities of corporations/few individuals that have gained govt rights and favors to influence...... so i believe the shift from desired market economy to planned, is geared by depleting limited resources, widened disparity in income, and the chilling human heart speedy running cold and need to be checked. Free market is good just like democracy, just that its adjustment can take too long to bring its benefit. crtl may become neccessary

Planned economy was adopted by Bolchevism. But it has been adopted and adapted by regimes whose opposition to Bolchevism and compromise with capitalism were notorious. Indicative planning, "économie concertée", have been adopted by France after World War II, and by Italy as well, differing from "imperative planning", adopted into countries under marxist influence. Indicative planning, in an interventionnist State, even comes to make easier to private agents economic calculation, as it was brought to light by Law Scholars like André de Laubadère, Gérard Farjat, Alexis Jacquemin, Giovanni Quadri, Massimo Severo Giannini, Robert Savy and Bernard Chenot. Scientifically, there is no concept of better or worse, such a qualification - better or worse - has political roots.

I am not sure if Indicative planning can/should be confused with planned economy.

The difference is, i think, huge. As indicative planning means the government influences economy, while in planned economy the government manages economy in detail.

This question to me is like waving a huge chunk of red meat in front of a starving wolf! The history of the last 100 years is clear--planning does not work on a large scale because (i) no one is smart enough to figure out how to allocate resources; (ii) with robbed incentives figure out how production targets are to be met and (iii) there is absolutely no innovation. The history of the USSR and China with their 5-year plans etc. is absolutely clear. Look at what happened to food production in China before and after the government permitted farmer ownership of the produce. If a planned economy worked, Cuba would be booming! That said, it doesn't mean that unfettered free market is the way to go. The price mechanism, which is smart enough to coordinate the production of goods and services in what I might term a Marshallian economy does not work so well when coordinating the savings and investment decision. I believe that in normal times, interest rates can coordinate this within what might be termed Leijonhufvud's 'corridor' but we can get Keynes' dinner problem outside that corridor (my decision not to eat lunch does not signal to the chef that I want a larger dinner). Moreover, long cycle capital investment (steel mills) is probably not well-coordinated by price signals, which gives us boom-bust cycles (or at least Hogg-like cycles). Finance in a market economy presents special challenges. But the current disenchantment with capitalism arising from the financial crisis should not lead us into the view that we need to return to the golden age of planning. There never was a golden age. If anyone can cite evidence to the contrary, I am very interested in seeing it.

Dear John,

No doubt we are on the same page. I have opened the topic as I really want to see arguments toward planned economy.

The resurrection of Marx theory, can be observed in citation numbers, it has exploded since 2007. I think we had enough communism, if there is a "outside the box" way to solve the crisis, we really need something new, not something old and proven wrong.

Well, I've never been with marxist theory, although I think that erasing from the photograph is something stalinistic: indeed, I much prefer weberian analysis. And planning does not come from a theory that points to dissolution of state: it was used as an instrument of managing by Governments that used to invoke such a theory. I think that Keynes has brought an interesting solution when in his General theory he has studied the policies of New Deal.

It is not surprising that the Great Recession and the slow recovery (in the U.S.) along with the global financial crisis of 2007-09 and the Eurozone Crisis of 2010-12 gives the wrong sense that capitalism has failed. The free market mantra was taken way too far in financial market deregulation. The financial market is not the Marshallian kind of market I was talking about. Bagehot in 1872 knew that and advocated a lender of last resort role in Lombard Street. But deregulation wasn't the only contributor. The Fed played a major role in its monetary easing (1% fund rate until June 2004 than very gradual hiking). China played a role by accumulating $3 trillion of FX reserves and, through reinvestment into the U.S., held down long rates (QE before the Fed did QE) and pushed investors into riskier assets (hence the investor demand for CDOs). Compensation played a role in creating such products. My views to a fix include:

1. Return Monetary Policy to a Sound Setting

Withdraw QE in the U.S. and renormalize rates.

2. Commit to Lender of Last Resort

Make it clear the Fed stands by all financial institutions. Bagehot's rule was to "lend freely at a penalty rate." The Fed forgot the last part.

3. Move to Simple Capital Rules

Get rid of complex risk-weighted rules and set bank capital at, say, 10% or 12% of total assets.

4. Realign Compensation Incentives

This one is tricky but deferring compensation with multiple year claw backs (of Lance Armstrong has to hand back millions for doping then the next person will be far less likely to dope).

5. Pro-growth tax reform

Lower rates, broader base, simpler code.

6. Entitlement Reform

Needed to make long-term finances credible. With this in place, the obsession with austerity can be junked.

7. Real Health Care Reform (as part of 6).

Obama Care expanded a flawed system to more people with the result that it is boosting healthcare costs even more. I am in favor of universal coverage for (at least) catastrophic care but the current 3rd party pays and pay for procedure has pushed healthcare spending to 16% of U.S. GDP.

Do 1-7 and leave the rest to the market. Who knows what the next new thing will be.

Here we have got a suggestion of Public Economic Policy, into the domains of Normative Economics. As a weberian, I do not think it is the mission of science to say which of the systems is better, only to say what happens. Better and worse are political concepts. Anyway, outside the field of enemies of capitalism, the infallibility of price system has been questioned by scholars such as Ronald Coase and Paul Samuelson, bringing to the surface the "market fails". I know that von Mises denied their existence, but it is not denied, e. g., by Chicago School. And there are goods and services to which prices are absolutely irrelevant to determine consumer's choice (readers of New York Times would not become readers of Washington Post because of a price oscilation).

@John

I leave US way out entirely to you, as i know and understand little of it. I can tell you that US health-care looks bad from outside, in plain figures, and cost/benefits results. You pay more for health than our GDP/Capita, and have a life-expectancy about the same with us. The 1,7 trillion dollars question is if economic growth is fueled by health expenses or hindered by it. There is a lot of marginal efficiency decrease going on at high development levels, and really outside the box thinking required to break-trough.

About the financial markets, i have only one comment, i measure risk aversion and distrust in fundamental economy by the size of all derivatives market. Just think of all that money creating almost no jobs, no research, no technology, no progress to speak of. QE and LTRO is just printing money to feed the investment in lack of confidence and risk aversion.

If car insurance is getting more expensive people buy less cars, and pay less car insurance.

Has safety and risk aversion become so expensive that it hinders growth?

I think that the advantages of planned economy have not been assessed. Planned economy allows for a more rational allocation of resources between branches, regions.

It is not worth to attribute the planned economy of the socialist economic system . Some of the provisions are applied in a market economy

That was the reason for adoption of planning by France, Italy and Belgium (Alexis Jacquemin & Guy Schrans in "Droit Économique"). And this was the reason for developing another character for legal norm: besides imperative and permissive ones, we have got indicative ones.

The more I think about this topic we need to differentiate betweem planning and coordination. It is beyond the wit of man to plan a complex system, which is why the price mechanism does such a good job. After Hurricane Sandy in New York there was a shortage of gasoline. With no electricity in many places and the ports in chaos, the governments of New York and New Jersey responded. First, there is a anti-gouging law that says after a disaster prices can't rise by more than 10%. The price mechanism, therefore, could not act to discourage those who didn't really need gasoline for waiting a few days. Second, odd-even rationing was introduced (depending on the last number of the plate on the car you could buy gas only on odd or even days). Clearly this does nothing but resequence the days on which people buy (maybe adds to purchases since if it is an even day and you have an even plate you can't buy the next day). These are supposedly intelligent people (including Mayor Bloomberg who built a multi-billion company in a private capacity). The result was gas (petrol) lines at stations that people sat in for hours and cops had to be deployed to enforce discipline. Meanwhile, laws on types of gasoline that can be used in each state (which fragments the market) prevented gasoline being brought by road tankers from neigboring states which had gas. Attempts by government in this recent example were clearly either useless or counterproductive. However, the price mechanism does not work well where there are limited prices, which is the issue of intertemporal coordination. There may well be a case for some form of outside coordination but even here the outcome is not clear. Rent seeking behavior of existing participants in various activities seek to influence policy outcomes and government policies often reflect these wants rather than act in a co-ordinated role to meet consumer wants (a great example is the recent regulatory decision to make it illegal to unlock your cellphone in the U.S.)

Disasters have an economy of their own.

I can see that lawyers and economists have different understandings of the concept of planning, interventionism and dirigism (I know that this last word does not exist in English, but it may be found in French, "dirigisme" - Louis Josserand created it just before WW II -, and brought to Spanish and Portuguese). "Planning", for lawyers, is a technique, present in a "dirigist" or in an interventionist context; "interventionism" is the exceptional action of State into economy, "dirigism" is, perhaps, what Bradut and John mean by "planned economy".

Dear Ricardo,

Between free market and planned economy there are different degrees of government intervention:

1. Free market, little or no intervention, minimal regulation ensuring a fair competition. Private property is dominating all economic aspects.

2. Free market, interventionism, meaning the government uses subsidies, tax exempts, inflation/deflation, public expenses, as tools to counter cycles, boost economic growth, and such. Private property is dominating the economy, some public property may exist.

3. Mixed free market/planned economy (dirigism) where the government intervenes in economy structure, prices, work-market, etc. Some areas of economy are free, some are planned. Private and public property are close or equal in power.

4. Planned economy, the government plan controls production, consumption, prices, work-market. In some insignificant branches some degree of free market is allowed, however strictly regulated. Public property is dominating the economic field.

As economic-political doctrine the "free market" is a right wing, ultra-liberal approach, the planned economy is the left wing communist approach regarding the distribution of wealth and economic activity management.

Best regards,

Bradut

Thank you, Bradut. I just wanted to put our terminology in harmony, for there would be a risk of misunderstanding concepts of different branches of human knowledge.

John,

I enjoyed reading your comments about the roles of government and market in an 'abnormal" economy such as the economy of state of New York after Storm Sandy. However, I fail to understand the difference between coordination and planning.

Both markets and governments coordinate economic activities. Coordination here implies reaching a desired, pleasing state, realizing something we hope to achieve in our interaction with others, and in the specific case of a single market means market clearance, that is Qd=Qs. What we (humanity) have learned over the last 80 years is that both markets and governments fail in their coordination efforts.

How have we learned this bitter lesson? Well, market failures (business cycles, externalities, excessive market power, inequity in income distribution, public goods, and asymmetric information) are well-known features of market economies, which neo-classical-Keynesian theory, under the able hands of Paul Samuelsson, has addressed. The failures of government (planning) in coordination of economic activities only were confirmed after the collapse of the former USSR and after economic reforms in China.

What is the optimal solution to the double-edge problem of coordination failures of governments and markets? Stay tuned and see what happens in China in a couple of decades or so.

By planning I took it to mean a soviet-style collectivist economy. This region will produce ball bearings in this quantity etc. However, I admit that free markets can have coordination failures (especially intertemporally) and may need some help from government through fiscal or monetary measures. Although the depth of the recession and the sluggishness of the recovery (which by the way looks to be a bit less sluggish in early 2013) was due to a good old fashion banking system collapse.

Ageing societies produce an overwhelming number of elderly people vs few births. Free market leaves many without resources, and with no government support, many would be worse off in this further ageing scenario. Adam Smith spoke of an invisible hand, the invisible hand of last recourse would be of public nature... 

Renaud,  Do you know why Adam Smith's hands are invisible? As Professor Joe Stiglitiz said, because it does not exist:)

Well government action especially when useful is a convenient hand, not as what Adam Smith had in mind

Dear Renaud, sometimes governments meddle where they should not, and do not interfere where they should. The amount of concentration currently existing in the economy is not the result of free markets, but of governments protecting the interest of a few against the interests of many. This is also called crony capitalism.