Lant Pritchett uses a starfish/spider analogy to illustrate differences between bottom-up/top-down systems.
Steve Landsburg explained that people mistake central planning as being something like planning a birthday party. Based on this vision, they think it can work well. You just need good planners. Landsburg says that folks who make such mistakes simply can’t imagine the complexities involved when hundreds of millions of people are added to the mix, so even good planners won’t do well.
Russ Roberts recently distinguished between engineering and economics problems in a post on Cafe Hayek, building off the following Soviet joke:
Yuri Gagarin’s daughter answers the phone. ‘No, mummy and daddy are out,’ she says. ‘Daddy’s orbiting the earth, and he’ll be back tonight at 7 o’clock. But mummy’s gone shopping for groceries, so who knows when she’ll be home.’
Of course, her Mom may be an avid shopper. But, the joke was meant to convey that centrally planning something as mundane as producing products that people want, at reasonable prices and making them available in nearby stores is a much more vexing problem than sending man into orbit. Prices do a better job of coordinating that effort.
I made a similar point in a follow-up to the Landsburg post, because I’ve heard too many people use the “If we can send a man to the moon, then we can do anything” fallacy.
Though, I didn’t distinguish it then as an engineering problem. That is an important observation. It’s also a good question to keep in mind when people start using the man on the moon fallacy, are we solving an engineering or economics problem?
But, I still think some folks may have a difficult time understanding exactly how an economics problem differs from an engineering problem. For many, both fall into one category: complicated. So, if we can solve one complicated problem, why not another?
I think it might help to go back to Landsburg’s party planning analogy. An engineering problem is like planning your kid’s birthday party. It’s straightforward (place, invites, plates, cake, fun, done) and it’s a relatively short time commitment. The short time commitment is important. Any longer and it might be harder to get grandparents to help clean up or for guests to come.
An economics problem is more (though still not quite) like raising kids. That’s much more complex than planning a two-hour party. It doesn’t end. It’s not easy.
Just when you think you figure it out, it changes. Why? Because kids are human and they go through phase. They have preferences. They respond to rewards and punishments — differently to different ones. They make decisions. They like what they like. They change. They will fight you. They won’t always do what you tell them. You need to let them make mistakes and learn for themselves, even though it is painful to do so.
Now, I say it’s not quite like an economics problem because people can do a good job of raising kids. Though, there aren’t many truth-telling parents who will say that it’s easy.
So, an economics problem is much more like being tasked with raising all of the kids in your town, or maybe your state, or more.
Multiply the frustrations, the reactions, the support, attention and love required by a thousand or a million kids.
We’re all smart enough to know that’s impossible. We would never sign up for it because we know we’d do those kids a major disservice. Hmmm…..