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02.04.2003, 16:30

National Economic Planning: Will it fly? / Artikel mises.org

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National
Economic Planning: Will it fly?
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D.W. MacKenzie<a title href="http://www.mises.org/fullstory.asp?control=1195#_ftn1" name="_ftnref1">[1]</a>

[Posted April 2, 2003]

[img][/img] The
September 11th attacks hit no industry more directly than they
did the airline industry. In 2001, this industry lost 8 billion dollars. It
lost 9 billion in 2002, two thirds of which supposedly derived from 9-11.
The Federal government has delivered 5 billion dollars in cash and 10 billion
in loan guarantees to airlines affected by 9-11. This massive infusion of
money and credit has yet to satisfy the appetites of airline executives. Some
predict losses ranging from 6.3 to 13 billion for this year, depending upon
how the war goes.

Outgoing Air Transport Association President Carol Hallet
recently declared that"the only solution to our industry's malaise may
be to nationalize the airlines". While it is certainly true that the
airline industry is in the midst of very hard times, the notion that
government aid or a takeover will solve the fundamental problems of this
industry is fundamentally flawed.

Kevin Mitchell of the Business Travel coalition described
the estimated 6 billion dollar loss from 9-11 in 2002 as 'creative
accounting'. He attributes most of these losses to a decline in high yield
business travel, not to post 9-11 fear. While there are certainly losses due
to 9-11, we must understand what these losses mean.

Fallen revenues mean simply that consumers value the
services of this industry less. The proximate cause of this industry's malaise
is a change in the ordinal rankings of goods in the minds of many millions of
consumers. Government aid and nationalization will not change this underlying
reality. Passenger revenues fell from $16.9 billion in 2000 to $13.8 billion
in 2001. Labor and management surely have much to worry about with such
figures. With such losses, they cannot maintain the levels of wages and
profits that they once enjoyed. These people do the same type of work with the
about same skills and about the same capital as before, yet they earn less.

It is, however, important to realize that the value of wages
and profits are not in the labor that go into products, but in the value that
consumers attach to these products. This loss in revenue and all resulting
reductions in profits and wages merely signal that resources expended in air
travel have less value than had previously been the case. Consequently, the
solution to this malaise is to move resources out of this industry, and into
more highly valued uses.

There is more to this matter than simple resource allocation.
These changes in consumer plans came about in part due to illegitimate and
immoral responses by some to a series of prior government interventions. As
Adam Young has pointed out, the United States Government has intervened in the
Middle East repeatedly. These interventions have had the understandable result
of generating some resentment towards the U.S., and unwarranted, abhorrent,
but real acts of terrorism.

Twisted fanatics used airliners to deliver a blow against
the U.S. on 9-11, for interventions that outraged them. While there is no
justification for this kind of response to U.S. intervention, we must
recognize the causal connection between U.S. intervention overseas, and
resentment towards the U.S. from abroad<a title href="http://www.mises.org/fullstory.asp?control=1195#_ftn2" name="_ftnref2">[2]</a>.
Now, this already sagging industry has successfully lobbied for massive
subsidies in response to 9-11, and may be headed for nationalization.

As Ludwig von Mises and Friedrich Hayek have argued, one
intervention would generate unintended consequences that would require further
intervention. Since we each see directly into our own minds alone, politicians
and bureaucrats cannot predict the complex myriad of reactions that their
plans for intervention will instigate. As people react and adjust to
government policies, and these policies become more complex and comprehensive,
we would move towards comprehensive economic planning, socialism, and tyranny<a title href="http://www.mises.org/fullstory.asp?control=1195#_ftn3" name="_ftnref3">[3]</a>.

No normal person could have predicted the plan that the
fanatics in Al Qaeda devised for 9-11. We did have some notion that such a
thing could happen. The earlier bombing of the World Trade Center and the
Attacks on the U.S.S. Cole and U.S. embassies in Africa signaled danger.
President Clinton's response to these attacks obviously did not deter further
attacks and may have only prompted Al Qaeda to search for targets closer
to home. But who could have guessed where, when, and how?

Now, we have a new department of homeland security and a war
with Iraq. This war has increased fuel prices and reduced airline bookings.
These effects have reduced airfares to 1988 levels even without adjusting for
inflation.

The unintended consequences of past U.S. foreign policies
and 'inadequacy' of current U.S. subsidies have led to calls for the
nationalization of airlines. To many, this is the only way to restore the
vitality of this industry. Of course, the concerns of Mises and Hayek
overstate the immediate problem. Nationalizing the airline industry is a far
cry from comprehensive economic planning and totalitarianism.

As Don Lavoie argued, partial economic planning suffers from
the same kind of deficiencies as comprehensive economic planning. Individuals
make economic decisions within a given context and according to their own
subjective values. Officials at planning agencies, either for the whole
economy or one sector, cannot reproduce the decisions that individuals make
themselves.

Even the information that prices convey is in a coded
form—contextual and tacit. Each weighs possibilities his own mind, and makes
decisions that central planners cannot make for them. Each weighs future
alternatives in terms of their own personal expectations, subjective values,
and individual circumstances. The idea that even partial central planning can
replace the market is all utterly unreal. The danger that movement in this
direction could leave us less free is genuine.

The idea that economic knowledge is subjective, fragmented,
and widely dispersed has two important implications here. Intervention is
dangerous because those who intervene lack the knowledge to form plans for
intervention ex ante that reflect all the ways that people will react
to their plans.

This leads to potentially disastrous unintended consequences,
as different amounts and kinds of intervention than originally envisaged
unfold. Such intervention then leads to a situation where we replace
competitive markets with at best heavily regulated markets, and at worst
outright socialism<a title href="http://www.mises.org/fullstory.asp?control=1195#_ftn4" name="_ftnref4">[4]</a>.
These economic systems result in markedly lower living standards and varying
degrees of political repression.

That this is all true in this case is evident from the fact
that consumers are choosing to spend less on air travel.
Intervention on behalf of airlines is obviously working to resist the movement
of scarce resources into more highly valued uses. It is making us poorer,
except for the few who collect these government transfers. 

At one level, we should recognize and respect the wishes of
consumers. At another we should recognize that part of this change in consumer
preference and want for more intervention derives from prior interventions.
Fear and animosity generated by terrorism and intervention are what we should
be wary of, not falling revenues in any one sector of the economy.
Intervention is the problem, not the solution, particularly its worst form:
war. 

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Donnelly, Sally. U.S. Airlines,"Bad to Nationalized",
Time.com March 25, 2003.

Lavoie, Don. (1985)."National Economic Planning, What
is Left?" Cato Press.

Lewandowski, Beth. (November 27th 2002).
"Nationalize the Airline Industry?" CNN.com March 25, 2003.

Levin, Doron."U.S. Airlines talk Nationalization."
www.bloomberg.com/feature/feature/1048170047.html 
Bloomberg.com March 25, 2003.

Velocci, Amthony L. Jr. "United Flying Headlong
Into An Uncertain Future", Aviation Week & Space Technology December16,
2002  http://www.aviationnow.com/content/publication/awst/20021216/~hsaw22.htm  
from Aviationweekcom March 25, 2003.

Young, Adam."A History of Folly", Mises.org
http://www.mises.org/fullarticle.asp?record=818 March
25, 2003.

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<a title href="http://www.mises.org/fullstory.asp?control=1195#_ftnref1" name="_ftn1">[1]</a>
The author of this essay, a graduate student at George Mason University, dedicates
it as a small, but fitting, tribute to the late Don
Lavoie.  dmackenz_2000@yahoo.com

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<a title href="http://www.mises.org/fullstory.asp?control=1195#_ftnref2" name="_ftn2">[2]</a>
As Menger (1871) notes at the beginning of his Principles of Economics,
“all things are subject to the law of cause and effect”. This does not
imply that particular causes justify or warrant associated affects.

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<a title href="http://www.mises.org/fullstory.asp?control=1195#_ftnref3" name="_ftn3">[3]</a>
See Mises, Ludwig von, Human Action, Interventionism, Economic
Analysis, and Omnipotent Government, and Hayek, F.A. The
Road to Serfdom.

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<a title href="http://www.mises.org/fullstory.asp?control=1195#_ftnref4" name="_ftn4">[4]</a>
Periods of socialism (i.e., the war communism years in the early U.S.S.R.)
tend to be transitory because the failings of socialism are catastrophic.
See Mises (1922) Socialism, and Economic and Sociological
Analysis.

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