Externalities Are Central

Master Planners have been massively wrong about almost everything in history. The essential fault is that such plans are gross simplifications by authoritarian experts who don’t know nearly enough about their subject. Instead of learning, they simply pronounce everything they don’t want to think about as “external”. Is it such a surprise that so many such plans are failures?

Moreover, the motive for master planning is frequently something very different from what they claim. The first master plans came from kings and princes, who commissioned surveys of their land and censuses of their subjects. (See James C. Scott’s book, Seeing Like a State.) Their entire purpose was to tax more effectively, to control their subjects. In other words, to extract more money, no matter what else they might claim.

Master Planners have been wrong
about almost everything.

In drawing up their plots, planners simplified everything. This is still true. And they assumed simpler was always better. So European planners redesigned forests in order to maximize timber revenue, and they ended up with a single-species of trees that were planted in rows and aisles, and were susceptible to disease and severe environmental problems, just as monoculture crops on huge American farms are today. All the thousands of locally efficient cultivars are ignored for a single one chosen by the masters. Agriculture was regularized into “efficient” and artificial plots, ignoring the wisdom of people who had worked the land for generations, and respected the nature of the land as it was. Manufacturing production was organized into massive factories where individual workers were assumed to be interchangeable mechanical idiots, and were required to perform repetitive tasks day after day.

Anything not part of the calculations of the planners was “external”, but they are only external to the planners and economists. All those externalities are central to the people who have to live with these plans, and they are ignored at peril.

“Externalities” are central
to everyone but planners.

Almost all central plans—with notable exceptions—were attempts at control and maximizing profit, not efficiency, health, or welfare. (Some exceptions brought important health improvements.) Virtually all were characterized by an intellectual arrogance that is no different today. It was always assumed that all the people affected by these plans—the 99%, as it were—were incapable of the quality of thought that would make them efficient contributors to the collective welfare. They couldn’t possibly know anything about what they do for a living, especially if they don’t have a college degree in it. There are no experts among the 99%. Only the masters, who are rarely adequately familiar with the places they organize so artificially, are smart enough. Since the 99% are not worthy of consideration, their concerns are “external”.

The field of economics has been plagued by a similar sort of arrogance, perhaps best seen in the classification of all persons as “homo economicus”, who are presumed to make all decisions on the basis of maximization of economic benefit to themselves. All other elements of human motive and behavior are considered “external”, as are environmental considerations. But the fact is, nobody behaves solely to maximize financial benefit to themselves, and quite often we are indifferent to supposed economic benefit. How many things do we do solely for love? Probably no worthwhile economist today would own up to a belief in homo economicus, but both economics and central planning still function mostly without regard for how people really are, and assume that they are more capable of determining the best way to do things, not the people who have to live with their decisions. They are guilty of failing to recognize and account for the human intelligence and complexity that characterizes all of us.

Nobody makes decisions solely based on
economic benefit. What about love?

Good examples of authoritarian high modernism in recent city planning are Brasilia, the built-from-scratch capital of Brazil, and Chandigarh in Punjab India. Alas, the centrally planned economy of China has succumbed to the same fool’s belief. In each case, the entire city was planned to look good on a map, not to satisfy any real human need, and nobody bothered to ask the humans. Residential buildings in such places are huge, and surrounded by vast, open plazas, which are virtually empty at all times. Human scale is absent. Unless these empty deserts have been modified to include something useful, nobody goes to them because nothing of interest is there, no stores, coffee shops, parks and playgrounds, entertainment, bars, places to hang out, nothing. The residents dislike living in these cities because there is nothing but your apartment and work. The planners assumed that the people were all homo economicus, with no other motives. Human scale can be seen in the vibrant cities that popped up unplanned from the temporary housing for construction workers at the periphery, but not in the cities themselves.

Nobody functions with a single motive. We are all highly complex. Moreover, there are many kinds of intelligence that are not scholarly intelligence. You don’t particularly care about your electrician’s mathematical prowess in the classroom, but he’d damned well better know how to wire things up right. You don’t particularly care about your food producer’s scholastic achievements in world history, but you expect her to be really good at growing stuff. Neither of these professions, nor any other, is remotely as simple as master planners and economists presume. Life is just not that simple, and saying that things that are important to people are “external” to somebody’s grand plan is practically a formula for failure.


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4 CommentsLeave a comment

  1. Have you read James C. Scott’s SEEING LIKE A STATE?

    He thinks much like you do.


  2. Yes. Several of the ideas are based on his book. I have added an attribution.


  3. I am not sure I get the point you are trying to make. The thesis is that externalities are central (to economic situations), and you cite cursory examples about how people are affected and mention how because of the many facets of life people cannot understands how an event or economic policy might have unforeseen results, but I am left asking myself, “so what?”


  4. It’s more like: what central planners consider externalities are not at all externalities to the people the plans affect. Reducing factory workers to automatons assumes that they have nothing to contribute to how their job should be done. Building cities for the sake of transportation needs makes them terrible places to live, devoid of all the things that make life interesting.


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