26 June 2008

Why Government Can't Plan the Economy

The Socialist Planning debate was resolved long ago in favor of decentralized planning in a free market system. The strongest theoretical argument against planning, in my opinion, is the lack of price mechanisms in non-market transactions. But on a personal level, I'm persistently fascinated by the market niches that develop only because market planning is so decentralized that vast numbers of different minds are looking for individual (microeconomic) opportunities, rather than a vastly more limited number of minds looking at the overall (macroeconomic) economy.

Case in point: A while back I did some Habitat for Humanity work (mostly involving drilling screws into drywall and missing the studs), and started talking with one of the other volunteers, whose company occupies a market niche that I'd never heard of before, and I'm willing to bet none of my three readers has either.

His company's niche is a mobile laser eye surgery lab. They tow the equipment around a multi-state area, setting it up in particular optometrists' offices, so that they (the optomestrists) can provide laser surgery for their patients. The guy I talked with transports the equipment, sets it up, calibrates it, and trains the optometrists.

Clearly there are many small optometry shops for whom it would make no sense to buy the equipment, but it seems just as unlikely that the costs of renting the equipment would be cost-effective. And apparently it's not, at least not directly. What I was told is that the optomestrists tend to lose money on the operation, but it allows them to retain patients, who would otherwise go elsewhere for the surgery, and perhaps not return as patients. But by providing all the services possible for their patients, the optometrists can keep them returning, which more than offsets the loss on the laser surgery itself.

And that somebody saw this obscure opportunity and filled the niche demonstrates what the planning advocates (are you listening, Barack?) never quite grasp--that the creativity of millions of minds is a better source of solutions than the creativity of a handful of experts, simply because millions of actors can see more details of the market than any few people can.

Which puts me in mind of Asimov's robotic brain in I, Robot, which solves all economic problems, but I'll save that for a post on bad economics in literature.


James K said...

Wow, mobile Lasik as a loss leader for optometry, that is so beautiful.

And people think economics is a sterile subject?

James Hanley said...

I'm sure there's a market for sterility as well.

James K said...

Well people do pay for vasectomies don't they?