The Planner's Problem and the Allocation of Essential Supplies During a Crisis

|Peter Boettke|

Before I start this post, let me suggest to everyone that you look at Chris Coyne's Doing Bad By Doing Good (Stanford University Press, 2013) and any lectures you can find by Coyne on this subject on YouTube.  Also, for the purposes of this post, it also might be insightful to watch some episodes of the old TV series MASH and focus on the character of Radar O'Reilly, and how he worked behind the scenes throughout the Korean War to try to procure the needed medical supplies because the planning apparatus failed to do so in an efficient manner to meet the most urgent needs of the doctors and nurses in the field.  

Andrew Koppelman explains the basic argument that will be provided for planning in times of emergency, like war, natural disaster, pandemic.  My good colleague Alex Tabarrok discusses this clearly in MRU video that is very relevant for current affairs.

 

 

The key point is to turn an economic problem that all societies confront -- the allocation of scarce means among competing and often divergent ends -- into a technological problem -- find the best means to achieve one end -- and voila! the planner's problem is solved. Right?

Well, when we look at these command and control measures closely in historical practice (and even in the most urgent of situations), we come to appreciate that transitioning from an economic problem to a technological problem does not eliminate opportunity costs, the move instead "hides" these costs from view. These costs must still be borne. This was an important part of the economic argument developed against the draft by Milton Friedman and others in the 1960s.  Suppressing the wants and desires of a great multitude to the command and control for a common cause may very well achieve its desired outcomes, but at what cost and how do we understand alternative courses of action that may have been discovered.  Having that conversation is not a lapse of moral judgement, but actually an example of judicious moral reasoning.

But what are we talking about here really.  In situations after natural disaster, we are talking about getting water delivered to populations cut off from normal sources.  In wartime, we are talking about having spare parts ready to fix needed military trucks and vehicles to wage battle.  Yet, history is filled with examples of command and control supply chain frustrations when the problem appears to be so easily solved.  Gordon Tullock's The Politics of Bureaucracy (1965) discusses the issue of spare parts and compares the military difficulties during war with the US trucking industry throughout the country.

Cotton Mather Lindsay (1940-2015) was a student of James Buchanan back at UVA, he then did a post-doc fellowship at LSE, and then joined the faculty at UCLA before moving to Clemson.  His thesis was on the National Health Care system in Britain, but later work would focus on the Veterans Administration Hospitals. There are planner's problems throughout these systems -- knowledge problems and bureaucratic/political incentive problems.  Interest groups form, and metastasize throughout producing frustrations and failures in delivering even basic tasks dictated by the command and control apparatus.  One example from Lindsay's work was the building of acute care and chronic care units in the VA hospitals, and the impact that an aging veteran's population eventually impresses upon that decision.  In short, younger population want acute care, while aging groups want to chronic care.  It is extremely expensive to allocate acute care units to chronic care use. Yet it seems the logic of interest group politics and the bureaucratic incentives at play, tend toward that unhelpful outcome.

The planner's knowledge problem, Mises/Hayek/Lavoie taught us, exacerbates the planner's bureaucratic/political incentive problems.  If you do not know the right economic course of action to take, planners don't just throw up their hands and say "I don't know", then instead rely on the knowledge that is readily available to them --- the technological knowledge of marshaling means to achieve agreed upon end -- but along the way that knowledge is acted upon by flesh and blood human beings, who face incentives, and respond in predictable ways to the incentives that they face.

Why can't bottles of water get delivered from point A to point B?  Why can't we move medical supplies from areas currently very minimally impacted to high impact areas with the promise that other minimally impacted areas will backstop those first areas if they start to be impacted?  This all why production will take place to meet the increased demand.  But instead we have political gamesmanship and vested interests sticking their heels into the ground, mixed with moral posturing, all the while critical problems go unresolved.

The sort of economics practiced by Mises/Hayek, and Buchanan/Tullock is not a theory in search of an application, but a golden key to unlock the mystery of the observed reality we witness daily -- both in terms of the beautiful complex adaptive system of the price system, and the dysfunctions of public sector systems of command and control.  It is a huge error to ignore the tensions and troubles in private sector (both commercial and community) interactions, but it is also a huge error to blissful ignore these public sector dysfunctions and dismiss those that are too obvious to ignore as the consequence of particular incompetent actors rather than systematic problems that must be confronted by even the most well intentioned and most competent "generals" put in charge.  The fundamental question, I would argue, is the critical feedback mechanisms in place so that the necessary adaptations and adjustments are made quickly to reveal error, and set in motion actions to minimize the cost of the error and correct the previous errors and steer human decision making in a less erroneous direction in the future. We are, after all, fallible but capable human actors, making decisions in an uncertain and in many instances unknowable world.

Let's hope the human imagination is being pressed into action right now, and numerous nimble and entrepreneurial actors in the public and private sector are working toward solutions that will address the relevant trade-offs and minimize human suffering due to this shock we are experiencing.