Arnold Kling  

Planning vs. Improvisation

Multicollinearity and Micronum... Economic Literacy...

In this essay, I write

After Hurricane Katrina, the United States faced a shortage of gasoline, caused by the disruption of refining capability. My worst fears were that panic would break out, and Americans would rush to fill their tanks, making it difficult for people with critical needs to find gas. There was a need to conserve gasoline until production could be restored. It turns out that the markets produced exactly such a response. The rise in gas prices, which in my view was relatively small considering the sudden severity of the crisis, was sufficient to induce people to live more fuel-efficiently for a while. The law of demand worked much better than any centralized rationing scheme.

Comments and Sharing

COMMENTS (4 to date)
Randy writes:

"The planning illusion". Exactly!

Randy writes:

It occurs to me that it isn't so much a matter of planning vs improvisation, but rather a failure of problem definition. Military planning, like any good planning, includes planning for improvisation. The primary reason a plan fails is because it attempts to solve the wrong problem. The problem to be solved in a hurricane is to first evacuate and then provide shelter, food, and water for large numbers of people. It is a massive logistical operation, but not particularly complicated. But if the problem is seen as "how do we coordinate the actions of numerous government agencies", then the real problem becomes of only secondary importance - and solving it becomes exponentially less likely.

spencer writes:

One of the interesting developments of the last couple of decades has been the impact of the computer revolution on business pratices.

One major development is "just in time inventories" that computers allowed.

In the old days firms maintained much higher inventory level just in case of shocks to the system. So shocks could be absorbed much more by changes in inventories rather then price.

It was a cost to business but a benefit to the economy as a whole.

But the computer revolution has allowed the economy to act more and more like the economists perfectly competitive model, and we are seeing one aspect of this now with essentially the entire adjustment costs now being reflected in price changes rather then inventory changes.

Are we better off because of it? Probably.

At least for the time being we do not know the complete answer to this. We have data on oil shipments, and assume that is final demand.
So we do not yet know how much of the adjustment
was in the form of changes in retail inventories
and how much was in the form of a change in true final demand.

'This analysis boggles the mind, because it suggests that Hitler's Wermacht was a model of decentralization and improvisation.'

I don't think the ability to defeat France would necessarily be that. However, the Germans did have Rommel in charge of that offensive, and he later came to be known as the Desert Fox.

Comments for this entry have been closed
Return to top