Bryan Caplan  

Confession of a Broken Planner

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Tom DiLorenzo has a charming anecdote in the latest issue of the Free Market:

During the post-war occupation of Germany, American "planners" rather liked the Nazi economic controls, including price controls, that were in fact preventing economic recovery. The notorious Nazi Hermann Goering even lectured the American war correspondent Henry Taylor about it! As recounted by Schuettinger and Butler, Goering said:
Your America is doing many things in the economic field which we found out caused us so much trouble. You are trying to control peoples' wages and prices — peoples' work. If you do that you must control peoples' lives. And no country can do that part way. I tried and it failed. Nor can any country do it all the way either. I tried that too and it failed. You are no better planners than we. I should think your economists would read what happened here.

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COMMENTS (34 to date)
T.R. Elliott writes:

Using this as an example of anything is really low. Why do you do it? If you want any regulations, you are now a nazi? Did the nazi's brush their teeth? Does that mean I'm a nazi because I brush my teeth. Or that worker safety rules are a slippery slope to eugenics and genocide?

More examples of the illogical unfounded nature of the comments on this site. But now I must add the term immoral. Because this recent post is immoral.

Or is there a point to your post? I'd love to know.

j klein writes:

The next step is to organize a schriftfest to celebrate Nazi Minister of Economy Hjalmar Schacht´s 100th birthday.

TDL writes:

I don't think Mr. Caplan was calling anyone a Nazi. He was simply posting about Goering's realization about the failures of state planning. This post is not immoral, that is a bombastic statement. This post is simply demonstrating that even objectionable individuals, like Goering, can come to understand the failures of their beliefs. Goering's point was simple, we tried it and it didn't work; we then took state planning to an extreme, and that effort was even a larger and more profound failure.

AJ writes:

Interesting.

One of the most informative parts of economics which is overlooked is the experience of other countries in different times. Vignettes of economic history and economic experience have a lot to offer us. Unfortunately, academia doesn't seem to reward putting this information together in an interersting or helpful manner. Instead we have a preponderence of mathematical models or interesting stastical models on large data-sets.

I enjoy these kinds of vignettes that give insight into the workings of economics.

daveg writes:

As someone who has been critical of Mr. Caplan's comments in the past, I think there is nothing wrong with the example.

I think he trying to show that price controls didn't work even in a very controlled and rigid society such as Nazi Germany. Thus, we shoud be highly doubtful that such method could succeed in a less controlled, more open, society such as ours.

Also, it is an interesting story from a human nature/personal interest point of view, which I enjoy from time to time.

I don't think he is trying to imply any special relation to the other acts committed by the Nazi's and price controls.

T.R. Elliott writes:

I disagree with above comments. Goering was pretty much an idiot. Now we're getting economic advice from Goering? This is totally idiotic. I'm sorry. But it does not compute. We've got (a) comments from Goering, who if you've read anything about Nazi germany and the people involved, in particular Goering, know that he was a dope and (b) economic comments and social comments coming from said dope.

Speaking of dope, what kind are you guys smoking? Cause let's face it, your reasoning abilities right now are defective. Similar to the misguide impetus that would make anyone want to dredge the commentary of a nazi idiot in order to make economic points.

IT DOES NOT COMPUTE.

T.R. Elliott writes:

Ok, so you guys tell me: why are we getting economic advice from a man who said the following:

I herewith commission you to carry out all preparations with regard to... a total solution of the Jewish question in those territories of Europe which are under German influence.
Hermann Goering

Like I said: IT DOES NOT COMPUTE. IT IS IMMORAL.

Jody writes:

Just the other day, I was thinking to myself: "Self, how many logical fallacies do you think you could fit into a single assertion?"

Well, thanks to T.R., I have a pretty high bar to reach. I at least count genetic, ad-hominen, guilt-by-association, general irrelevance, and a bad reasons fallacy. Although I guess I need to come up with a rigorous scoring mechanism as some of these can be considered to be subsets of others.

Sean writes:

Mr. (Mrs.) Elliot:

I think you are the one who is using flawed reasoning. Just because Goering did evil things does not mean all his observations were wrong. The fact that Goering acknowledged the failure of price and wage controls means that he was not an entire "idiot" because he could, at the least, observe cause and effect. Now, I would agree that many of his actions, including those toward and regarding Jews, were disgraceful and very immoral, referring to a quote of his on a Nazi shortcoming - the failure of highly controlled economic management - in order that the Americans, or the reader in general, will learn something, is not immoral at all. In fact, if it helps us, or helped the Americans then, avoid things that are, arguably, immoral, such as price and wage controls, then Goering will have actually contributed to some kind of good. I don't see a problem with this; evidently you think that only saints are allowed to make useful observations from now on. Perhaps, then, it would be best for all of us, including yourself, to stay quiet, because past "immoralities" may taint our present wisdom.

T.R. Elliott writes:

You guys are completely missing my point. I am not maligning Mr Caplan's morality from the perspective of his views of facism. I am stating that it is downright silly to quote Hermann Georing's thoughts on state planning and think it means anything.

If Mr Caplan had reported on the analysis of Germany's state planned economy, as analyzed by economists, say, I'd say "yeah, interesting." But instead he takes a quote from a human monster and then calls it "charming."

Why is the anecdote "charming?" Goering liked nothing more than to have people listen to him, to pontificate. So he was happy to have any audience to listen to anything he had to say. He was that full of himself.

Look at it another way. His post makes it sound like the American planners are the bad people, Goering the good guy who sets them straight.

It's just plain bizzare. But Mr Caplan need to produce a post in support of free market principles and found this one interesting.

What is ad-hominem about saying that I find that using Herman Goering's economic opinions in support of free market economics is immoral?

T.R. Elliott writes:

Sean: What background does Goering have that makes you think we should take his opinions on economics seriously?

spencer writes:

The German economic planners were so bad that despite the massive allied bombing from 1942 to 1944 in 1944 German industrial production was greater then at the start of the war in 1939.

Of course this is what a Commission lead by Galbraith found after the war, so I'm sure Caplan will not accept the findings.

T.R. Elliott writes:

Let me concisely paraphrase today's post:

Lesson for today: Hermann Goering, man with no economic credentials, man who assisted in the slaughter of many innocent human beings, will provide a lecture to American economic totalitarians on the dangers and nuances of price controls.

I kid you not. This is today's lesson. I am not ad-hominem when I say it is immoral. We've had Goering trotted out to lecture us American totalitarians on the dangers of price controls.

I'm all for free markets, but Caplan's not going a very good job of aruing for them, nor the people who he quoted.

spencer writes:

Speaking of Galbraith, many right wingers are glad to spout the meme that WW II is what ended the depression. But in the US during WW II we also had price controls and state planning for the bulk of the economy. But despite state planning and price controls the period of WW II displayed the greatest five year growth rate in US economic history. The planners and controlers -- remember Galbraith was head of price controls in WW II -- seemed to have managed to do a pretty good job.

Bernard Yomtov writes:

What background does Goering have that makes you think we should take his opinions on economics seriously?

Exactly the right question, and the answer is "none." That Goering was a monster makes it worse, but is not the main point.

Caplan loves to talk about how economically illiterate most people are, and how their economic opinions are nonsense. But when the economic illiterate in question happens to support Caplan it all changes. Are we really supposed to believe that Goering understood how well or badly the German economy performed during WWII, and understood the reasons?

Put it another way. Suppose Himmler had made statements about how well Nazi economic controls had worked. Would Caplan or anyone else accept that statement, on its face, as evidence of the value of those controls?

Chris Bolts writes:
Lesson for today: Hermann Goering, man with no economic credentials, man who assisted in the slaughter of many innocent human beings, will provide a lecture to American economic totalitarians on the dangers and nuances of price controls.

Well, we've taken lessons in economics from worse individuals (*hack*Karl Marx*hack*). And for a very long time, we took his arguments seriously (as some do now). To me it seems that many of you are arguing that simply because Goerring was not an economist he is not qualified to make comments on economic matters, despite the fact he had helped set up one of the most brutal planned economies based on the principles of the aforementioned economist. That's faulty logic: since we shouldn't take advice from bad men should we now reject several of our forefathers (predominantly anything written by Thomas Jefferson) simply because they owned slaves?

Jody writes:

For chrissakes...

1) Of course, Bryan doesn't think citing Goering proves the argument ya'll are ascribing to him. It's cited as an anecdote ("Tom DiLorenzo has a charming anecdote"). Anecdotes neither strengthen nor weaken an argument. As the saying goes, the plural of anecdote is not data.

2) What's up with the "lesson" stuff? It's a blog, not a classroom. The anecdote amused Bryan, he shared it. That's all that's there.

3) T.R., who nonetheless, is treating the post as a reasoned argument, wonders where he has committed an ad hominen while repeating that citing Goering is immoral. A hint: rather than directly responding to Goering's argument (as Spencer did), T.R. attacked Goering the man.

By the way, T.R., that assertion that you seem so proud of also contains a general irrelevance fallacy (of what import is Goering's views on the Jews related to his point on the economy?), a genetic fallacy (the argument is coming from Goering, therefore it must be bad), and a guilt-by-association fallacy (the particular flavor of which is called argumentum ad nazium). So you nearly topped yourself with that one. However, lots of these are subsets of each others. So as I said before, I need to adopt a more rigorous scoring mechanism.

4) If we were to treat Bryan's anecdote as a serious argument (paraphrasing as central planning is bad for the economy - just look at Germany), the only serious response here is Spencer's which asserts that the German economy grew with central planning in the face of allied bombing and that the US economy grew rapidly during an era of central planning.

T.R. Elliott writes:

Mr Yomtov: Excellent point. I may ruffle feathers here with my attitude, but I really am interested in the truth. I don't have an agenda. Neither an Ayn Randian Libertarian Nirvana nor a Marxist Nirvana. But when I find people with that type of thinking, I get annoyed. Especially when I discover that Goering is providing tutorials on economics to American economic totalitarians.

This has got to be one of the strangest posts I've seen here. It's one thing to errantly blurted out this "charming" anecdote at a cocktail party, but as a well-considered post? I'm baffled. I acknowledge it was innocent enough, but only as innocent as any attempt to dredge around looking for material to hastily assemble the support of one's ideological position.

Sean writes:

Spencer: well, during most of the period that Spencer mentioned, 1939 to 1944, the Germans had control of some important colonies that allowed them access to below-market-cost raw materials. Also, it was typical for the Nazis to enforce labor, even among women and high schoolers, who ostensibly were mostly out of the labor market previous to this time period. As well, the German administration of occupied lands impressed citizens of conquered countries to go to work in Germany. So an infusion of raw materials from newly conquered lands, as well as ultra-cheap, impressed workers will of course boost production (in the short run at least). Also, Spencer's timeline conveniently stopped in 1944, in light of the German economic meltdown of late 44/early 45.

History of Germany: WWII, The Homefront

World War II in Europe: War Economies

Sean: What background does Goering have that makes you think we should take his opinions on economics seriously?

Well, he essentially oversaw the German economy from 1936 until the end of the war. His ability to observe the effects of his actions (price and wage controls) is different from the ability to do regression analysis or spout complex game theory.

Bernard Yomtov writes:

Well, we've taken lessons in economics from worse individuals (*hack*Karl Marx*hack*).

You may want to think again about whether Marx was worse than Goering. Not Stalin or Mao. Marx.

dearieme writes:

German scientists discovered the lethal effect of cigarette smoking years before Austin Hill and Doll rediscovered it. The decision in scientific circles to discard the Nazi-era discovery because it was tainted by Nazism must have cost many lives. It's rather foolish to discard an argument on ad hominem grounds, even if the man in question is as evil as Goering. It is also rather silly to insist that the ogre was a dolt: his IQ was measured by his captors at 138, which means that he had greater analytical abilities than... well, probably most leading democratic politicians. Wicked, yes; stupid, no.

Bernard Yomtov writes:

Well, he essentially oversaw the German economy from 1936 until the end of the war.

I don't think this is correct.

Sean writes:

Goering spearheaded the "4 Year Plan" to ready the German economy for war, which commenced in 1936. It was comprehensive and covered nearly every level of the German economy. In 1937 he became the official minister of the German economy. Although the 4 Year Plan technically "expired" in 1940, the plan was basically extended indefinitely because the "Office of the 4 Year Plan" had become a cabinet-level post and Goering had built a solid power base among Nazi officials. According to numerous sources Goering's relationship with Hitler began to deteriorate in 1943, but as far as I can tell he was still in charge of the 4 Year Office, at least as a figurehead so that the split did not become public.

Quotes from his Nuremburg testimony:

"I...covered the whole field of German
economy, including the armament program."

"I...(was) able to exercise very great
influence on German economy."

James writes:

I'm really a bit surprised by some of the comments from our resident left-of-center commenters. If I were one of them, I might make some comment along the lines of,

"Yeah, so total central planning doesn't work. But that's old news. Why does Caplan even bring this up? No one even advocates central planning now, but libertarians trot this stuff out because it's easier to attack central planning than a sensible regulatory program. Our side just wants regulation and intervention where we believe they would have better results than an unfettered free market."

The last thing I'd do is defend central planning, unless I were actually in favor of it.

James writes:

Spencer,

Re: "Of course this is what a Commission lead by Galbraith found after the war, so I'm sure Caplan will not accept the findings."

Given Caplan's Bayesian leanings, I believe he'd be inconsistent with his own espoused methodology to accept Galbraith's findings. Let's just plug in some numbers...

Let A stand for "Galbraith speaks well of central planning" and let B stand for "Central planing works well."

Given what I know of Galbraith, I'd estimate Pr(A) to be around 0.98 and Pr(A|B) to be even higher, say 0.99. I'd imagine that the nmumbers I've picked are fairly close to Caplan's estimates. Do the math and you find that a favorable report from Galbraith on central planning just isn't all that informative for these values of Pr(A) and Pr(A|B). A negative report on central planning from Goering, on the other hand...

Eric H writes:

You may want to think again about whether Marx was worse than Goering. Not Stalin or Mao. Marx.

Okay, what are the differences? One of them attached himself to a man who eventually became powerful enough to enact his fantasies, and the other had a beard.

Hey! That works for Pat Robertson and Mullah Omar, too.

spencer writes:

I just went back and reread the original quote, and it is actually a little better quote then our discussion implied. We were discussing what happened in WW II. But the quote may be a little more appropriate then our discussion impies. The biggest event of the post WW II german economic miracle was the ending of all types of controls in 1949 and this is when most historians data the start of the german economic recovery. So in a way Goering and Kaplan were correct that the ending of the post WW II controls did make a major contribution to the german economic miracle of the 1950s-60s.

Actually, I think the best quote was from James
and would actually be the one I would support.

Yes, I am left of center and I jump all over Kaplan all the time. But I do it mostly because it is just so much fun to tear up the extreme statements Kaplan makes. I actually agree that free market capitalism is the greatest system ever devised for improving our standards of living, etc.. but that does not mean that the modern mixed system is all bad or that government is a complete dead weight loss as this blog keep asserting..

Neither governemnt or private markets are perfect despite Kaplans arguments that capitalism is perfect. So when kaplan makes these stupid, extreme statements it is just too tempting to jump on him.

In reality, the reason controls were effective in WW II for both the US and Germany is becuase the economies of both were redirected to the war effort, not what markets demanded. One of the reasons they were both able to function with the controls is that so much excess capacity from the depression still existed. In no way do I want to give the impression that I though it was a desirable outcome.

paul writes:

At least no one has mentioned Hitler yet.... ; )

Oh and BTW, Spence, the modern mixed system is all bad and government is a complete dead weight loss as this blog keep asserting..

Chris Bolts writes:
You may want to think again about whether Marx was worse than Goering. Not Stalin or Mao. Marx.

Considering the legacy that was left behind by his irrational economic theories and the fact that he hated Jews as much as Goering despite the fact that he was a Jew, I would consider Marx to be a worse person than Goering.

spencer writes:

Paul -- the modern capitalist system was essentially in place by around 1850. So from 1850 to 1950 the US economy was essentially the theorical system you advocate. So your theory is not untested. We had about a century of experience under it. During that period real per capita gdp growth was about 1.5%. Since WW II when we added big government to the system real per capita gdp growth has average 2.2%, or about 150% of the prior record. Moreover, this ignores that volatility was about double in the earlier era as in the post_WW II era. The test of your theory is that the modern mixed system of big government and capitalism has performed much better then capitalism did without big government.

Now, I have provided facts that show that with big government capitalism does so much better then it did without big government. It is now your turn to show me some facts to overule or disprove my facts and to demonstrate that government is a dead weight loss.

Sean writes:

So, the only variable between 1850 and now was the amount of regulation? I think not. In fact, on this same blog Arnold Kling has written many times on the importance of the "productivity revolution". Also, in much of that time period there were in fact many tariffs, subsidies, and barriers to trade. There was a period of relative free trade between 1846 and 1860. However, protectionism returned for the long haul in 1861. It gradually decreased over the years, eventually to an average tariff of under 30%, until the Smoot-Hawley Act was signed in 1930. However, I would not say that the gradual decrease of the tariff level "caused" the Great Depression, just like "big government" does not cause economic growth.

Also, your claim that from "1850 to 1950" there was no "big government" is completely wrong. I seem to remember something called the "New Deal" being enacted in the 1930s. Also, many if not most economists believe that the Fed (a governmental institution) had a large role to play in both the cause and prolonging of the Depression.

"Now, I have provided facts that show that with big government capitalism does so much better then it did without big government."

You provided one example. Please remember from Statistics 101 that correlation does not equal causation! It is true, for example, that the Soviet Union and East Germany for much of their respective histories had "mixed economies" in the sense that the governments had to permit market and price structures to function in many cases, if only because this was a much more efficient way of organization/distribution than a pure command economy. Both countries had abysmal rates of growth. Now, I'm not saying that this example "proves" that heavy government regulation is harmful, only that isolated examples, by themselves, don't make up an argument.

James writes:

Spencer,

I think your data are mostly correct, with some provisos about when big government really came into the picture. But I think your conclusion depends on some unstated and unjustified assumptions about which variable is the independent variable and which is the dependent variable. Let me see if I can point out what I think the problem is. Bear with me.

From 1850 to 1950, the U.S. economy was basically capitalist, but without widespread television ownership. During this period, the average growth rate of real per capita GDP was 1.5%. In 1950, less than 10% of households in the U.S. had televisions, but this number rose to around 65% in 1955 and almost 100% by 2000. During the period after 1950, the average growth rate of real per capita GDP was 2.2% or about 150% of the prior record.

Now, I have provided facts that show that with widespread television ownership capitalism does so much better than without widespread television ownership.

Of course you might object to this analysis, claiming that I'm confusing correlation and causation. You might even appeal to your understanding of how people respond to incentives and suggest an alternate explanation of the facts: Television actually lowers productivity, but widespread television ownership is found in prosperous societies because the costs of having a television in almost every household are prohibitive for less prosperous societies. In other words, my analysis fails because it depends on the unstated and unjustified assumption that television ownership is the independent variable and economic growth the dependent variable.

Well, mutatis mutandis, I object to your analysis of the relationship between big government and economic growth for the same reasons.

spencer writes:

Sean -- thank you for your reference to the new deal that proves my point. The new deal is what saved capitalism from itself. The downward slope of the depression ended officially in March 1933 when Roosevelt started enacting the new deal.
The period of the new deal was the strongest peace time growth of the US economy before or after the new deal..

For a good start on the end of the depression and the new deal you might start with this paper.
http://www.newyorkfed.org/research/staff_reports/sr234.pdf

James -- not to be insulting, but you have to do better then the TV argument.

James writes:

Spencer,

My observations about television are not intended to be a decisive argument. They are intended to be an example of what can happen when you try to analyze empirical data without being upfront regarding your prior beliefs on what variables are dependent and what variables are independent.

Your hypothesis is that government leads to presperity. Mine is that prosperity attracts government, but government diminishes prosperity. The data you cite is compatible with and wealky supportive of both of these hypotheses.

Just for grins, I pulled down some data from the Penn World Table. From Penn, I constructed two new variables. GSHARE = the percentage of GDP represented by government. GROWTH = the annual percentage growth in real per capita GDP. OLS with robust standard errors tells me that GROWTH = 0.0641734 + (-0.00297004)GSHARE with t-stats 3.750 and - 2.288 respectively. R-squared comes out to be just under .03.

Just in case there is some optimal level of government, I ran a regression with a squared term for GSHARE. The coefficients on GSHARE and GSHARE^2 were 0.00141192 and -0.000160053 respectively but the related t-stats 0.066 and -0.201. R-squared was about .03. Not very significant, but interesting because if these coefficients are right, growth would be greatest when government is about 4.4% of GDP.

How would you interpret these results?

Oh, I apologize in advance for only using data going back to 1950. It's all that Penn had. I'd be interested to see what happens if more years are included.

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