Thursday, 19 September 2013

Central Planning’s Computation Problem

By Lucas Engelhardt

ABSTRACT: Friedrich Hayek and Ludwig von Mises demonstrated that central planners will be unable to manage an economy rationally due to the problems of dispersed knowledge and the impossibility of economic calculation in a centrally planned economy. This paper adds to these two problems by suggesting a third: the computation problem. Drawing from realities found in computational economics, even if all the data is given and production is ignored, the size of the computational problem makes large scale central planning a practical impossibility. The size of the problem to be solved and limitations on computer processing power do not allow for computers to provide a solution to large scale economic problems in a time that is useful. For example, even under severe simplifying assumptions, distributing 80,000 heterogeneous consumer goods among six billion heterogeneous consumers requires a calculation that would take at least 10.5 quintillion years—when the Big Bang happened just 14 billion years ago.

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