In his blog, Paul Krugman writes,
We may live in a market sea, but that sea is dotted with many islands that we call firms, some of them quite large, within which decisions are made not via markets but via hierarchy — even, you might say, via central planning. Clearly, there are some things you don’t want to leave up to the market — the market itself is telling us that, by creating those islands of planning and hierarchy.
Now, why exactly that’s true — why some things are better done through market mechanisms, while others are better done through at least a bit of command-and-control — is a deep issue….
The thing is, however, that for a free-market true believer the recognition that some things are best not left up to markets should be a disturbing notion.
So Krugman is conflating the “central planning” of a business firm with the “central planning” of a government. And that, of course, is the fallacy of his argument, which is that sometimes we need the government to do away with the free market and engage in central planning. There just isn’t any parallel between the two. They are fundamentally different animals.
To describe a corporation as an institution of “central planning” contrary to the free market is nonsense. Naturally, a corporation wants to make profits, and to do that, it needs to produce goods or services that satisfy consumer demand. Ergo, all of its “central planning” is designed with that specific aim in mind. And while a corporation may make bad decisions and fail in that goal, the means by which it seeks to achieve it is by reading the markets and prices in order to determine where to direct resources. Furthermore, prices are determined by supply and demand in the marketplace in accordance with individuals engaging in voluntary exchange for mutual benefit (inasmuch as both a buyer and a seller only agree to make an exchange on the basis that they each value more what the other one has).
This is totally incomparable to a government interfering in the market by using force to expropriate wealth from involuntarily from one group of people in order to redistribute it based not on the market’s pricing system, but arbitrarily or for corrupt political and financial gain to another group of special interests.
One would assume that Krugman is too intelligent not to recognize the glaring differences between these two things, and yet he attempts to conflate the two, anyways, in order to bolster his anti-free market, pro-central planning ideology.
