Carleton University economist Nick Rowe is one of the most original and stimulating bloggers in economics today. Nonetheless, I rarely link to him, because his posts contain few – if any – ‘sound bites’. With Nick, it is necessary to read each post in its entirety, to fully understand the logic. The post that I highlight today is no exception, so I limit myself to copying and pasting the introduction. Go to the link to read the rest of the post. Don’t neglect the excellent comments, including responses from Nick.
“So Nick, how come a free-market economist like you is acting like a central planner?”
I heard that a lot when I was an associate dean. Sometimes it was said to tease me. Sometimes out of genuine annoyance.
I had my reply ready.
“There are three ways to allocate resources. The market is best; soviet central planning is second best; and the Hobbesian State of Nature is by far the worst. And right now I’m trying to drag you miserable lot out of the Hobbesian State of Nature into soviet central planning. Maybe later I will try to get something like a market going”.
The story out of Texas A&M has been doing the rounds of the blogosphere. Most seem to be against even reporting data on revenues and expenses of individual professors. God forbid actually using that data for anything.
The sarcastic response is too tempting: “You economics professors are all in favour of prices and markets for everybody else. But it would never work for economics professors, of course. Right.”
But what I really want to do is switch roles and play a part I never get to play. It’s now my turn to say: “You pointy-headed professors sitting in your offices don’t have a clue about how resources actually get allocated in the real world of the ivory tower. I actually know something about it, because unlike you I’ve got the practical experience of actually doing it. You useless theoreticians don’t have a clue. I see the big picture and you don’t. So shut up and listen while I tell you what really happens.”
That’s what I’m going to do here.
Nick Rowe, “Confessions of a central planner”, Worthwhile Canadian Initiative, 29 October 2010.
Nick’s post will be of interest to anyone who has ever taught or studied at a large university. It might even be of general interest. As one commentator – “Patrick” – said, “Large firms face similar problems. Within the firm resource allocation starts to look and awful lot like central planning.”
On further thought, I will cut and paste two paragraphs from the ‘heart’ of the post, because I enjoyed them so much. I warn you, though, that they might make little sense of of context. Read the whole thing.
The supply of seats is determined by the individual department. But the demand for seats is determined centrally, by Admissions. Admissions is ordered to bring in as many students as are needed to pay the profs’ salaries. But each individual prof and department wants to reduce the number of bums on seats in his course and his department.
The result is a classic case of chronic excess demand for seats. Just like in the old Soviet Union. Capitalist economies have chronic excess supply. Communist economies have chronic excess demand. My job as associate dean (because I made it my job) was to persuade, cajole, bribe, threaten, or bully departments into putting on enough seats for the bums that needed or wanted to sit in them. I was what the Russians used to call “the pusher”.
See. The post contains quite a lot of economics, but is written in a way that is anything but boring.
