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Wednesday, July 18, 2018

Central Planning Doesn’t Work Internationally, Either

If the consequences of central planning are domestically detrimental, we will likewise see a similar detrimental impact on international policy.

It is baffling how some who defend freedom and free markets domestically are willing to abandon those assumptions when considering the border and beyond. Our immigration, foreign policy, and international relation policies often endorse a command and control framework and ignore relevant economic insights that promote freedom.

Trade, immigration, foreign aid, and military intervention all illustrate the point. All reflect anti-market attitudes to some degree and instead rely on central planning. 


The United States has generally taken a liberal approach to trade with other nations. Yet, the history of free trade is still marked with notable illiberal turns from the general pro-trade attitude. The most prominent example may be the Smoot-Hawley tariffs of the Great Depression. These tariffs possibly exacerbated the economic downturn by raising the costs of various goods and destroying “the vulnerable capital structure” which was recovering from the recent stock market crash.

High tariffs, protectionism against foreign goods, is centralized planning.

Yet, despite a general pro-trade attitude, we have often fought a rhetorical battle against economic nativism. The slogan “Buy American” is frequently popular, and though we have generally avoided high costs to import and export since the Second World War, we have found roundabout methods of discriminating against foreign goods, subsidies being the primary example. Subsidies such as those reaped by sugar and other agriculture industries often exist to protect against foreign commodities, often under vague and baffling national security justifications. Once examined, there appears to be no real discernible interest outside of protectionism. 

High tariffs, protectionism against foreign goods, is centralized planning. In this instance, a central body selects a few domestic winners instead of by market processes—the actions of consumers and producers—in order to arrange the economy as those in charge believe best. 

High tariffs are again becoming politically popular, as some describe current trade arrangements as “unfair.” This is setting a course for a trade war between nations, specifically China. Part of the desire to engage in ultimately harmful trade policy arises from economic misunderstandings regarding trade deficits and comparative advantage, but some of the trouble arises from a hubristic planner mentality which believes the planner knows best which items should originate in the United States and which should not. With this arrangement, most everyone loses, especially in the long run.


The current immigration system is highly restricted. With an annual worldwide limit of 675,000 permanent immigrants (with a few exceptions) allowed into the United States, and a per-country limit divided among that number, the demand for legal entry far exceeds the supply. This is the type of cap which encourages gaming and illegal activity. What I call the “black market signal” illustrates the point. With an estimated 11.4 million unauthorized immigrants in the United States, we see that the lack of supply for entry creates a strong incentive to come in without authorization, much like price caps or bans on other goods or services, a hard cap on immigration encourages illegal entrants. The black or illegal market signals a need to increase the supply.

Some believe we can discriminate based on merit; those who are most qualified deserve to migrate. But this suffers from the same central planning fallacy.

Caps on markets often create perverse incentives, especially when market demand far exceeds the allotment. The closer the price to the natural balance between the supply and demand, the lower the incentive to find alternatives. With imposed limitations on a good or service the demand for work-a-rounds and substitutes increases. In this instance, illegal immigration is such a substitute for difficult to attain legal immigration.

Some believe we can discriminate based on merit; those who are most qualified deserve to migrate. But this suffers from the same central planning fallacy. There is certainly a demand for high-skill workers, but that is not to say there is no demand for other types of workers. The idea that a central planner knows what levels of skill are in high demand or may arise with more immigration have yielded to the hubris of central planners.

One bright spot is once people become more aware of how difficult it is to legally migrate to or remain in the United States they become more sympathetic to reform. That doesn’t mean that the attitude toward immigration is a default market approach, but at the least, it indicates the possibility of a more market-orientated attitude than current policy reflects. 

There is also the reasonable argument that immigrants are not simply goods crossing borders but are people, and people come with costs. As George Borjas puts it, “We wanted workers, but got people instead.” Though this is true, there are costs to immigration, it is worth putting this into perspective: the overall effect of immigration is positive, and we are probably imposing greater material costs on all involved with our current restrictions. Some studies estimate huge worldwide increases in wealth with permissive immigration policies, but the easiest compelling case to note is that many migrants are willing to take substantial risks and bear costs to improve their lot and find opportunity here. In truth, the cap we have placed is one on individual opportunity.

I heard it said the best immigration policy is to have one. But the truth of the matter is we have one that is incompatible with human nature and economic incentives; as a result, it appears we have none at all.

International Aid

In truth, we tend to exaggerate how much aid the United States government gives to other countries. It is, in reality, a very small amount of the total annual budget, often less than one percent of the budget. Despite the low amount, changes to the current approach may be justified on the grounds that the aid often fails to achieve the developmental goals for which it was intended. Often times foreign aid, well intended, ends up bankrolling human right violations. Most importantly, it fails to recognize the rights of those it is meant to help.

Economist William Easterly explains:

The sad neglect of the rights of the poor… follows from the ideas behind the global war on poverty. Those who work in development prefer to focus on technical solutions to the poor’s problems, such as forestry projects, clean water supplies, or nutritional supplements. Development experts advise leaders they perceive to be benevolent autocrats to implement these technical solutions. The international professionals perpetrate an illusion that poverty is purely a technical problem, distracting attention away from the real cause: the unchecked power of the state against poor people without rights. The dictators whom experts are advising are not the solution — they are the problem.

His thinking has helped shift some of the approaches to foreign aid, but at the heart of it all, effective aid has been limited because of a centralized approach. In the alternatives, adopting an approach that reinforces individual rights to property, provides access to markets, and respects personal autonomy would be more effective.

Similarly, Nobel laureate Angus Deaton notes that counties that receive the most aid in sub-Saharan Africa are the least democratic, a possible explanation being that much of the past foreign aid has removed the incentive for internal reforms. He observes that those on the ground, the people, are better able to decide what helps improve their condition, not a central planner, be it our government, theirs, or even well-meaning non-governmental organizations.

Better aid has been addressed by various thinkers. Chris Blattman suggests the best aid is simply cash donations, while others encourage employing a thoughtful, tailored approach to aid such as effective altruism. Regardless of the details, without first discarding notions of central planning and then embracing encouragement of and respect for individual rights, solutions will fail to reach the desired ends. 

Military Intervention

The United States currently has over 800 oversea bases. That is several times more than any potential geopolitical foe with Russia topping the list with nine, while our allies France and United Kingdom have about 12 to each of them. Not only that, but the US is constantly mired in foreign conflicts, having intervened in at least five other countries since the Iraq/Afghanistan war. It is clear the United States has a military-industrial complex problem. The propensity for military action has come to define the United States at home and abroad.

Much of this over-extension of the United States military may or may not be justified on moral grounds, but it is certainly questionable on economic terms. And this is more than the large price-tag we see come out of the Pentagon, which is a few times greater than the next biggest spender. It’s about applying economic principles to military interventions. 

As economist David Henderson astutely observes, Hayek’s insight on the knowledge problem is applicable to foreign policy, which warns against intervention due to the difficulties in knowing the “particularities of time and place.” As Henderson states

When governments intervene in the domestic economy, they almost always do damage. One of the main reasons is that they don’t have—and can’t have—the information they would need to plan the economy well. As Nobel Prize winning economist Friedrich Hayek argued in a classic 1945 article, “The Use of Knowledge in Society,” the information that matters most for economics decisions is held in the minds of the hundreds of millions of market participants.

Similarly, when governments try to intervene in other countries, they are even more ignorant about those countries than they are about their own. This can have disastrous consequences. Consider the Middle East and ISIS. Where did ISIS come from? As President Reagan used to say, let’s take a trip down memory lane.

That is to say, relevant information is difficult to obtain—if not impossible—thus the costs and probability of successful intervention weighed against the benefits require a cautious approach. The nature of the relevant information for a successful campaign is diffused and dispersed among the population of the relevant country. How a people react, and will react in years to come, to foreign intervention often leads to negative second-order effects and unintended consequences. These results are hard to predict and consequently, the United States’s record of military intervention is mixed at best. 

This is further complicated by the fact that political incentives are often short-run and at times contrast with the ultimate improvement of a conflicted area. Regardless of the initial good intentions and policy goals, intervention is easily captured by politics.

There are a lot of corrupt, illiberal, and even dangerous governments in the world. The relevant question is, then, how do we best incentivize reform? Through trade, relationships, travel, and example or military action? Though China remains a likely geopolitical opponent, trade has likely done more to establish peace than any military posturing. All things considered, a more hesitant approach is merited.

Freedom Is the Answer

Instead of central planning for others, we should embrace presumptions and policies which encourage freedom.

There are a few explanations for the high tolerance of central planning abroad. First, it may be due to what Bryan Caplan calls anti-foreign bias. Generally speaking, and not just in the United States but everywhere, there is a strong attachment to that which is similar and familiar over foreign. As a result, we frequently shape policy and vote to reflect that bias, which means we are more willing to aid those who look and sound familiar over those who do not. This bias is likely compounded by the fact that it is difficult to perceive the costs of policies implemented abroad.

Second, government has a central planning bias generally. It is in the nature of government to “do something” unless limited by politics or constitutional restraints. That isn’t to say government actors do not find a way to work around those limitations, but it is also no coincidence that the areas of greatest government discretion, that to do with the border and beyond, are also areas with fewer political or structural checks.

It is important we recognize that these are biases, and a bias can often be corrected. Applying economic principles and insights helps adjust these biases toward better policy and outcomes.

If the consequences of central planning are domestically detrimental, we will likewise see a similar detrimental impact on international policy. Instead of central planning for others, we should embrace presumptions and policies which encourage freedom.

Reprinted from Medium.

  • James Devereaux is an attorney. All views are his own and not representative of employers or affiliations. 

    Husband and father of four. Graduate of Brigham Young University with a B.S. in Psychology and William & Mary School of Law.