Will “Big Data” make a centrally planned economy possible?

Indian media and experts are celebrating that finally Indian government is using big data for analysis and catch tax evaders. Even before budget, the government had set up panel of experts to look at deposit data on demonetisation.

In our excitement, we fail to realise this is exactly the trap governments want us to fall into. The idea of controlling and planning people’s activities is some thing which always excites governments and big data once again raises hopes for governments. We only realise our follies of falling in the trap when we are trapped into it.

Xiong Yue writes at Mises Institute blog about the big data potential for the governments. He is less hopeful though. Big data surely give governments more information about people but still prices etc are shaped by preferences of people:

It is true, to some extent, that with the development of technologies, central planners now can obtain more data and information, and their ability to analyze these data and the information is greatly enhanced as well. Moreover, in the foreseeable future, those skills will be further enhanced. Ma believes a planned economy can be achieved in the future precisely because of his companies, Taobao and Alipay, are ubiquitous in the areas of e-commerce and payment in China and therefore can collect an enormous amount of consumption data. To Jack Ma himself and other “technical socialists,” such data could be the cornerstone of the operation of the planned economy.

However, if we look at this more closely, we realize these data are mere: (1) data based on real deals of the past, which can not be used to predict the consumer preferences in the future; or (2) data obtained using questionnaires, which can not reflect the real demonstrated preferences of customers. In either case, with the dazzling new technologies, what central planners can get is still a guess of the real world, a beautiful mirage.

Besides, those who consider the problem of socialism as merely a problem of information failed to understand that the core problem of socialism lies in the absence of prices in a centrally-planned economy. The role of prices in the market economy is unique because money prices offer an indispensable tool in economic calculation. As Mises writes in Human Action,

One cannot add up values or valuations. One can add up prices expressed in terms of money, but not scales of preference.

With prices as a guide, entrepreneurs can potentially pursue profits by examining differences in the market prices of production factors and the expected prices of the final products. He or she can then organize production accordingly.

Therefore, even if we have some excellent data already, without this market-price mechanism, neither the economic calculation nor the efficient allocation of resources is possible; the planned economy is therefore not feasible. Because rationally planning or resource allocation requires the ability to calculate economically, such calculations need the prices which can be determined only in the market by the real-world exchange of owners of private property in the first place. Since the planned economy requires state and collective control of resources — and thus no tallow for these necessary voluntary exchanges between owners — it cannot rationally plan the operation of the modern economic system.

Interesting things to think about..

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