Capitalism works imperfectly, socialism doesn’t work at all

By James Pethokoukis of AEI.

"Self-described socialists, of the democratic variety or otherwise, have numerous complaints about market capitalism. But, you know, compared to what? They offer fantasy societies versus ones that operate in the real world. Perhaps the socialist version of the economist gibe “assume a can opener” is “assume a wealthy, technologically advanced society.” And as great JPMorgan analysis concluded. “A real-life proof of concept for a successful democratic socialist society, like the Lost City of Atlantis, has yet to be found.”

But if you’re looking for an example of what happens what markets and prices are ignored in favor of top-down planning, definitely check out Order without Design: How Markets Shape Cities by urbanist Alain Bertaud. (He’s my guest on an upcoming Political Economy podcast, by the way.) From that book:

In a command economy, there are no price signals, so an obsolete land use is likely to remain in effect for a very long time. … In Russia, for instance, factories built in the nineteenth century or in the first half of the twentieth century found themselves located in what is now the downtown area. High-rise residential buildings are found on the periphery of cities, while low-rise buildings are found closer to the center. High population densities are found in the suburbs, where land values would be the lowest if located in a market economy, and low densities are found close to the city center, where land values would be the highest. … Does this difference of urban spatial outcome between command and market economies matter? … The inefficiencies of urban spatial structure, the lack of labor market mobility, the inability of an economy based on norms to adjust to evolving technology and to changing demand for land, contributed to the economic collapse of the Soviet Union, despite its very well educated and skilled urban population and its abundant natural resources. In cities of market economies, urban planners still tend to prefer norms to prices when allocating land and floor space. In the cities where they are successful, they may waste land in a way that resembles what happened in the Soviet Union. The system allocating resources in the former Soviet Union was so inefficient that its economy collapsed suddenly."