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01 / 05
Central Planning and Human Self-Delusion

Blog Post | Economic Growth

Central Planning and Human Self-Delusion

Our brains might be predisposed to be suspicious of capitalism, but we should not ignore the role played by self-delusion in paving the way for a future return of socialism.

Albert Einstein is supposed to have defined insanity as “doing the same thing over and over again and expecting different results.” Yet, as the economic implosion of Venezuela reminds us, we seem to be unable to stop repeating the same terrible mistake: trying to make socialism work.

To explain our insane fascination with socialism, I have pointed to a growing body of academic research, which suggests that we are, by nature, envious of and resentful toward people who amass “disproportionate” wealth and power.

Moreover, research suggests that we find it difficult to comprehend, let alone appreciate, what Friedrich Hayek called extended order – or the use of specialization and trade to create “an information gathering process, able to call up, and put to use, widely dispersed information that no central planning agency, let alone any individual, could know as a whole, possess or control”.

Our minds have evolved to deal with issues faced by our hunting and gathering ancestors (e.g., an exchange of meat for sex) not to deal with issues facing us today (e.g., outsourcing the assembly of the iPhone to China to make it more affordable in America). The extended order, in other words, has evolved in spite of, not because of, our best efforts.

Today, I want to address another reason behind the persistent appeal of socialism: the power of self-delusion, or our ability and willingness to go on believing in things that are patently not true.

Consider the following two examples. In 1985, my Czechoslovak aunt Kate visited the USSR. She was a committed Communist Party member all of her adult life and, as a reward, she was given a chance to spend a couple of weeks in the workers’ paradise. When she returned, I impetuously asked her if she had brought me anything. “Nothing,” she replied much to my disappointment, “the USSR is a very poor country”. Yet Kate never wavered in her commitment to the principles of communism and remained a party member until 1989, when her entire value system came crumbling down along with the Berlin Wall.

Some ten years later, an American college professor of mine recalled his own visit to the USSR. In 1970, he and his wife spent two weeks in Leningrad, Moscow and Kiev. During their stay in the communist country, he was shocked by the poverty and inefficiency he saw. (From Kiev, he wrote a letter to his parents in New York, which I have transcribed, with his permission, below.) All the other tourists that he met expressed similar sentiments.

When he returned to the United States, however, he kept on reading reports in mainstream publications, including Time magazine and The New York Times, which maintained that the Soviet economy was working. These reports were written by people who lived in the USSR, spoke Russian and had Soviet friends. As such, he concluded that the impressions he had made during his stay in the USSR were not valid.

socialism and self delusion graph

 

If the above two examples failed to convince you of the power of self-delusion, consider our Nobel Prize-winning physicist from Ulm.

Einstein was a self-declared socialist. In 1949, he even published an essay titled, Why Socialism? In it, Einstein wrote, “The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil [of human suffering]… I am convinced there is only one way to eliminate… [this evil], namely through the establishment of a socialist economy.”

It is striking that the most brilliant scientist of the 20th century, who escaped from national socialist Germany (Hitler called his party “socialist” for a reason) and moved to the capitalist United States, published an essay castigating capitalism and calling for socialism – while Stalin was still alive and busy butchering millions of Soviet citizens.

Smart enough to come up with the theory of relativity and observe that “gravitational attraction between masses results from the warping of space and time,” Einstein could not comprehend the benefits of “anarchic” production under capitalism (“You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers,” as Bernie Sanders would put it 66 years later), preferring socialism instead.

It is equally striking that Einstein wrote “Why Socialism?” while living in Princeton in the late 1940s and the early 1950s. As such, he would have enjoyed historically unprecedented levels of luxury and abundance. Yet, Einstein bemoaned the economic system that made that prosperity possible and longed for its opposite.

Our brains might be predisposed to be suspicious of capitalism, but we should not ignore the role played by self-delusion in paving the way for a future return of socialism.

Hotel Dnipro, Kiev

Dear Parents,

We are on the train leaving the USSR. It’s a funny thing. In the last few years I’ve been becoming more liberal [Editorial note: i.e. left-wing]. I’d come to accept communism as just another system. But my stay in Russia has put me back in the ultra-conservative camp. Not the most raving right winger has ever adequately described how horrible this country is.

Where can I begin? Maybe the food. $1.80 for a mooshy orange. $1 for 3 tomatoes with fungi growing on them. Walnuts the likes of which you never saw (I still don’t understand how you can ruin a nut) – and don’t forget when you look at these prices that a medical doctor earns $1,200 a year. The meat and fish are utterly uneatable.

After a little while we got used to eating what the Russians subsist on – bread. This is the only food which is eatable and cheap. The effect of this diet is very obvious. The Russians are all fat and bloated. Even little children have fat bellies and double chins (this in a country where 40% of the population is farmers). Incidentally the wheat for the bread is imported from Canada.

When you walk the streets and they see you’re a tourist (this they can tell immediately by the cut of your clothes, shoes or the possession of one of the innumerable luxuries which distinguish the tourist –a watch, camera, etc.) they besiege you clamoring for chewing-gum, ball point pens, etc.

The new houses that they are putting up are already cracking and splitting before they are finished. We met a British ships engineer who is married to a Russian girl who is a doctor (she’s moving to London in a few months). In the apartment in which she lives, 9 families share 1 toilet with no facilities for bathing or showering. We asked him how they washed and said they didn’t – they smell.

Not only are refrigerators unknown but also ice-boxes are unknown. They have no means of food storage at all and drink their milk sour. Huge lines are everywhere and everyone one encounters is unbelievably lackadaisical and inefficient.

But the most horrible thing is the people’s faces – 13 days without seeing a smile, only hard, bitter, scowling faces with eyes that peer out suspiciously. Couples walking arm and arm down the street scowling. People playing checkers in the park scowling, little children scowling.

And don’t forget what we saw were only the biggest cities. The communists showcase – they themselves admit that they have “starved the country for the city”. We met tourists who went through the countryside and what they saw was fantastic – cities without electricity or plumbing. Farmers using wooden plows and horses. Families living in hovels or, if they’re lucky, deserted railway cars.

As far as class-consciousness and rigid class lines the likes of which I didn’t think existed anywhere any more, will not attempt to describe in a letter.

What kept occurring to me was that this is it. The communists have been in control of Russia for over half a century. The people have gone through immeasurable blood, sweat and tears – for this. One of the communists favorite slogans is “the ends justify the means”. The means were mass murders, huge forced labor camps and constant terror. The ends are what we saw.

Steven

BusinessMirror | Poverty Rates

PHL Could Hit Single-Digit Poverty Years Ahead of Schedule

“Better labor market conditions and slower inflation in the country could turn the administration’s single-digit poverty incidence aspirations into a reality two years ahead of schedule.

This was according to the latest Macro Poverty Outlook for the Philippines, released by the World Bank on Monday. It estimated that poverty incidence in the country could decrease to 9.3 percent in 2026 from 12.2 percent this year and 17.8 percent in 2021.”

From BusinessMirror.

Blog Post | Science & Technology

AI Is a Great Equalizer That Will Change the World

A positive revolution from AI is already unfolding in the global East and South.

Summary: Concerns over potential negative impacts of AI have dominated headlines, particularly regarding its threat to employment. However, a closer examination reveals AI’s immense potential to revolutionize equal and high quality access to necessities such as education and healthcare, particularly in regions with limited access to resources. From India’s agricultural advancements to Kenya’s educational support, AI initiatives are already transforming lives and addressing societal needs.


The latest technology panic is over artificial intelligence (AI). The media is focused on the negatives of AI, making many assumptions about how AI will doom us all. One concern is that AI tools will replace workers and cause mass unemployment. This is likely overblown—although some jobs will be lost to AI, if history is any guide, new jobs will be created. Furthermore, AI’s ability to replace skilled labor is also one of its greatest potential benefits.

Think of all the regions of the world where children lack access to education, where schoolteachers are scarce and opportunities for adult learning are scant.

Think of the preventable diseases that are untreated due to a lack of information, the dearth of health care providers, and how many lives could be improved and saved by overcoming these challenges.

In many ways, AI will be a revolutionary equalizer for poorer countries where education and health care have historically faced many challenges. In fact, a positive revolution from AI is already unfolding in the global East and South.

Improving Equality through Education and Health Care

In India, agricultural technology startup Saagu Baagu is already improving lives. This initiative allows farmers to increase crop yield through AI-based solutions. A chatbot provides farmers with the information they need to farm more effectively (e.g., through mapping the maturity stages of their crops and testing soil so that AI can make recommendations on which fertilizers to use depending on the type of soil). Saagu Baagu has been successful in the trial region and is now being expanded. This AI initiative is likely to revolutionize agriculture globally.

Combining large language models with speech-recognition software is helping Indian farmers in other ways. For example, Indian global impact initiative Karya is working on helping rural Indians, who speak many different languages, to overcome language barriers. Karya is collecting data on tuberculosis, which is a mostly curable and preventable disease that kills roughly 200,000 Indians every year. By collecting voice recordings of 10 different dialects of Kannada, an AI speech model is being trained to communicate with local people. Tuberculosis carries much stigma in India, so people are often reluctant to ask for help. AI will allow Indians to reduce the spread of the disease and give them access to reliable information.

In Kenya, where students are leading in AI use, the technology is aiding the spread of information by allowing pupils to ask a chatbot questions about their homework.

Throughout the world, there are many challenges pertaining to health care, including increasing costs and staff shortages. As developed economies now have rapidly growing elderly populations and shrinking workforces, the problem is set to worsen. In Japan, AI is helping with the aging population issue, where a shortage of care workers is remedied by using robots to patrol care homes to monitor patients and alert care workers when something is wrong. These bots use AI to detect abnormalities, assist in infection countermeasures by disinfecting commonly touched places, provide conversation, and carry people from wheelchairs to beds and bathing areas, which means less physical exertion and fewer injuries for staff members.

In Brazil, researchers used AI models capable of predicting HER2 subtype breast cancer in imaging scans of 311 women and the patients’ response to treatment. In addition, AI can also help make health resource allocations more efficient and support tasks such as preparing for public health crises, such as pandemics. At the individual level, the use of this technology in wearables, such as smartwatches, can encourage patient adherence to treatments, help prevent illnesses, and collect data more frequently.

Biometric data gathered from wearable devices could also be a game-changer. This technology can detect cancers early, monitor infectious diseases and general health issues, and give patients more agency over their health where access to health care is limited or expensive.

Education and health care in the West could also benefit from AI. In the United States, text synthesis machines could help to address the lack of teachers in K–12 education and the inaccessibility of health care for low-income people.

Predicting the Future

AI is already playing a role in helping humanity tackle natural disasters (e.g., by predicting how many earthquake aftershocks will strike and their strength). These models, which have been trained on large data sets of seismic events, have been found to estimate the number of aftershocks better than conventional (non-AI) models do.

Forecasting models can also help to predict other natural disasters like severe storms, floods, hurricanes, and wildfires. Machine learning uses algorithms to reduce the time required to make forecasts and increase model accuracy, which again is superior to the non-AI models that are used for this purpose. These improvements could have a massive impact on people in poor countries, who currently lack access to reliable forecasts and tend to be employed in agriculture, which is highly dependent on the weather.

A Case for Optimism

Much of the fear regarding AI in the West concerns the rapid speed at which it is being implemented, but for many countries, this speed is a boon.

Take the mobile phone. In 2000, only 4 percent of people in developing countries had access to mobile phones. By 2015, 94 percent of the population had such access, including in sub-Saharan Africa.

The benefits were enormous, as billions gained access to online banking, educational opportunities, and more reliable communication. One study found that almost 1 in 10 Kenyan families living in extreme poverty were able to lift their incomes above the poverty line by using the banking app M-Pesa. In rural Peru, household consumption rose by 11 percent with access to phones, while extreme poverty fell 5.4 percent. Some 24 percent of people in developing countries now use the mobile internet for educational purposes, compared with only 12 percent in the richest countries. In lower-income countries, access to mobile phones and apps is life-changing.

AI, which only requires access to a mobile phone to use, is likely to spread even faster in the countries that need the technology the most.

This is what we should be talking about: not a technology panic but a technology revolution for greater equality in well-being.

Brookings | Poverty Rates

India Eliminates Extreme Poverty

“High growth and large decline in inequality have combined to eliminate poverty in India for the PPP$ 1.9 poverty line. (Here we use the PPP$ 1.9 line [2011 prices] rather than the PPP$ 2.15 line at 2017 prices because the former closely corresponds to the official India Tendulkar poverty line.)

The Headcount Poverty Ratio (HCR) for the 2011 PPP$ 1.9 poverty line has declined from 12.2 per cent in 2011-12 to 2 per cent in 2022-23, equivalent to 0.93 percentage points (ppt) per year. Rural poverty stood at 2.5% while urban poverty was down to 1%.”

From Brookings.

Blog Post | Economic Growth

India’s Good Fortune: How the Country Is Tackling Energy Poverty, Increasing Growth, and Building the Future

Energy poverty and many other problems will soon be things of the past for India.

Summary: Over the past two decades, India has made remarkable strides in multidimensional poverty reduction. This comprehensive measure, which considers factors like education and infrastructure alongside income, paints a more accurate picture of poverty. Additionally, India has achieved significant progress in areas such as child mortality, sanitation, access to clean water, and electricity, signaling a positive trajectory for improved living standards and environmental outcomes in the country.


Just two decades ago, life in India looked bleak. Between 2005 and 2006, 55.1 percent of the Indian population—the equivalent of 645 million people—suffered from multidimensional poverty, and in 2004, 39.9 percent of Indians lived in extreme poverty.

Multidimensional poverty measures the percentage of households in a country deprived along three factors: monetary poverty, access to education, and basic infrastructure services. That captures a more thorough picture of poverty.

Multidimensional poverty dropped from over half of the population to 27.7 percent (370 million people) in 2014. In 2019–21, the proportion of people suffering from multidimensional poverty declined further to only 16.4 percent of the total population, or 230 million people. Although the pandemic slowed some aspects of poverty alleviation, the percentage of people in multidimensional poverty has continued to drop significantly year on year in India.

It’s also worth considering extreme poverty, which is defined as living below the international poverty line of $2.15 per day. Using this measure, the number of people living in extreme poverty in India declined from more than half of the population (63.1 percent) in 1977 to only 10 percent in 2019.

Moreover, child mortality declined from 43.4 percent in 1918 to only 3.1 percent in 2021. The number of people without adequate sanitation has dropped from 50.4 percent to 11.3 percent, and the proportion of people without adequate drinking water has fallen from 16.4 percent to just 2.7 percent. As well, more people in the country have access to clean cooking fuels than ever before, from 22.3 percent of people in 2000 to 67.9 percent in 2020.

India has also been tackling environmental concerns. The population of the greater one-horned rhino, which has a “vulnerable” conservation status, has increased from 40 in 1966 to over 4,000 in 2021. Air pollution is one of the world’s largest health and environmental problems, and in low-income countries, it is often the leading risk factor for death. Although there is still work to do, the death rate in India from air pollution decreased from 1990 to 2019 by 42 percent, from 280.5 deaths per 100,000 people to 164.1 deaths per 100,000.

In 2017, Indian Prime Minister Modi launched a plan to electrify more households, targeting over 40 million families in rural and urban India, or roughly a quarter of the population. The plan was called “Saubhagya”—literally, “good fortune” or “auspiciousness.” Although the country did not meet its target as quickly as planned, access to electricity in India has been increasing.

The term “access to electricity” does not have a universally accepted definition, but general usage takes into account the availability of electricity, safe cooking facilities, and a minimum level of consumption. According to the International Energy Agency, “access to electricity” involves more than just connecting a household to the grid; it also requires households to consume a certain minimum amount of electricity, which varies based on whether it is a rural or urban household.

According to the UNDP report, 97.9 percent of Indians had access to electricity between 2019 and 2021. Only 50.9 percent of Indians had access to electricity in 1993. The country has achieved immense progress. In 2018, Prime Minister Modi stated that every village in India had access to electricity.

Climate change is likely to be costly to the Indian subcontinent. Heatwaves have already led to an increase in deaths in India, particularly since a large share of the population is employed in outdoor labor like farming and construction.

India aims to reach net-zero emissions by 2070 and for 50 percent of the power-generation capacity to come from clean energy sources by 2030. The energy transition for India will take time, and the country will need fossil fuels to meet its energy needs for many years yet, but the future is looking promising.

Last year, for example, India brought an indigenous reactor design online at the Kakrapar Atomic Power Project Unit 4. India has 22 working nuclear reactors, which produce about 3 percent of the country’s electricity. India has ambitious plans to build more reactors—aiming to commission a new reactor every year.

The fact that a large country can more than halve multidimensional poverty in only 15 years is a cause for celebration, but India’s foresight of meeting future increasing energy needs is also something to be applauded. Energy poverty will soon be a thing of the past for India. Increased electricity will lead to further poverty alleviation, economic growth, and improved living standards, which in turn will lead to better air quality and environmental outcomes. These are good fortunes that we can all celebrate.