Comment by ihumanable | Hacker News Reader

Comment by ihumanable | Hacker News Reader

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One of the strengths of capitalism is that it solves the "local knowledge problem" (see https://en.wikipedia.org/wiki/Local_knowledge_problem) by distributing the decision making to the consumers.

Cybersyn also attempted to solve this not by distributing decision making but by distributing information capture, in the form of the 500 telex machines at various factories.

Logistics networks show how this model can outperform the free market model, and anyone familiar with genetic algorithms should be able to recognize the local maxima problem. Each consumer might take the most rational action locally and result in a poor result overall.

Think about how at the start of the pandemic it made sense for each consumer to attempt to secure food, medicine, toiletries, etc. Toilet paper became a punch line for a while, but the logic was simple. Toilet paper is shelf stable, it's low cost for a large amount, it has guaranteed demand as long as you are alive, and the cost of needing toilet paper and not having any is high (for a nation like the US where alternatives like bidets are less common). Each consumer runs the numbers, if they have sufficient storage, the cost of buying and storing additional toilet paper up front is low compared to the potential cost of needing but not having it later. This resulted in a run on toilet paper and widespread stock outs.

Hoarding wasn’t really the main source of the toilet paper shortages. Rather, it’s that many more people were using the bathroom at home instead of at work or other public places. The supply chain for public restrooms is different than the one for consumers. Perhaps a sufficiently clever centralized planning algorithm would have predicted this, but what could it actually do about the problem?

And that's in the best case. In reality, consumers don't get anywhere near a local maximum, as they are neither well-informed nor entirely rational.

> One of the strengths of capitalism is that it solves the "local knowledge problem" (see https://en.wikipedia.org/wiki/Local_knowledge_problem) by distributing the decision making to the consumers.

I don't follow. People living in non-capitalist systems go shopping as well. What's the difference to capitalism from the point of view of the consumer or the shop?

And what's to stop national economy planning from distributing decision making in the same manner? It's not like Walmart doesn't do nation-level planning.

I talked to a lot of people who lived in the soviet union, who watched Finnish television broadcasts that could be heard beyond our borders. Their parents told them that all the tv ads for e.g. bananas in the 1990s were in fact propaganda, and that regular people in Finland surely couldn't purchase such exotic fruits.

So I can assure you, the people living in "non-capitalist systems" do not in fact "go shopping".

Of course they go shopping, they need food and stuff. I would know, I grew up in an Eastern European country in the 1980s. We had shops. What I think you possibly mean is that there is little selection. That is true. But the context here was whether the relevant information was there: Of the things that are there, what do they prefer? What sort of things do they ask for that are not available?

The difference to capitalism is that in capitalism this kind of information does trickle "upwards" to the wider economy, because the store orders more of the popular stuff and less of the unpopular stuff. In a planned economy, the information is not propagated upwards because the planners don't care, or wouldn't be able to do anything about it. But the "local knowledge" that the OP mentioned is there.

(Also I'm confused whether you count 1990s Finland as a non-capitalist system.)

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