Thread by @Noahpinion

Today's @bopinion post is about government vs. free markets.

Will the shift to service industries make central planning more viable and important?

bloomberg.com/opinion/articl…

In the 20th century, countries that tried centrally planned economies failed spectacularly, while those that went with mixed economies generally succeeded.

theatlantic.com/magazine/archi…

And toward the end of the 20th century, the most successful mixed economies all shifted toward the free-market side of things.

bloomberg.com/opinion/articl…

The failures of socialism weren't just among the authoritarian communist countries. Democratic nations like the UK and India found that it was easy to go too far.

bloomberg.com/opinion/articl…

But socialism is back for another try. And this time, the epicenter might be in the United States of America -- the 20th century's most stalwart defender of free markets.

Will socialism succeed this time where it failed last time?

Maybe.

The reason: Advanced economies are shifting from agriculture and manufacturing to health care, education, and other services.

This could change the game entirely.

Why are markets useful for producing things?

Generally, we can think of three reasons:

1. Information (in prices)

2. Competition

3. Trade

All of these forces are obviously present for agriculture and manufacturing.

Food and manufactured goods show their value (and cost) right away, so prices can convey information.

Markets in these goods can be very competitive.

And these goods tend to be tradeable.

But manufacturing is shrinking as a percentage of our economy. (Agriculture did so long ago.)

What is growing as a percent of our economy?

Health care, for one.

And education.

Most Americans now work in some form of service industry.

And an increasing number work in health care and education.

These service industries don't seem nearly as subject to market forces as agriculture and manufacturing do.

They're not very tradeable.

Price signals are very distorted by uncertainty and by asymmetric information.

And competition is weaker.

And just as you'd expect, these industries are already largely nationalized. Public education is public. Most countries have government-run universities. And of course, most countries have government-run health insurance.

commonwealthfund.org/series/mirror-…

And note that health care and higher education are the main industries Bernie Sanders wants to nationalize or quasi-nationalize in the U.S.!

(Housing is the third. That's a much more complex case, and I'll talk more about that in subsequent posts.)

So even though socialism was generally a bust when it came to agriculture and manufacturing, perhaps it's just what we need when it comes to services.

(end)

bloomberg.com/opinion/articl…