Guest Post: The Problem With Centralization

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Submitted by John Aziz of Azizonomics 

The Problem With Centralisation

Nassim Taleb slams the European project. Perfect timing to counteract the Nobel Peace Prize nonsense.

Via Foreign Policy:

The European Union is a horrible, stupid project. The idea that unification would create an economy that could compete with China and be more like the United States is pure garbage. What ruined China, throughout history, is the top-down state. What made Europe great was the diversity: political and economic. Having the same currency, the euro, was a terrible idea. It encouraged everyone to borrow to the hilt.

 

The most stable country in the history of mankind, and probably the most boring, by the way, is Switzerland. It’s not even a city-state environment; it’s a municipal state. Most decisions are made at the local level, which allows for distributed errors that don’t adversely affect the wider system. Meanwhile, people want a united Europe, more alignment, and look at the problems. The solution is right in the middle of Europe — Switzerland. It’s not united! It doesn’t have a Brussels! It doesn’t need one.

The future is unpredictable. In economics some decisions will be lead to desired results and others will not. Real-world outcomes are ultimately impossible to predict, because the real world is chaotic and no simulation can ever model the real world in precise detail; the map is not the territory.

Centralisation concentrates decision-making. Centralisation acts as a transmission mechanism to transmit and amplify the effects of centralised decisions throughout a system. This means that when bad decisions are bad — as inevitably happens in economics — the entire system will be damaged. Under a decentralised system, there is no such problem. Under a decentralised heterogeneous system, mistakes are not so easily transmitted or amplified. Centralisation is fragile.

And central planning is mistake-prone. Central planners are uniquely ineffective as resource allocators. Free markets transmit information; the true underlying state of supply and demand. Without an open market to transmit price information, central planners cannot allocate resources according to the true state of supply and demand. Capital, time, and labour are allocated based on the central planner’s preferences, rather than the preferences of the wider society.

These two factors taken together mean that centralised systems tend to be both fragile and mistake-prone. That is a dangerous — and unsustainable — combination.

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Sat, 10/13/2012 - 17:04 | 2885575 topspinslicer
topspinslicer's picture

Freedom Good, Statism Bad. Let them read Rand.

Sat, 10/13/2012 - 17:17 | 2885601 Freeskier
Freeskier's picture

Rand is for children.  

Switzerland is a successful, sustainable model.  They have great mountains, too.

http://freeskierpov.weebly.com/

Sat, 10/13/2012 - 17:52 | 2885656 kito
kito's picture

switzerland is small, industrious, democratic country....u.s.....umm not so much............

Sat, 10/13/2012 - 18:02 | 2885671 Tango in the Blight
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Switzerland also has a larger military per capita than the US and a well-armed citizenry. No-one can take them by force except by nuking them.

Sat, 10/13/2012 - 18:17 | 2885692 kito
kito's picture

nothing that 30,000 drone bombs cant fix...................

Sat, 10/13/2012 - 20:31 | 2885857 MeBizarro
MeBizarro's picture

You keep asserting this idoitic idea time and time again as if Switzerland could magically make food enough food to support itself (even with some of the highest tariffs in the world on food imports they only produe less than 60% of what they currently consume) and stop the need to import the current large amounts it does. 

Sun, 10/14/2012 - 08:37 | 2886693 Observer
Observer's picture

You are right, they will always need to import some of their food but by keeping their dependency on food imports relatively low(er) than that on corresponding exports from exporting countries they are reducing the leverage of those countries on them. Seems sensible to me

Sat, 10/13/2012 - 18:27 | 2885693 James_Cole
James_Cole's picture

Switzerland has an excellent political system (coalition) including a major socialist party. Which makes this article pretty ironic considering Aziz says a bunch of platitudes about free markets and then cites Switzerland as an ideal nation. 

A primary difference between the Swiss people and Americans seems to be the Swiss' ability to accept basic science like evolution & AGW. They are also predominately socially left and 50% do not believe in God. They also strongly back advanced education which is affordable for anyone living there. 

Oh and they're not obese - food costs there would make Americans blow their brains out. 

Come to think of it Switzerland is practically the opposite of America. 

Sat, 10/13/2012 - 18:37 | 2885726 Marco
Marco's picture

Also mandatory health insurance I see (just a little more sanely implemented than in most other countries).

Sat, 10/13/2012 - 21:52 | 2885977 Taint Boil
Taint Boil's picture

 

 

........ practically the opposite of America. 

I was in Zurich, Switzerland once on my way to Germany. They have the hottest women on earth - everyone is skinny. I could not find one piece of paper / trash on the roads or sidewalks (and I was looking for it!). The most beautiful / cleanest place I have ever seen. They're doing something right, and yes, the opposite of USA for sure.

Sat, 10/13/2012 - 22:46 | 2886045 FoolsAdvice
FoolsAdvice's picture

The highest price I've ever paid for a couple of drinks was in Zurich. Off the charts expensive. Makes Manhatten look like happy hour in Pueblo. 

Sat, 10/13/2012 - 23:23 | 2886087 James_Cole
James_Cole's picture

My brother lives in Geneva and you get what you pay for - far fewer obese ignorant blowhards ranting about freedom & God. 

The downside I suppose is you don't have the 'freedom' to buy cheap crap at Walmart and gorge on crappy food at awful chain restaurants. 

Sun, 10/14/2012 - 02:51 | 2886253 Lore
Lore's picture

My experience as well. People are fit and clean. The morality is strong, too. They have principles, dignity and pride.

Sun, 10/14/2012 - 10:02 | 2887099 ATM
ATM's picture

because their personal principles and dignity haven't been replaced by Centralized principles and dignity, which aren't principles or dignity.

Sun, 10/14/2012 - 11:44 | 2887288 Marco
Marco's picture

Not centralized, but not individualized either. Which is why the anarcho-capitalists here don't use them as an example very often. At the local level they still use communally decided taxation to pay for wellfare services, there is just enough social pressure and effective oversight to keep the costs down.

As I said below though, it works because they have a highly educated homogenous society ... how to repeat that success in a society with social disintegration from poor education, poor upbringing, a culture of greed, welfare dependency and immigration is an open question.

To think it's just a question of adopting their legal and political structure is hopelessly optimistic ... there are vast area in most countries which simply couldn't pay the wellfare costs for the wellfare dependent without centralized taxation.

Sun, 10/14/2012 - 11:51 | 2887297 sun tzu
sun tzu's picture

The US spends more money per capita on studens than Switzerland. It's not about the money. As for taxation and welfare, I don't care what other states or cities in the US do. Whaty I am against is the federal government forcing ALL states to do the same thing. 

Sun, 10/14/2012 - 13:38 | 2887813 Marco
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It's not about money, but that doesn't mean money isn't necessary ... you can't just say "lets stop all transfer payments to Detroit", it would tear itself apart ... or Alaska for that matter.

Sun, 10/14/2012 - 13:48 | 2887833 James_Cole
James_Cole's picture

Almost no one on here argues in favour of broad federal mandates. 

Sun, 10/14/2012 - 11:46 | 2887292 sun tzu
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Sorry to see you're such an ignorant fucking blowhard. As of 2010 over 80% of Swiss claim religious affiliation, mostly Christian. Everyone is required to have a gun in their household. Their flag is represented by the Christian cross. Sounds like a place a dumbass like you would not like.

Sun, 10/14/2012 - 13:18 | 2887751 James_Cole
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Religious affiliation doesn't mean much, if you look at Canadian statistics you see a similarly misleading figure. 

http://en.wikipedia.org/wiki/Demographics_of_atheism

48% of Swiss people believe in God, no religion at all accounts for 20% of the non-believers. 

Switzerland has traditionally been a Christian nation and maintains that heritage - Switzerland has also been a democracy for 700 or so years. 

Sun, 10/14/2012 - 06:08 | 2886582 Urban Redneck
Urban Redneck's picture

If you think Switzerland is Godless (or Socialist), you are off your rockers.

There is a financial incentive to be athiest in Switzerland (a 12.5% reduction in my local tax bill), yet over 3/4 claim religious affiliation and pay the church tax (which can have a matching employer component, like Social Security in the US).  The last time the heathens put forward a referendum on the separation of Church and State it was rejected by over 3/4 of the voters.  The last time there was a civil war in Switzerland, it wasn't North-South, it was Protestant-Catholic.  Whereas the UK has bank holidays, Switzerland has Christian holidays.  Whereas Joe Biden is allowed to claim he is Catholic and make no financial contributions to the Church (or any other charity) for decades, the penalty for such an offense this Canton would be EX-COMMUNICATION.

Religion is in the domain of the Local and Cantonal governments (not the Federal), but this is where Switzerland and the US primarily differ.  The distribution of my Swiss taxes is 48.3% Local, 36.7% Cantonal, and 13% Federal, in the US the distribution of my taxes is not only reversed, but the federal concentration is much higher.

There is at least one Canton that doesn't provide official support to Churches, and with apologies to Ratscam, it is a dirty, crime ridden, cesspool of a Canton (but it does have beautiful weather).  Switzerland does have some of the best technical and science schools in the world (ETHZ & EPFL) and basically offers free tutition to them, but Switzerland clings to both its guns & its religion in ways the reddest of the US red states could only dream of.

Sun, 10/14/2012 - 06:59 | 2886647 Ghordius
Ghordius's picture

+1 and I liked your reminder that there are quantifiable elements of centralization/decentralization. worth repeating:

example of a distribution of Swiss taxes:

48.3% Local, 36.7% Cantonal(State), and 13% Federal

Note that when I mention the proportions of EU's budget vs the National budgets this is not seen as an argument...

Sun, 10/14/2012 - 13:13 | 2887739 Marco
Marco's picture

Really though, at the moment ECB money printing and stability fund payouts should be counted towards the EU budget ...

Sun, 10/14/2012 - 13:10 | 2887732 Marco
Marco's picture

Majorities in Switzerland can and do force taxation on fellow citizens to pay for welfare costs of others ... that Penn Jillette quote trotted out so often to condemn socialism applies to Switzerland as much as to any other socialist countries. That it's localized only affects the success, but changes nothing about the cohercion and socialist intent inherent in the system.

Sun, 10/14/2012 - 18:15 | 2888712 Urban Redneck
Urban Redneck's picture

Intent is too long a discussion to start this late at night.

If I only made the median income here my personal share of the bill for the  proposed new Air Force fighter jets would be CHF 2,500.  So 4 million people here will personally pay more than that, and 4 million will pay less than that.

Mainting freedom and other values isn't free anywhere, either in dollars or blood.  But the intent of the broader citizenry, as opposed certain political parties, isn't wealth redistribution, but it is certainly a by-product of the process.

im Bewusstsein der gemeinsamen Errungenschaften und der Verantwortung gegenüber den künftigen Generationen, gewiss, dass frei nur ist, wer seine Freiheit gebraucht, und dass die Stärke des Volkes sich misst am Wohl der Schwachen, 

conscious of their common achievements and their responsibility towards future generations, and in the knowledge that only those who use their freedom remain free, and that the strength of a people is measured by the well-being of its weakest members;

 

Sun, 10/14/2012 - 13:32 | 2887795 James_Cole
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"but Switzerland clings to both its guns & its religion in ways the reddest of the US red states could only dream of."

Name a city in Switzerland comparable to Jacksonville NC. 

Switzerland isn't Sweden when it comes to religion but it certainly isn't comparable to red state America either. And I didn't say it was Godless, more like Canada in its religious breakdown and with 50% not believing in God.  

Church attendence in Switzerland is 16%, 36% weekly in the USA. 

Sun, 10/14/2012 - 14:52 | 2887995 Urban Redneck
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The town I live in has about 2000 people making up 800 families. It's 50% Reformed, 25% Catholic, 25% Other. The mayor is also head of the Parish Council. There are more churches here than in Clifton Forge, VA (a town of 3000). The church bells toll every 15 minutes 24 hours a day, and the ONLY places open today are Churches and restaurants. I don't know where you get your 16% attendance figure, but around here 16% is closer to the rate for those skipping church. FYI I can't find anything about religion on the Jacksonville, NC website...

The entire Canton of Zug (right down the road) is more or less the size and population of metro Jacksonville (You can google translate to your heart's content)

Catholic - http://www.katholischekirchezug.ch/

Reform - http://www.ref-zug.ch/

If you want just a city that has 70k, then try Luzern, their website actually extends beyond the two major denominations at the Cantonal level (in case you are a Druid or Scientologist)

http://www.stadtluzern.ch/de/onlinemain/dienstleistungen/?dienst_id=21388

Sun, 10/14/2012 - 16:02 | 2888168 James_Cole
James_Cole's picture

That's a ridiculous point, of the 8 million people who live in Switzerland the 2000 who happen to live near you are part of a relgious community and thus attend chruch regularly, whoopdidoo. 

As I said before 48% of Swiss DO believe in God, and with such a long tradition there are areas where like-minded people live together. There's also a big difference between religious devotion & fanaticism, and there are fanatics in Switzerland to be sure but they don't hold anywhere near 50% of the vote or have any real effect on the culture of the country (abortion, science etc.). And only 30% of swiss reject evolution. 

Apparently 50% or somewhere in the ballpark of 150 million Americans believe the earth is less than 10 000 years old, pretty stark contrast. 

Comparing Lucerne to red state America is completely absurd and not even worth arguing.  

Sun, 10/14/2012 - 17:49 | 2888672 Urban Redneck
Urban Redneck's picture

Perhaps I should have been less understated in my original response. I don't know where you get your 48% figure, but it would imply that half of the population that doesn't even believe in God willingly pays the God Tax -in a country often (mis)construed as a tax haven. Furthermore if 52% of the population actually does not believe in God, then why do half of these atheists vote to continue the official State sanctioning of certain flavors of a God they don't even believe exists.

The Gemeinde where I live is actually fairly representative of Switzerland, and is by no means some Bible beating enclave, at least 1/3 of the population isn't even Swiss (by birth). Once you step outside of the realm of the officially sanctioned denominations, the Sabbath commute becomes longer (than the usual five-minute walk to the nearest Reform or Catholic church), but that hardly stops most people from commuting to Church/Temple/Mosque every weekend, much less believing in God. Try riding a bus or train anywhere in Switzerland on a Sunday. 

Switzerland is full of both apparent and real contradictions and ironies, that rarely make sense to outsiders, and which sometimes escape even residents. The coexistence of God and Science, however, ranks very low on that scale.

Sun, 10/14/2012 - 13:41 | 2887820 Marco
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"but Switzerland clings to both its guns & its religion in ways the reddest of the US red states could only dream of."

So abortion is still illegal then? :p (No, mandatory counseling doesn't count.)

Sun, 10/14/2012 - 15:16 | 2888068 Urban Redneck
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Switzerland is a Democracy, not a Theocracy, where abortions are performed at less than half the rate in US.  This about reality, not the fantasy of how the Bible Beaters would rule, if only they could...  Where in the US (with its abortion "rights" dictated by unelected judges) is abortion more legally restricted than in Switzerland?  And when is the next US popular vote or national convention assembled at the request of the legislatures of at least two-thirds of the states on a "constitutional amendment" against abortion, is it sooner than the next one here in Switzerland?

 

Sun, 10/14/2012 - 15:46 | 2888135 Marco
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I take you to task (tongue in cheek at that) about your assertion of what red US states DREAM about and you're now attacking me because I'm not sticking to reality?

Sun, 10/14/2012 - 17:53 | 2888680 Urban Redneck
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Hyperbole is often an annoying rhetorical tool, but for some reason no one in redneck country has ever accused me of blasphemy for saying John Moses Browning is God, even when I venture over into the snake handling side of Appalachia.  Switzerland actually has a lot of "eccentricities" that red state Americans would (an do) find frustrating and annoying, but that's why the people who care launch referendums and vote.

Sun, 10/14/2012 - 03:27 | 2886270 Middle_Finger_Market
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The only reason Switzerland exists is; holding money for the ultra wealthy so they avoid paying tax, watches, swiss army kives. Otherwise its a shell of shit and corruption. They go down with the rest. 

Sun, 10/14/2012 - 06:22 | 2886608 Urban Redneck
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You forget Switzerland has a narcotics business that puts the Columbians and Mexicans to shame, which launders money from unhealthy obese sheeple worldwide into the pockets of the Gnomes of Zurich.  In addition to being some the world's biggest pill pushers, we also feed the world's oil addiction, since this tiny country the size of Maryland, with no oil of its own, controls 1/3 of the world's oil trade trade, which the US keeps expending trillions of dollars and thousands of lives to feed its habbit.

We are all screwed, but Switzerland will do better than most, and by the way- bank secrecy hasn't existed here in over a decade, you should lay off the koolaid offered by TPTB, its not good the mind.

Sat, 10/13/2012 - 18:21 | 2885677 Ghordius
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Switzerland is still the template for the EU. A Confederation.
It's the AngloSphere Cultures that persist in wanting to see themselves in it.

This article is seriously shallow.

Nassim, "Switzerland has no Brussels": it's called Berne. Stick to your excellence, you are a perfect example for a gifted genius being perfectly capable of putting his foot in it, from time to time.

Compare the tax flow of the Swiss vs their federal capital and the tax flow of the EU vs Brussels, just as a side detail.

And it's not the EU, its the eurozone. EZ, dammit! Frankfurt am Mein! Is all this EuroStuff so bloody outlandish that even a former employee of CreditSuisse can't take in the differences?

Sat, 10/13/2012 - 18:21 | 2885700 Reptil
Reptil's picture

Boah not quite right there Ghordius.
The Kantons do have an important role in the structure of that country. It IS highly decentralised at the core.

Sat, 10/13/2012 - 18:32 | 2885720 Ghordius
Ghordius's picture

Of course. And the Municipalities are truly at the core of it.

Switzerland is called a Confederation, but technically it's more a Federation.

The EU is called an Union, but technically it's more a Confederation.

The US is technically more a Unitary State, like France or Ireland. Who share a currency through a confederation of national banks.

There are several levels of decentralization, but this "Switzerland has no Brussels" is pure hogwash.

Sat, 10/13/2012 - 20:35 | 2885814 Reptil
Reptil's picture

BULL-SHIT

if a Kanton says NO it is no. If someone has any critique of the EU Commission, they're labelled as cowards.

GO STUDY THE EUROCRATS FIRST BEFORE POSTING PLEASE. Read Van Rompuy's interim report. LISTEN TO THEM NOT TO ME.

 

btw I didn't junk you.

Sun, 10/14/2012 - 07:23 | 2886655 Ghordius
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what do you mean "if a Canton says no"? does not make sense. If a federal law is passed with the majority of the Cantons, the law is passed and federal.

Gollum's interim report is not important because Gollum is not important, IMHO.

Sun, 10/14/2012 - 10:27 | 2887122 papicek
papicek's picture

As good an example of circular logic as I can think of. Not that I needed the reminder, and there's 30 seconds of my life I'll never get back again, dammit.

Sat, 10/13/2012 - 18:27 | 2885710 Marco
Marco's picture

The problem is getting from here to there ... such a system can evolve from a low population density low unemployment agricultural society, but how do you implement it in an area which is completely fucked up from poor education and social disintegration by immigration and wellfare dependency?

Sat, 10/13/2012 - 23:42 | 2886103 Stock Tips Inve...
Stock Tips Investment's picture

I think a better option would be to establish a common market. That is, a free market and investments. But where competition is maintained in funding markets. For many years, the risk premium of Spain, Portugal, Greece and other countries was almost equal to that of Germany. Does that make sense?. Today, none of the countries in crisis can implement monetary policies. And countries like Germany, have to jeopardize their financial stability for "rescueing" to those countries. Finally, the "Government of the eurozone" centrally plan the economy wants of that large set of countries that form. Can not do, or will do very badly. Each day, the solution to Europe's problems becomes more difficult.

Sun, 10/14/2012 - 19:02 | 2888201 Observer
Observer's picture

Germany lent money to the Southern countries so they could buy their products made competitive by the cheaper Euro whereas their D-Mark would have killed their own wages to be competitive compared to those of the southern countries especially Italy which happens to make some very desirable products quite apart from their women! This was the Faustian bargain that Germany and Southern Europe struck with the Eurocrats. So the southern countries were bribed by cheap money for a time to entice and keep their people in the Euro so Germany can get them addicted to the cheap money and in the case of Italy neutralise their natural weaker currency advantage in return for keeping their standard of living and having access to cheap money but all that had to end sometime as we still can't square a circle. Now it's payback time for Germany who aren't going to get much of their money back. They can't expect to anyway as bad debts are supposed to be written off in the real world. In any case, they were probably arm-twisted by the twisted Eurocrats to be party to the scheme

Sat, 10/13/2012 - 23:53 | 2886119 Bicycle Repairman
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Decentralization is good for the state and good for the corporations.  Ayn Rand has an opinion on it?  So what?

Sat, 10/13/2012 - 23:53 | 2886120 Bicycle Repairman
Bicycle Repairman's picture

Decentralization is good for the state and good for the corporations.  Ayn Rand has an opinion on it?  So what?

Sat, 10/13/2012 - 17:05 | 2885578 debtor of last ...
debtor of last resort's picture

What made Europe great, was culture. Fuck the rest.

Sat, 10/13/2012 - 19:59 | 2885816 Reptil
Reptil's picture

and inventions

and functioning economies

and ...

Sun, 10/14/2012 - 06:03 | 2886581 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Stupid remark. There is no European culture. The individual countries have cultures, which makes the EU a very bad idea.

Sun, 10/14/2012 - 07:49 | 2886665 Svendblaaskaeg
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European Culture Club?

Do NOT follow this link or you will be banned from the site!