You Can't Run An Economy With Spreadsheets

Tyler Durden's picture

Submitted by Nicolas Cachanosky via the Ludwig von Mises Institute,

Argentina’s economic minister, Axel Kicillof, has become famous for his assertion that it is possible to centrally manage the economy now because we have spreadsheets such as Microsoft Excel. This assertion comes from the mistaken view that the cost of production determines final prices, and it reveals a profound misunderstanding of the market process. This issue, however, is not new. The first half of the twentieth century witnessed the debate over economic calculation under socialism. Apparently, Argentine officials have much to learn from this old debate. The problem is not whether or not we have powerful spreadsheets at our disposal; the problem is the impossibility of successfully creating a centrally-planned market.

At the turn of the century Ludwig von Mises, Max Weber, and Boris Brutzkus independently offered critiques on the socialist commonwealth, understood to be a society where there is no privately-held means of production. Mises was simple and direct. Unlike families or small tribes, where there is intimate knowledge among members, a large society requires prices to organize efficiently. The socialists, argues Mises, are quick to point out market failures, but are silent on how to efficiently organize the socialist commonwealth without the existence of prices. Marx, who does not offer an explanation of how socialism would work once capitalism withers away, calls the socialists (i.e., Saint-Simon and Fourier), who do describe the resulting socialist community, “utopians.” Without economic calculation to reveal which activities add value to society (profits) and which do not (losses), it is an illusion to assume that efficiency would just happen. Arguments other than economic calculation can be put forward as a principle to organize society, but the question of how economic efficiency is achieved remains unanswered.

As a response to this critique, writers in the socialist literature went from describing imaginary societies and criticizing capitalism to trying to solve Mises’s challenge. Oskar Lange and Wassily Leontief are two of the most famous authors who tried to solve this problem. One of the answers offered is the assumption of perfect information (still present in economics textbooks). The argument goes, if we assume to have all the required information, then the economy can be at equilibrium, and therefore Mises’s challenge is interesting, but inadequate. A centrally-managed economy is possible, if we have perfect information. At this point in the debate, it is Hayek who responds to the socialists’ contention with four important points:

(1) The amount of information needed and the calculation constraints are prohibitive to the socialist project, even if we grant the assumption of perfect information. But this is just an illustrative point that Hayek is making. Even though socialists and Marxists usually stop at this point, Hayek’s point is much more subtle as the following points show.


(2) The assumption of perfect information is invalid. The challenge is not to be in equilibrium, but in the transition to equilibrium. Just as it is not possible to open a can of food by assuming a can opener, it is not an acceptable response to assume Mises’s challenge away by assuming perfect information. Where does this perfect information come from and to whom is it given? The assumption of perfect information does not simplify the problem to be solved; it alters it and becomes irrelevant to the debate. This is why Austrians have been traditionally more concerned with the market process and less with the equilibrium conditions.


(3) Hayek also distinguishes (admittedly with some confusion) between information and knowledge. Information is a quantitative concept, and as such, can be either complete (perfect) or incomplete (imperfect). This is what socialists refer to as the assumption of perfect information. But knowledge is a qualitative concept, and because of this it can be neither complete nor incomplete. Knowing how to ride a bike or how to successfully run a business is not the type of knowledge that can be input into an Excel spreadsheet. This distinction is important because it is entrepreneurs who are the engine of economic growth and development. In other words, Excel cannot solve the market problem that entrepreneurs have to solve because this requires interpretation and knowledge, not just numerical data. Little is achieved if all information is given to Kicillof’s team if they don’t know how to interpret it.


(4) Information and knowledge are not independent of the market process. Without private property there are no prices; without prices there is no information. Hayek is using the other side of Mises’s argument to say that by getting rid of private property one is at the same time getting rid of the information that the socialists need to assume as given.

As soon as we recognize all of Hayek’s points, we realize that to take the Excel spreadsheet approach is like building a car without an engine (the entrepreneurs) and without road signs (the market) to signal the right way to go. It is no surprise that the Argentine economy malfunctions without a clear route taken by government officials. It is a mistake to confuse market prices with regulated prices, and the prices that provide useful information are the ones that emerge from free exchanges in the market, not government imposed prices originating in an Excel spreadsheet. To use the same word “price” to describe these two different phenomena misleads him who arrogates to himself the right to decide the fate of thousands of people. It is an illusion to believe that the same information that arises from market prices will magically emerge from government-imposed prices. What Kicillof’s team inserts into the Excel spreadsheet are not prices, but expressions of desires detached from economic reality.

The success of economic policy and market regulation, however, is not evaluated on desires and intentions, but on results. The problem with the Excel spreadsheet approach is not the intentions of the policymakers, but that such tools cannot possibly replace the market process.

The undeniable economic problems of Argentina run much deeper than what number to input into Kicillof’s spreadsheet. The problem is a confused reading of how markets work, and how governments continue with deficit spending in the service of favored interest groups.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Cattender's picture

Reality is a Bitch. our Business here in Michigan SUCKS. it has for most of the summer..

I am Jobe's picture

Did u spend money upgrading from Quatro Pro to Excel? 

Tursas's picture

If U did U wasted U'r money!

SofaPapa's picture

The libertarian dialogue is nice, but risks getting just as abstract and overthought as the inefficient mess it seeks to replace.

Far simpler: for too long now the population of this country has not only accepted the authority of a small subset of society, but in fact sought it out as their solution.  Look at how many people thought that the solution to Ferguson was to bring in the Feds.  Until people retake responsibility for our own lives in direct face-to-face interaction in our communities, the economy will go south in lock step with all the other elements of our civil society.  Based on how many are still screaming for a savior to rise among TPTB, I'm not holding my breath for people to be ready to take that responsibility... yet.  Eventually, it will be forced on us, but probably it won't happen until that point.

strannick's picture

"BOOBS'' is right.

Ivory tower dwelling Academic eggheads thinking they can run an economy when they couldnt efficiently run a 7-11 is wrong.

The market gives the trillion ever-changing cues to determine prices that central planners never will.

FreedomGuy's picture

Exactly, strannick,

The market is an ever moving, ever changing composite of several billion economic decisions every day. You cannot manipulate it or run it any more than you can "run" a rainforest. I laugh when I hear the term "market failure". There is no such thing. There can only be a failure if you have a preset end in mind. You can say that the savannah or the dessert is a botannical failure if you have a rain forest in mind. A rain forest is a failure if you envision an English garden. Without constant interventions and the picking of winners and losers an English garden will die or revert to the indigenous.

This is exactly what happens with central planners. They look at an economic rain forest which has infinite complexity, beauty and adaptability and say, "I can improve on that." It is the "fatal conceit" Hayek writes about. They cannot improve it. They can change it to a garden, a corn field or drop fertilizer and watch something like a Dr. Seuss nightmare develop but they cannot match the pure tonnage of biologic or economic activity.

I read ZH for articles like this.

webdesignvalleys's picture

It is good to test all things from web design and how they can work out for all related ways of twin cities web deisgn

James_Cole's picture

The problem is a confused reading of how markets work, and how governments continue with deficit spending in the service of favoured interest groups.

Yeah, markets work like this: if you have a giant ass military you get to decide what prices are, if you don't have a giant ass military you get to have a country with a giant ass military tell you what prices are.

And if you don’t get how that works you’ll eventually get the joy of having a dictator put in place who does ‘get it.’

bag holder's picture

Two kinds of men - those with loaded guns, & those who dig.

twin brother's picture

my buddy's sister makes $77 hourly on the internet . She has been out of work for eight months but last month her income was $14363 just working on the internet for a few hours. check this link right here now... w­w­w.G­o­j­o­b3­6­0.c­o­m

seek's picture

I can't even begin to imagine how badly your life must suck to get to the point of repeatedly pimping a website on an alternative economic blog that has a primary readership that openly mocks you and makes sexual references about your mother every single time. I can only assume you're doing it because you're getting paid, and you're getting paid in hopes of improving the page rank score, 'cause god knows you'll never make a single fiat dime from this crowd.

You mom was great, btw.

disabledvet's picture

My God mistakes are made!  How is this possible when we have all the data?!?????

And of course because eveeything ...including and indeed especially "the data" is open to interpretation.  

What good is perfect information if we still look at the same information and "view it" differently?

And of course the answer is "the information is no good at all" unless and until we interpret it properly.

And nothing says "human" more than "huh, I didn't think of that."

No shit Sherlock!

This is why PHILOSOPHY is King not "economy" since the very idea of economics presupposes knowledge in the first place.

But this is in fact FALSE.

Knowledge can only be "gleaned" through a combination of acting and "seeing" (perception of an occurrence or happening of some said thing.)

This is why humans spend so much time trying to "explain" things....why "their" version of what is "in fact true" in fact is.  IN FACT however "everything can be (and often is) a total load of bullshit."

In other words we're just limited in our ability to know.  We might be PROVEN right by "this, that or the other thing"....but there is no way to "know" since the very idea of knowledge presupposes knowledge of the future...and simply "there is no way of knowing that."


"Economists" presuppose "people act economically.". Really?  Show me when that has ever been in fact true?  Far easier to presuppose "people blow it" and go from there.

That's why Wall Street "gets it.". Just be long everything and at least you've solved the "problem" of being wrong.  "That should never be right to begin with."

Chief Wonder Bread's picture

Cost provides an objective measure for pricing. It's natural for the naive to assume that it can be used as a basis for market pricing. And objective sounds so much better than subjective. But the fact remains that true price discovery is purely a subjective phenomenon.

What is your buddy's sister's cost per hour? It won't matter in the end. She can charge $77 hourly to cover her costs and then some extra.and if she's good, really good, she can get it. But no amount of expensive make-up, hairstyling, cosmetic vagina surgery, diet pills, hypnotism and slick web design and their associated costs are going to turn your buddy's sister $77 per hour unless she's young and cute and worth it. SUBJECTIVE rules.

MalteseFalcon's picture

A small cadre with spreadsheets cannot possibly model the Argentinian economy, much less direct it all.  Moreover it is certain that the cadre will make no effort to fulfill the wishes of the people. 

This is why a free market with feedback from millions of people, the entire market is the superior choice.  And no free market = no democracy.  No democracy = illegitimate government.

HK21E's picture

Busy gal at a nickel a throw in the truck stop bathroom.

Escrava Isaura's picture

“Efficient market theory? How is that different than Noah’s Arch?”  Noam Chomsky

NidStyles's picture

So a linguist is to be trusted with critiques of economics, and Mises and Rothbard are still ignored?


Seems reasonable, if you're a moron. Chomsky is one of those "utopians".

Escrava Isaura's picture


The flaw is that the oligopoly would still control the money.

James_Cole's picture

Here you go Nid, a non-linguist saying the same thing.

Mr. Grantham, who was a critic of the efficient market hypothesis long before such criticism was in vogue, has hardly been mollified by its decline. In his view, it did a lot of damage in its heyday — damage that we’re still dealing with. How much damage? In Mr. Grantham’s view, the efficient market hypothesis is more or less directly responsible for the financial crisis.

The incredibly inaccurate efficient market theory was believed in totality by many of our financial leaders, and believed in part by almost all. It left our economic and government establishment sitting by confidently, even as a lethally dangerous combination of asset bubbles, lax controls, pernicious incentives and wickedly complicated instruments led to our current plight. 


BorisTheBlade's picture

Socialists could be right in their critique of capitalism and 'free market' economy and libertarians most of the time are right in their critique of socialism. Trouble is, whoever wins the argument we most of the time lose. In case of socialists we lose to a ginormous state and in the case of seemingly free market to a host of oligarchs close to money creation mechanism. Pick your poison comrade/sir.

falak pema's picture

Economics is a means to achieve an end, like language.

So linguists are capable of understanding the logic of communication for DECISION MAKING; whether it be in words and intellectual concepts or in numbers/statistics and algorithms. 

The issue here is that perfect markets like perfect speech do not exist for themselves in society, except for the "initiated", but have a different function as a VEHICLE for body politic; which defines the AIMS and uses the means, all the means : of language as of images and of statistics and mathematical constructs.

So the thesis of the Mises/Hayek type Shamans that Economia is the "be-all" of society is just wrong. No more than the works of Shakespeare or Hugo, or of Picasso etc.

They do not define politics and power in society. They may influence it but they don't define it's objectives.

Linguists like economists can add substance to a political construct that defines the power play in civilization. And in that respect markets are just a means and their perfection as important as a perfect face on the screen. 

All imagery or conceptuual work in life is virtual.

It becomes real when it faces the real world of power and its continual balancing act; facts and irreversible acts that define our future as they have our past. 

Chomsky is more relevant today to society than Mises.

The first analyses real political acts and consequences the other confines himself to theoretical pontification about the real economy looked at through the lens which keeps referring to the mantra of perfect markets. 

Not saying markets are not important just saying they are not ALL important. 

For the Mises theory to become reality we would have to live in a perfect "anarchy" state without government. The last time they wanted the state to "shrivel away" it was called the "ultimate step of communism" and it parented Stalinism. have to know what you wish for in the REAL world. 

FreedomGuy's picture

That is not true at all. Proper economics is descriptive rather than proscriptive. This is the first and most important difference between Right (libertarian-anarchist) and Left (socialist-central planners). The Left imagines it can intervene. Mises and Austrians do not deny the reality of market interventions, they simply warn of the consequences and its ultimately futility.

falak pema's picture

History says you are wrong. You keep harping about a system that has gone off the cliff twice because of market forces being spiralled into Vesuvian eruption under irrational exuberance and greed and thanks to lack of Government regulation : in 1929 and 2008. 

You are into DEEP denial of historical FACTS.

The historical thread shows us neo-feudal oligarchs are just as destructive of wealth creation as are statist hegemonists.

The only realistic solution is to balance state power and private oligarchy power and make sure NEITHER is in dominant position by having transparent control of public and private spending and by ensuring due diligence and SANCTIONS.

Today we have a Mussolinian economy of crony collusion between statists and oligarchs. We have the worst of both worlds.

We need good state governance and non monopolistic private sector innovative investment, compatible with "general good", that does not run us off the cliff in mad speculation nor poison the planet. 

The GDP should be run on an equitable basis between both power structures. 

Whether this divide is 30/70 or 50/50 between private and public and how its used and how its controlled and monitored is the role of the Republic. And it should be debated and then voted and then executed in a legal framework which is NOt CORRUPT. 

The Wizard's picture

What is "proper economics"? The problem governments have is they listen to Keynesian model designers and they expect the real world to function according to their models. Rather, they should try to understand that "economics" is a social science based on the decisions of the human. Why not have a model(s) that is based on human interaction and transactions that can better depict reality.

The so called "economists" are nothing more than a bunch of centrists upset that the real world won't listen to them. So they all meet with each other and tell each other how great they are with each their respective analyses.


Escrava Isaura's picture


Debunking another cornerstone of the Austrian-Keynesian dialectic:

The obvious question to ask, after considering the evidence in favor of the endogenous model, is why both Austrians and mainstream Keynesian economists are still defending the exogenous theory, although it is unsupported by the data. My view is that Keynesianism and Austrianism are two poles of an elite dialectic, focusing mostly on four dualities:

This is evidently an oversimplification. Nevertheless, I think that it captures the essential dichotomies between these two theories. However, while these dichotomies are important and meaningful, they do not reveal what is obfuscated by both schools. In that context, it is remarkable that both schools want us to believe that central banks play an important role (good or bad), a claim that is debunked by the available evidence. It is likely that the goal of these apparently competing elite memes is to conceal the role of private banks and the importance of commercial loans behind the false “central banks versus free market” dichotomy.

Moreover, although both schools make a sharp distinction between central banks and private banking, the data tends to support the idea that the banking system is one (which as we know is controlled mostly by the same people), with central banks acting simply as a backstop to stabilize the system and justify the legal monopoly on currency. Viewed in that light, proposed reforms to the banking system, such as the BIS raising “capital reserve requirements”, can be seen as mere posturing: a pathetic effort to maintain the illusion that reserves and the “money multiplier” effect actually matter.

Finally, let us not forget that each school ascribes the cause of economic recessions to a phenomenon which is actually endorsed by its “opponent” (Austrians support “excessive saving” while Keynesians favor government intervention), but both ignore what is likely the main reason for our economic problems: usury.


Anthony Migchels




JLee2027's picture

Noah's Ark worked.

“Efficient market theory? How is that different than Noah’s Arch?”  — Noam Chomsky

Escrava Isaura's picture


If you really believe on that, schizophrenia is what comes to my mind.

But, I’ve been wrong before!

Escrava Isaura's picture

Business sucks now?

The end of Chimerica!

Wait for the trade-wars.... Then, Americans shelves will become empty.

Then, It will suck…. Big time.

So, for now, enjoy it. And I mean it in a sincere way.

I am Jobe's picture

Does this mean Black Friday Sale will suck or we can expect lo life trailer trash Amerikans fight over crockpots and towels made by the poor souls in China for 2 dollars /hr? 


razorthin's picture

It depends on what is in them, doesn't it?  Facts or fiction.

I am Jobe's picture

Corporations in Amerika has already perfect the art of metrics using spreadsheet- stack rank , so the owners are told do the same. 

Crappy fucking idea and Managment boasts it is the greatest thing. 


q99x2's picture

ArgentinaCoin for Argentina. Remove the banksters from the system. Feed them bad debt until they choke to death.

Caviar Emptor's picture

Oh yes we can! The US economy is one big spreadsheet tweaked by algos. Whenever you click online, the price goes up. Ever notice? Your life as an American consumer exists on a spreadsheet. Spread 'em

KickIce's picture

Apparently you you can as long as you own all the gold and make the people believe that it's not important.  Oh yeah, owning a printing press helps as well.

Joebloinvestor's picture

Argentina, selling shit bonds under conditions they have no intention of honoring when things go pear shaped.


Merca Visca's picture

We've been honoring those bonds until judge Griesa decided to CONFISCATE our last payment. Read more before giving such shit opinions.

Keltner Channel Surf's picture

Folly.  There exists nothing in the world that can't be managed using an Excel spreadsheet.  

The problem (including with our Fed) isn't the tool, but the failure to remove circular references.

Bumbu Sauce's picture

Economies exist.  They don't need to be run except from a very high level.

I am Jobe's picture

Not according to the Zionist Lords

Notsobadwlad's picture

Lao Tzu would say they do not need to be run at all.

ebworthen's picture

The U.S. is just a larger Argentina with a much bigger Excel spreadsheet.

Merca Visca's picture

No way. Argentina is paying its debts and growing its economy without contracting any more debt. US only gets more and more indebted and it pays by printing paper. It's different.

Muppet's picture

The latest weekly Hussman was one of his very best in providing an educated argument for errors in current Fed policy and direction.   A lengthy and difficult read, but one for true seekers: 

Merca Visca's picture

WTF? Where in hell have you ZH taken that pathetic lie? Kicillof is the best Ministry of Economy we've got in the last 6 decades. At least you should show a video of Kicillof stating that. Of course, you won't find any because he didn't say that at all.

TrustWho's picture

Hell, the Federal Reserve Board members believe they can manage the economy. And they will deny their socialist leanings in their graves. 

Power corrupts and absolute power corrupts ABSOLUTELY.....The corrupted never see their corruption.

kchrisc's picture

The problem of central managing an economy is a lot like the 3-body problem in physics, except it involves many thousands of items.

I call it the "TP, tires and jackets" problem." I.e., "How many rolls of toilet paper are needed versus tires and jackets. And tires versus jackets. And jackets versus toilet paper?"

An American, not US subject.

TrustWho's picture

The bigger problem is tecnological advancement and new products that require capital investment to create. For example, a novel new cancer therapy that cost 2.5 cents per tablet. A typical cost of production based price will never provide the incentive to invest. One can really see this problem with the government price control boards controlling pharmaceutical and medical device launches in Europe. 

Notsobadwlad's picture

The false "growth paradigm" is a bitch. It makes weak people misallocate resources to theft bribery, corruption instead of competence because it is expedient.

... and so is the problem with the drug companies. They develop drugs we do not need, bribe government, bribe/collude with doctors, collude with the insurance companies, bribe the AMA and force regulation that would not be needed if they could be trusted to be competent instead of expedient.