An interesting case of the failure of micro-central planning comes from Shaliuhe, China, as reported in the Economist. This rural area has the misfortune of being ruled by local bureaucrats who believe they know more than the price system, and so picked a sure investment for the locals: cows. They looked West and saw Beijing with its rising demand for milk products and figured that here was the key to the future.
So local officials started a propaganda campaign: "Good cows, good grass and good feed produce good milk." There were subsidies and loans and all sorts of promises, and so people took the bait, went into debt, bought cows, and made the milk. The result: collapsing milk prices and no profits.
That set in motion a new campaign to get people to drink more milk. Apparently: "To the industry's delight, the prime minister, Wen Jiabao, visited a dairy farm last year and said his dream was that all Chinese drink half a litre of milk a day, especially schoolchildren. In Moscow this week Hu Jintao, China's president, encouraged Russians to buy more Chinese milk."
It is very easy to scoff at goofy foreign attempts at central planning but the same errors have characterized US economic policy for decades. Ask any local officials what the most profitable economic opportunities are and few resist. Most local governments have economic development teams that seek to assist this industry or punish that one. On a national level, US officials have been darn-sure for more than half a century that the future of America is bound up with ever more professional scientists, for example.
Just once you would like to hear some appointed or elected official, when presented with question of what are the best and profitable investment for the community, answer as follows: "Heck if I know. The market is the system a free people use to determine the course of economic development."
