689. Why Your Mom Might Be the Best Central Planner: The Knowledge Problem Explained

Hello, everybody. Welcome back to another episode of The Way the World Works. Today I want to talk about central planning, which we've talked about before, but today I want to take a little twist on this.

I want to admit that I was wrong. I said earlier, episodes ago, many episodes over and over again, I've said that nobody can be a central planner, right? I said, there's no such thing as a good central planner. I've said central planning doesn't work and I'm going to take it back today because I found that there is a very good central planner once I thought about it.

The only central planner, the best one, and you actually know her. She lives pretty close to you. Her name is mom.

So as Mother's Day is coming close and we are celebrating our moms and really thoughtful of the things she does for us 365 days a year, it dawned on me that moms really are the best central planners and let's talk about why. Your mom, let's say, I don't know how many kids are in your family, but for the most part, your mom knows everything that's going on in your household, okay? She knows which one of you likes onions. She knows which one of you doesn't like spaghetti.

She knows which one of you loves strawberry ice cream. And when she goes to the store and she plans the meals for the week, she keeps all this in mind. She knows, even if you don't think she does, she knows which siblings are fighting.

She knows who's mad about somebody else and something they did. And you might not think she's even paying attention. She might be in the kitchen making dinner or whatever it is she's doing, but she hears.

She knows things. She knows whose shirt belongs to who. She knows whose shoes are probably starting to get a little too small.

Who needs new pants? Who's growing? Whose bike tire needs air being filled in it? Your mom knows everything that goes on in your house. She is the benevolent dictator, if you will, of the entire household. And because of that, she can make plans for it, right? She knows when to schedule doctor's appointments and dentist appointments and who has a meeting with which teacher at school and who's struggling in math and who doesn't.

She has so much knowledge. Your mom knows pretty much everything. And that is why she runs the household so smoothly.

Even if your mom feels like she's not doing the best job, even if some days she's running around like a chicken with its head cut off, as the saying goes, your mom is doing a pretty darn good job running the house because she has that knowledge. She knows what's going on in everybody's life because she's she's there. She's involved in it.

And in that small little sphere of your home, imagine your home is a country. Your home is the economy that your home is, is the society. Your mom's pretty good at being able to plan for everybody.

And we love that. Right. That's that's amazing in your household of maybe, you know, five to six people, maybe a little less, maybe a little more.

It's a lot easier for your mom to be in the know. Right. It's a lot easier for your mom to to be able to make those decisions for everybody because it's so small.

But even in your own house, that starts to change even as kids get older. Right. I know as I got older, when I became more of a preteen and a teen, my mom started knowing less and less about me.

Right. Because my palate like with food changed. So where my favorite food used to be, let's say, like mac and cheese.

My favorite food became, I don't know, chicken parm. Right. And so there are these little things where my my tastes were changing.

And maybe my mom didn't know as well or, you know, didn't know the music I was listening to every day, like like she did when I was younger, because that was changing. And so even as the family expands, even as people start to grow older and and and have these different tastes, suddenly the economy of your house gets a little bigger. And then let's say you guys expand to the point where you grow up and you move out of your house and you start your own family.

Now, your mom can't plan for your new family. She knows you pretty well and she knows the grandkids pretty well, but not enough to plan that economy right now that you're the mom or you're the dad, that's your economy to plan. So even as things expand on a family level, it gets harder and harder for us to make those plans for everybody.

So let's scale that up now. Can you imagine how hard it would be for a whole city, for a whole neighborhood, even if you go smaller than that, for a whole country, for a whole world? Right. That's where it gets really hard because you can't.

You know, we've talked about this so many times that we're going to talk about it again because my favorite thing, you're finding these new examples to tie it all together. But Hayek called this the knowledge problem. Hayek is, of course, one of our favorite economists.

He is the inspiration for the book The Road to Serfdom, The Tuttle Twins of the Road to Serfdom. I thought I had it with me and I had left it over there, so I'm not going to show it today, but we've showed it many times. But he had this idea that central planning doesn't work because nobody has perfect knowledge.

Right. If I don't know, like, let's say there used to be this really silly show called like Mom Swap or House Swap or Wife Swap or something. And the premise of the show, two very different families living in different parts of the country, they would switch moms for a week and one mom would go to one house and the other one would go to the other.

And they would try to, like, manage another family. And guess what? It never went well. It never went well because this other mom didn't know what the other kids liked.

She couldn't she couldn't be there for their needs and vice versa. So the moms weren't able to attend to the needs of the families that they had no knowledge of. They were going into it blind.

They didn't know anything. And, of course, as a watcher of the show was kind of hilarious to watch them fumble and not know what was going on. But there was such a larger economic lesson in there that you really can't plan for people you don't know unless you go in and change all the rules and say, I'm going to be a dictator now, which is what always happened in the second half of the show.

The first half, they had to try to run the house like the original mom. And then the second half, they put in their own rules and that never went well either. And then at the end, they switched back weird premise for a show.

But I'm not going to lie. I was entertained by it. I even had I knew somebody on the show once of all of all things.

But it was an unschooling mom. So that was interesting. That was a fun little twist.

We could talk about that later. But you see these moms struggle even in other households because they couldn't do they didn't have the knowledge to be able to plan for them. You know, if a mom goes in and doesn't know a kid is allergic to onions, that could be very dangerous because then she's making a dinner with onions.

And so this this knowledge is so great in single households. But when we get bigger and bigger, it's just impossible because, as Hayek said, we don't have perfect knowledge available to plan for other people. We just don't.

But the government doesn't get that. And I always wonder and this is a question I always come back to. Does the government not know or do they not care? Or do they think and I think this is the real crux of it.

Do they just think they know better? And so everybody should just fall in line with what they think. And Frederic Bastia, one of my other favorite economists, French economist, he used to say, like, oh, you people, you that think you are so great. Why don't you reform yourselves first? And what he meant by that is these central planners, you know, they think that they are so above us.

They think they're so great that they can plan for all of us because they don't they have the knowledge to know what's best. They don't need to know what I like. They don't need to know what you like.

We just need to be able to do what they like, what they think is correct. And that's crazy. The reason your mother does such a great job running the house is because she cares about what you like and she cares about what you don't like.

Now, does that mean she's not going to make you eat a vegetable for dinner? Does that mean she's going to let you eat, you know, cheeseburgers every night? No, because she's your mom and she wants you to have a well-rounded diet and she wants you to be healthy. So obviously there's going to be some more rules in place, but she values what you want and she values what you think because she is close to you. She's close to you and close to your siblings and close to your dad.

And she knows what's going on where a federal regulator doesn't know that a federal regulator doesn't know that maybe I want to use incandescent light bulbs and not these LED ones that are really blinding and get, you know, in my my eyes. And apparently they make us all kind of stressed. Science, some report just just found out or, you know, a regulator doesn't realize that I want to use a gas stove where I have the flame and not electric stove.

It just doesn't work as well. They don't think about this because they only think of themselves and whatever angle they're aiming at, right, whatever their end goals are. And so it just doesn't end up working out for them, maybe because they're getting what they want.

But people are dissatisfied and people aren't getting their needs met. A lot of times you hear people use smaller countries as a defense for why central planning could work. And that is exactly where you get into to this, you know, mom analogy I'm making when you do have smaller groups.

Yes, it's going to be easier to central plan because you are closer to those people. But even in smaller countries, the president doesn't know every single person unless like the president is like a street. And it's, you know, that's that's it.

But even then, you wouldn't live in every house. You wouldn't know every conversation. And so really, that is why the only the only place where central planning can work, the only person who's capable of central planning, who's capable of of not running into Hayek's knowledge problem is your mom, is your mom who runs the household so wonderfully.

So this Mother's Day, first of all, thank her for everything she's doing for you. But also remind her that even though central planning doesn't work, the only time it might work is if she were in charge. So I will leave it there.

Happy Mother's Day to all the mothers out there. As always, don't forget to like and subscribe to the podcast. And until next time, I will talk to you later.