Central planning fails from "summary" of Capitalism and Freedom by Milton Friedman
Central planning fails to achieve an efficient allocation of resources. The basic economic problem is one of scarcity and choice. There are limits to what can be produced, and there are limits to what individuals can consume. The central planner faces the impossible task of determining the preferences of each individual and making decisions on their behalf. In a market economy, individuals make decisions based on their own preferences and values. They have the incentive to use resources efficiently because they bear the costs of their choices. Central planning also fails to provide incentives for innovation and technological progress. In a centrally planned economy, there is no competition to drive firms to improve their products and processes. Without the profit motive, there is little incentive for firms to invest in research and development. As a result, technological progress is slow, and economic growth is stunted. Moreover, central planning tends to lead to inefficiency and waste. Without the feedback mechanisms of prices and profits, the central planner has no way of knowing whether resources are being used effectively. In a market economy, prices serve as signals that convey information about scarcity and value. Prices guide individuals to make decisions that reflect the true costs and benefits of their choices. Another critical issue with central planning is the lack of responsiveness to consumer demand. In a market economy, firms must respond to the changing preferences of consumers in order to survive. If they fail to produce goods and services that consumers want, they will go out of business. However, in a centrally planned economy, the central planner decides what is produced and how much is produced. This disconnect between supply and demand leads to surpluses and shortages.- Central planning fails to achieve an efficient allocation of resources, provide incentives for innovation, promote economic growth, ensure efficiency, and respond to consumer demand. The market economy, on the other hand, harnesses the power of individual decision-making, competition, and prices to allocate resources effectively and drive economic progress.
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