Planning or Scamming?

As a long-time financial planner I know how hard it is to do good planning work for individuals and couples.  Such planning requires, among other things, meticulous attention to detail, an effective process to elicit the values behind the numbers and a constant review of assumptions and goals over time to make sure the client stays on track with the plan. How much harder must it be for a central planner attempting to plan for millions of individuals in diverse circumstances. What kind of knowledge does the central planner have that would enable him or her to plan for an entire nation? After all, a central planner cannot get inside the head of every individual and analyze all the dispersed bits of incomplete and often contradictory knowledge which separate individuals possess. Is it really so surprising then, that history is replete with the tragic stories of central planning gone disastrously wrong.

These thoughts came to me recently as I finished reading “The Unconquered: In Search of the Amazon’s Last Uncontacted Tribes” by Scott Wallace, a rip-roaring true life adventure story that describes a recent expedition to track one of a number of ‘uncontacted’, ‘wild’ Indian tribes (Indios Bravos) in the deepest recesses of the Amazon rain forest. Until recently the official policy of the Brazilian government had been to try to assimilate these tribes and move them out of the way of the advancing frontier. One small problem with this plan was that the contacted Indians were wiped out by “disease, death and despair” in the wake of the contact. The relevant government agencies had genuinely wanted to help the Indians, but in the end their own germs proved to be far more deadly than the most violent adversary they were intending to protect them from. Even without disease, these agencies came to discover that the Indios Bravos are doomed by cultural contact with the West. Given the choice, they do want to obtain steel blades, metal pots and pans, guns and processed foods. However, once they start using these ‘benefits’ of civilization they begin to grow dependent on them and rapidly lose the ability to meet all their needs from the rainforest. They increasingly come to rely on government handouts and fall into despondency and despair as their customary traditions and way of life lose vitality and meaning. But don’t worry, the Brazilian government now has a radically different plan to help the Indios Bravos. You will have to read the book to find out what it is but, if you really care about the Indians, don’t hold your breath.

History is nothing if not a study of such unintended consequences of human action. For example, in 1491: New Revelations of the Americas Before Columbus” Charles Mann destroys the myth that the pilgrims arrived to a virtually empty America. He claims that there may have been up to 100 million people living in North America before it was decimated by smallpox and other European diseases. In his next book, “1493: Uncovering the New World Columbus Created” Mann documents details of what he calls the Columbian Exchange, the long-reaching unintended ecological, economic and political effects that Columbus’s voyages had on the world at large. We learn, for example, that indentured servants were much more efficient than slaves but it was African slaves that were used in the South because they had immunity to a deadly form of malaria that killed most Europeans. Potatoes were brought to Europe from the Andes and because of their shorter growing season and calorific density, became the stable crop for most of northern Europe, leading to a European population explosion which ‘fueled the rise of the West’ and may, according to Mann, have been as important to the modern era as the invention of the steam engine . The British cornered the market in Peruvian guano (bird droppings) and the use of this fertilizer spurred food production around the world stimulating the shift to mono-culture and making sure that when the Colorado beetle was imported from the Americas (probably on a guano ship) the potato blight that followed would wipe out much of Ireland’s food supply.

Given such examples it is valid to ask whether central planning is even possible, let alone effective?  Central planners use statistics in an attempt to aggregate data from large numbers of people but how does one average out the desires of Amazonian loggers, miners and anthropologists against the desire of the Indios Bravos just to be left alone? Is it even possible to rank the attachment to the rain forest of an Indian shaman against the attachment of a western pharmacological researcher searching the rainforest for undiscovered drugs?

The truth is that, central planners today are simply forced to take sides and favor one interest group over another – currently spenders over savers, banks over taxpayers, unions over consumers, oil companies over environmentalists. The bottom line is that despite the fortune spent on government research and central planning, most decisions are still made following the maxim of Willie Sutton, the famous bank robber, who said “I go where the money is and I go there often.” We need to move away from thinking that the foundational economic problem of society is one of taking 61 percent of our national income and transferring it to the government so a group of politicians and bureaucrats can plan how to spend it. The real problem of society should be how do we set up fair and just rules that facilitate the implementation of individual plans, the goals and relative importance of which only those individuals know?


 “One of the best ways to get yourself a reputation as a dangerous citizen these days is to go about repeating the very phrases which our founding fathers used in the great struggle for independence.” Charles Austin Beard

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About Malcolm Greenhill

Malcolm Greenhill is President of Sterling Futures, a fee-based financial advisory firm, based in San Francisco. I write about wealth related issues in the broadest sense of the word. When I am not writing, reading, working and spending time with family, I try to spend as much time as possible backpacking in the wilderness.

View all posts by Malcolm Greenhill


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4 Comments on “Planning or Scamming?”

  1. Susie Says:

    Malcolm you always have such timely content. I may not agree with you 100%, but I am forced to think about how I want my life, my country and the world to go now and in the future. Thanks for taking the time to share. And again thanks for all you have done for me and my family.


  2. Jon Sharp Says:

    Most sources suggest govnt spending is around 40% of GDP in the US. What’s the 61% to which you refer? As for the 40% we have a choice. If we don’t want the services government provides then fine. Let’s scrap the military, end social security and medicare, stop monitoring food quality, forget about the environment (air and water quality), end public education, get rid of the firefighters, police, vehicle licensing, a unified transport network (FAA, Freeways) and so on. I am sure the private sector will step in and do some/all of those things for us and the level, extent and quality of how they do it will be determined by the market instead of the ballot box. Having seen what the market has done for our financial and banking industry or the sorry state of healthcare, I am not sure I am willing to trust the market on all the above. I suspect most people would draw the line somewhere. So where would you draw the line?


    • Malcolm Greenhill Says:

      Jon, the Center for Fiscal Accountability ( says that in 2011 the cost of government consumed 61.42 percent of national income. The average American worker had to labor 103 days to pay for federal spending, 44.16 days to pay for state and local spending, 49.75 days to pay for federal regulations and 27.6 days to pay for state and local regulations.

      As to the military, we spend more on defense than the next 13 countries combined and defense spending accounts for about 20 percent of all federal spending. I agree with Admiral Mike Mullen, the past Chairman of the Joint Chiefs of Staff, who said: “the single greatest threat to our national security is our debt.”

      According to the latest government estimates, Social Security has begun a period of permanent cash-flow deficits, paying out more in annual benefits than revenue it brings from taxes on payroll and benefits. Absent significant reform, Social Security will run out of authority to pay full scheduled benefits after 2036. At that time projections by the Social Security Actuary indicate that benefits will have to be cut by about 23 percent if laws are not changed.

      As baby boomers retire and people live longer Medicare and Medicaid are projected to grow faster than the resources dedicated to support them. It is this growth in health care costs that represents the major threat to our standard of living. Currently Americans spend on average $8,000 per year on health care, far more than any other developed nation and yet our health outcomes are no better, and by some measures are even worse.

      While they may not be scrapped altogether, military spending and entitlement spending will be significantly reduced. It’s just a question of whether it starts to happen now or later. If later, the pain will be that much greater.

      What is wrong with involving the private sector to a greater extent in all the other services you mention? Do you really enjoy visiting your local post office? I disagree that the market was responsible for what happened in the financial and banking sector. These were two of the most heavily regulated sectors subject to thousands of regulations.


    • Dr. Michael R. Edelstein Says:

      Jon, I would agree with you if banking and healthcare were regulated by market forces exclusively. In fact, there are tens of thousands of Government regulations hampering these industries from functioning properly. If you’re interested, I will give you specific examples from my own healthcare practice.

      Dr. Michael R. Edelstein


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