Bill Bonner

We have already seen why command economies do not work: They are not very nice.

Instead of the give and take of a market economy, everyone is forced to take what he is given. There is no room for tit or tat; central planners tell everyone what to do.

But they never have enough information or bandwidth. They don’t know what producers can produce or what consumers want. They try to compensate for ignorance of the specifics by putting people into categories: proletariat, bourgeoisie, rich, poor, young and old – whatever seems convenient at the time.

And they simplify quantity and quality with heavy-handed statistics that are largely meaningless.

In one famous example from the Soviet Union, central planners gave the nail producers their quotas in terms of weight. Their work assignment had nothing to do with what customers wanted; they simply were required to produce a predetermined number of pounds of nails.

They met their quotas by producing huge, largely unusable 10-lb. spikes. Realizing the problem, the planners switched to a quota based on the number of nails produced. This led manufacturers to produce millions and millions of tiny pins.

Once you ignore the civilized market system – in which people come to terms with one another voluntarily, tit for tat – you are headed for trouble.

The Soviet Union provided us with a case study over a 70-year period that involved roughly 300 million unwilling participants. The results were conclusive: Command economies cannot compete with market economies, for reasons explained by Friedrich Hayek 80 years ago in his book The Fatal Conceit.

Hayek was talking about economics. Our colleague Porter Stansberry’s insight was that the same principle applies to individuals in their personal and business lives.

All transactions – in business, career, love and daily commerce – are based on mutual advantage. You can’t expect to get without giving.

Yes, you can bully. You can threaten. You can deceive. You may get what you want… for a while. But it is the win-win deal that keeps friends, and customers, happy. It’s the generous tit-for-tat program that works.”