A young man made a video pointing out that if “the people” (the communist government) “own the means of production” (the core tenet of Marxism), then that means of production must be centrally controlled. “The Collective” i.e. “The State” decides how resources are allocated. We’ve done enough experiments through the centuries, and especially since communist governments have appeared, to know that central planning doesn’t work. It has produced starvation and mass murder on a scale we’ve never seen.

Economic thinking posits a single equilibrium, but there exist many equilibriums and they struggle against each other. A five-year plan for an economy that changes from moment to moment is useless as soon as it’s completed. Stable systems require constant feedback.

Unfortunately he then went on to demonstrate how perfect capitalism is, how it responds exactly the way Homo Economicus predicts. He appears to think that Libertarianism is provably the best system.

Capitalism definitely responds better to changes than a fixed five-year plan (can you imagine trying to create such a plan? No wonder they only do it every five years!). It is better than what has come before, certainly, and has produced great progress. Declaring that capitalism solves the organization problem, however, is tremendously naive.

The Homo Economicus problem goes deeper. Most people do not constantly act in their own self-interest. Occasionally they do, when the situation has no conflicts and the benefits are obvious. But people are complex and there are many, many other factors that affect every decision. For a single decision, each person attempts to meet their own list of needs and equilibriums, so each person makes different decisions. The “right” decision depends on the person.

This is very frustrating for economists, who have physics envy (here’s an explanation by a physicist). They desperately want economics to be a science, and by creating simple enough models they can do math and appear to be scientific. But science creates models that fit the data and are predictive. Economics has never achieved either of those requirements. Because it is a social science, deterministic results are not possible–only statistics has a hope of producing useful information.

This is an example of what I call The Simplicity Bias. I want things to be simple enough to make a decision. When they are not, I need to make approximations. Making a decision produces an emotional bump–I feel powerful and confident. To achieve this more often, I tend to codify my simplifications. This way I don’t go through the entire evaluation process each time. I can move forward in my life more quickly and with greater certainty. That feels good, so I do more of it. My tendency is to figure something out once and never revisit it. I become more and more stuck in my thinking. Rethinking decisions, on the other hand, is challenging and often painful.

A problem I’ve never seen considered in the social sciences is the effect of the dark-triad personality on organizations. Ironically, Homo Economicus posits a person who acts only in self-interest, which is basically the definition of a narcissist. Yet a model that makes everyone Homo Economicus is thrown into complete disarray when Homo Narcissus shows up, so economics pretends they don’t exist. But statistically they do. It might be one in twenty or one in a hundred, but they show up. And when they do, they can ruin everything.

Most people have experienced this: you have a group that works well because everyone trusts each other. Now a Homo Narcissus appears and suddenly you can no longer trust others’ motivations. Things worked great before, but now there are lots of problems. Traditionally, a group attempts to reduce the impact of Homo Narcissus by creating rules. This is a long, painful and endless process that burdens the group, reducing productivity and connection. Some of these rules might even attempt to remove Homo Narcissus from the group, if that’s an option.

A system like economics or Libertarianism that pretends Homo Narcissus does not exist cannot produce useful results. A system that ignores the problem ultimately becomes controlled by that problem. Homo Narcissus has tremendous incentive to gain positions of power, while for the rest of us it becomes too much trouble. We end up (A) deciding some people need to be in power and (B) selecting the perfectly wrong people to be in power.

Homo Narcissus also has a corrupting influence that compels non-Homo Narcissus people into corruption, just to get by. If we don’t deal with Homo Narcissus, we end up living in their world.

In both communism and capitalism, you are not an individual but a producer and a consumer. An expression of individuality is an existential threat in communism, less so in capitalism but still threatening. Communism takes it to the logical extreme–the promise of a “worker’s paradise” becomes a place where the worker doesn’t matter, a return to serfdom. The promises sound great, but the details don’t pan out because it ultimately becomes an autocractic central-control nightmare.

A stable system must care for the needs of everyone. Sometimes it provides for those needs, and sometimes it allows people to pursue their own needs. This is messy and complex, and a system that attempts to simplify everything using extremes–either by making the state have zero control or total control–is doomed.

We need a system that acknowledges scaling issues, supporting efforts that need scale when that makes sense. A system that allows individuals to pursue their needs while protecting them from the harm that comes from other individuals pursuing their needs too aggressively. This system cannot be created through either complete freedom nor complete control. Unless we honestly see and acknowlege who we are as humans, we cannot create a system that works.

“The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries.”–Winston Churchill