Of course, there is government planning and there is government planning. It was much more expansive, detailed, and detrimental under Stalin, Mao, and Mussolini than under Joe Biden or Donald Trump. But the difference between them economically is a matter of degree, and disorderly planning attempts can get us closer to stifling central planning, which is what so many people on both America’s Red and Blue teams today seem to want.

Impossibility of efficient planning Attempts at planning the economy are of course possible, but efficient planning is not. By “efficiency,” economists refer to the best use of resources for the satisfaction of individual preferences. Because individuals are not identical, satisfying their different preferences requires coordination of their actions to maximize the production of the goods and services they want.

In “The Use of Knowledge in Society” (1947), Hayek explained that such coordination requires information (“knowledge” in his terminology) that is dispersed across the minds of all individuals. Nobody—and no central planner or AI—has or can obtain any significant part of this information. It lies in the individuals’ subjective preferences as well as in circumstances of time and place of each individual. As each individual uses the information available in his environment in pursuing his own interest, all the information gets incorporated in the supply, demand, and prices of goods and services, as well as remunerations. Prices transmit this imbedded information to all participants in the economy and thus serve to coordinate their actions.

For example, says Hakek, suppose that the world supply of tin becomes scarcer for some reason. Its price will increase, transmitting to consumers the signal to economize on tin-made goods, and to producers the signal to produce more tin. It does not matter whether the cause of the increased scarcity of tin is that its supply has decreased or its demand has increased, where that happened, or what are the underlying reasons. Through trade, price signals are transmitted to all consumers and producers.

If prices are falsified by, say, unequal or erratic taxes (like President Trump’s tariffs), unexpected distortions and consequences happen. Examples are not difficult to find, but an interesting one was reported recently by the Financial Times: The new customs duties on copper announced by Trump in July handicapped New York’s Commodity Exchange (COMEX) in its competition with the London Metal Exchange (LME). Both companies trade copper futures, but COMEX stores copper on a duty-paid basis, whereas the LME’s global warehouse network operates on a duty-unpaid basis. After Trump announced the upcoming tariff on copper, many American buyers paid a contract premium to store their copper in COMEX warehouses before the tariff hit. But then (surprise!), Trump changed his sovereign mind and imposed his tariff on semi-finished and derivate products instead. “The result,” explains the Financial Times, “has been a big shift in business to London” to avoid the risk of erratic tariffs being baked into metal contract prices.

Ignoring basic economics/​ To know what they’re doing, government policymakers need at least an elementary knowledge of economic theory and history, or they need advisers who do. Instead of attempting to plan or redirect the whole economy, they will want to limit their interventions to special problems that cannot be solved by decentralized markets. They will not be pretentious enough to think they can create an alternative reality.

As an illustration of basic economic ignorance, consider Trump’s infamous 2018 declaration that “trade wars are good, and easy to win.” His first term’s tariffs typically fell on American consumers—including through businesses’ tariffed inputs—as many economic studies have shown. In line with the law of one price (i.e., there can be only one market price for a given good, not considering transportation costs), the tariffs also pushed up the price of domestic substitutes. A Cincinnati steelmaker explained why he had increased his prices after Trump’s steel tariffs: “Demand came on so fast that we had to raise our prices or we would not have had one pound of steel for anybody. We raised prices to the point where the market said it is enough.” Not surprisingly (for a student of economics), protecting American industries against foreign competition did not make them more productive and competitive. Moreover, some foreign states retaliated, which caused reductions in the markets of many American producers.

Nevertheless, very early in his second term Trump launched an intensified trade war. Over his first term he roughly doubled the average (trade-weighted) American tariff on imported goods. By October 30 of 2025, he had multiplied it more than seven-fold, bringing tariffs to levels comparable to the mid-1930s following the Smoot–Hawley Act. On that date, the average tariff on goods imported in America was estimated at 17 percent, which includes some 45 percent on Chinese goods.

Again not surprisingly, an arbitrary government incentivizes more lobbying to ask for special privileges, permissions, and exemptions. According to a Washington Post compilation of official data in late October, lobbying expenditures were up 21 percent compared with the same period in 2024.

What about China?/ From all we know about economic theory and history, it is an illusion to think that a planned economy can be more efficient than free markets. But what about China? Hasn’t its government planning led it to be the second largest economy in the world?

It is easy to exaggerate the strength of the Chinese economy. Its gross domestic product per capita was only 32 percent of the US level in 2024 (World Bank data, in purchasing power parity). The country is “rich” in the sense that its GDP aggregates the output and incomes of a very large number of relatively poor people. The Chinese state’s military power may be worrisome, but it is probably more so if trade wars reduce Chinese incomes, generating popular discontent and political instability dangerous for world peace. Many analysts think that economic growth is exaggerated in official Chinese figures. And the country’s economy has shown many weaknesses, especially over the past few years.

If one looks at American individuals instead of their supposed collective, they gain more profitable opportunities by trading with rich rather than poor neighbors, whether in the next village or across the globe. This is the individualist and liberal way to look at exchange.

It is true that Chinese state-owned, state-backed, and state-planned corporations have gained a very large share of the world markets in rare-earth elements and the related advanced magnets: from 70 percent in rare-earth mining to 93 percent in the magnets. Through export controls, the Chinese government has been using this dominant position as leverage in the current trade war. This, however, does not mean that an American planning state is a good response to the Chinese planning state.

In many if not most industries, despite its government planning and subsidies, the Chinese economy remains far from American performance. The resources the Chinese central planner pushed into rare-earth activities were diverted from other industries. In the United States, on the contrary, regulations on mining and processing rare earths have most likely impeded their production. If, over the past couple of decades, private capitalists did not correctly appreciate the future potential of rare earths, that is partly because, given the then-available information—the prices charged by Chinese firms (and the subsidies of the hapless Chinese taxpayer)—it was more efficient to import these materials. And it is not the Chinese government that started the trade war.

The fact that governments in the West were not themselves more clairvoyant is consistent with the idea that governments cannot use, and act on, available information better than decentralized markets.

Free enterprise/​ Since the Biden administration, the US government has been heavily subsidizing the rare-earth and magnet industries. Trump’s Department of Defense announced in July that it is even taking an equity stake in MT Materials, an American rare-earth miner that is starting to produce magnets. The federal government would thus be the company’s largest shareholder. In early November, the administration took equity stakes in two more private companies involved in rare earths and magnets, start-ups Vulcan Elements and ReElements. This is the planning path, not the free enterprise route. Which other companies will the feds decide to partly or totally own? Could the Democratic Socialists do better in industrial policy?

Interestingly, US automaker General Motors did not wait for rare-earth Big Brother to address its needs. In 2021, the company decided to pay the higher cost of a long-term contract for rare-earth magnets from a German manufacturer, which built a plant in America. At the same time, GM also secured most of MT Materials’ first commercial output of magnets, which is now imminent. Other automakers have since followed GM’s example. This illustrates the benefits of decentralized decisions and experimentation in a free enterprise system.

In general, it is a good idea to remember basic economic principles and not jump into collectivist misadventures. Attempts at central planning, whether by Team Red or Team Blue, are blind alleys if not chaotic zigzags, and do not provide a path to liberty and prosperity.