| Hayek described what has become known as "the knowledge problem" to show why socialist production, with centralized planning, would not work very well. The basic idea is that there is so much local knowledge, distributed through so many people, that it is impossible for central planners to predict the consequences of their plans. A classic example is how the Soviet economy had a huge shortage of things people wanted (like food) and warehouses full of stuff that no one wanted. There are many other examples of the knowledge problem: |