(LD) Why do centrally planned economies, such as those in socialist nations, constantly fail over a lapsed period of time? Aside from the ideologies' unnatural and coercive tendencies, it is their inability to efficiently utilize scarce resources.
Unfettered, perfectly competitive markets are ideal not only for a free society, but also efficiency. Price signals allow producers to determine which products to produce, and which products to negate. These price signals consist of profit and losses, and subsequently entrepreneurs adjust production accordingly in order to obtain equilibrium. The world is in a constant state of change, and with this change comes a revision in consumer tastes. These changes in utility alter demand which allows these price signals to guide producers to more efficiently utilize scare resources in their production.
Centralized economies on the other hand, attempt to artificially force equilibrium. This is impossible due to the volatility of markets, and the inability to accurately forecast demand due to the absence of price signals that exists in free enterprise. Central planning consists of price controls, and these floors and ceilings can negatively tamper with profits and losses which distort signals for producers. When there is a loss in profit motive and an increase in losses, there will be little incentive for entrepreneurs to generate innovative and newer products/services that reflect consumer utility.