In Western economies, considerable short-run output instability derives from the individual actions of resource owners to employ and produce and from the actions of consumers to spend and save according to their own best interests. This economic freedom at the lowest level enables firms and individuals to vary their spending between resources, goods, time, and place, and hence to create opportunities for imbalances between the quantity of output which producers would like to sell and the quantity which consumers would like to buy. Thus, shortages and surpluses may be created in the current period which affect the level of production in subsequent periods.
The proponents of central planning argue that a system of state resource ownership and the authority of planners to establish a wages and incomes policy and to allocate productive resources stabilize the behavior of producers and buyers in the economy. It is said to assure a greater homogeneity of economic objectives, rewards, and standards of performance, and offers the opportunity directly to influence the use of resources. With the control of resources, planning has the potential of projecting sector needs and of coordinating the demand and supply in various industries so as to reduce the frequency and severity of short-run adjustments in output.