Soviet economists and our modern American economy

I tried to convince an American economist to take a few hours off last weekend and do something fun. “I have to work,” she said. I then asked her if Russians or Americans were smarter. “Russians are certainly better educated,” she allowed (in our helicopter ground school, a Russian high school course in physics taken 35 years ago turns out to be more useful than a recent U.S. college degree in science or engineering (posting on the subject)). Did the latest employment report show that nearly all new jobs in the U.S. were on the government payroll? She agreed that it did. So didn’t Russian economists in the Soviet era thoroughly analyze a centrally planned economy in which nearly all new jobs were created by the government? Why would she add her feeble efforts to the Herculean achievements of the Russians 1950-1980?

I wonder if this explains why so many recent college graduates with Econ degrees are unemployed.

11 thoughts on “Soviet economists and our modern American economy

  1. Just as the Chinese have their “Socialism with Chinese Characteristics”, the US can have its Centrally Planned Economy with American Characteristics too.

    Your economist friend’s feeble efforts can contribute to the Herculean achievements of Soviet economists, by conducting research into the effects that certain American Characteristics and variables would have on a Soviet-like planned economy, such as crony capitalism in a two-party state, injection of sizeable personal wealth into the economy for political elections, injection of funds into the economy to launch post-massive-industrial-accident PR campaign, etc.

    The fact that so many recent college graduates with econ degress are unemployed is itself an example of these American characteristics that distinguishes the American planned economy from its Soviet counterpart. In the Soviet economy, all college graduates with econo degrees would probably be hired by the government to run the planned economy. Here in the US, they would be sent home to live with their parents.

  2. If we are talking about Soviet planned economy, you should note that there was nothing wrong about it. Why it all fell was lack of feedback and lack of communication between organizations in general.

    In one example – factory in my city was producing motorcycles. Mediocre at best, but still usable. Every 5 years there was a plan ( for that factory. The only changes between previous plan and current plan was to increase production by XX%. Nothing else, nada. Demand for motorcycles was good, so no worries there. But it didn’t matter that half of warehouse was full of defective motorcycles. And these defective ones was accounted as “produced”. Apply it on global scale for whole

    If US wants to create planned economy, it can do that and do it effectively. Technology that wasn’t 50 years ago, now is here. Monitor factories from central location. Get access to all needed data, just by one request from Internet. And all this can be automated. Just think of possibilities. Voila, you have your planned economy.

    With love from xUSSR.

  3. Pavels makes an intersting point. Can a new planned economy succeed where prior ones failed simply because of better communication and information systems technology and possibly better transparency? That is a good question.

  4. One example would be Norway, where the economy is mostly state-run and -owned. High growth & GDP, low corruption, fairly nimble response to world markets.
    Sweden is similar but a bit more privatized, and has some irrational disincentives against staying in-country for skilled workers. Still, 8/10 on the top-down efficiency scale.

    Turns out the factories don’t lie in places with a decent social contract, so top-down works fine.

  5. The Nordic countries offer excellent examples of how central planning can succeed in advanced economies. For example, Volvo, SAAB, Husqvarna, Electrolux, Ericsson, and IKEA are all successful state-owned Swedish companies. Their production is centrally planned, yet their products are of excellent quality and they consistently return high profits to the state. Indeed, you would be hard-pressed to name a single Swedish or Norwegian manufacturing company in the private sector that enjoyed anything like the global success of the state-owned companies I mentioned. The Soviet experience is clearly an anomaly.

  6. John, Mat: Can the lightly populated and resource-rich Nordic countries truly be a model for a United States that has 310 million people on its way to 600 million? The 4.6 million Norwegians earn roughly $50,000 per capita from oil revenue. None of them ever need to work in order to enjoy a comfortable modern lifestyle. The U.S. does not have anything like that per-capita resource wealth.

    Mat: IKEA is state-owned? says it is owned by the Kamprad family and says that Kamprad ran away from Swedish taxes by moving to Switzerland (and the company to some sort of offshore Dutch trust (as did the Irish band U2)). does not say that Ericsson is state-owned. What’s your source for this?

  7. Mat, I doubt that you are right about those companies. Most of them are not state owned. And furthermore they don’t have central planning of economy.

    My comment was about system as general, e.g. can it work. Yes, theoretically it can. If we look it as system, then we can make assumption that government have planned economy (it has goals, it has resource allocation). So why currently so many governments are facing problems? Some say it is because individuals in government cares more about their pockets rather than helping the situation. Again, this boils down to feedback and transparency. If correct system/model is made, there little possibility of corruption.

    Oh and about why so many recent college graduates are unemployed? Lack of feedback. Did anyone check if so many Econ degrees were needed in first place? Did anyone check how Econ courses are relevant to real wold? Maybe Harvard is exception to rule, I don’t know.

    Okay, here’s hint for unemployed. Maybe your expectations are too high? Your skills are way better than average person’s. However that does not mean that you’ll get high position after graduation. You’ll have to work your way up.

  8. Mat appears to have confused the Wallenberg family with the Swedish government, an easy mistake to make. The companies he mentions are plurality-owned by Investor AB or Foundation Asset Management AB, Wallenberg vehicles.

    The overall situation is more complex because the Swedish government has no aversion to taking over entire market sectors as necessary, and the other key shareholders in Swedish companies are mostly Swedish pensions & insurers (CEOs taken directly from government ministries) and neighboring governments.

    This all means government policy gets enacted indirectly, sometimes even confusing outsiders into thinking the private sector is independent. (example)

  9. Sorry, my sarcasm was not runny enough to get a good drip going. John, your description of the Swedish government and economy is reminiscent of fascism. Very interesting. Phil, I agree with your observations about the oil wealth of the Nordic countries. Free money from an oil bonanza can mask a lot of problems.

    The trouble with central planning is its rationale: that individual profit-seeking behavior is somehow counterproductive to the society. However, profit is simply the difference between resources produced and resources consumed in an economic process. An economic system that downplays profit will naturally let this difference shrink, to the point of systematically inverting it, as we saw with Soviet central planning. Capital erodes and eventually there is a collapse. The lack of feedback is intrinsic. Central planning cannot work.

  10. Planned economy cannot work in a large country (like USSR or US) for quite a simple reason: this is a prisoner’s dilemma kind of game, where the incentive to defect (e.g. produce crap, steal from government, etc) is quite high, and no incentive to cooperate. In a small country (Norway) it’s more like an iterated prisoner’s dilemma, so there is an incentive for cooperation, hence it works. It certainly works at the extreme in each individual household/family…

  11. Americans have a lot of successful experience with central planning, having to do mostly with mass logistics for defense, e.g. the Manhattan Project, D-Day and so on. While the US military retains its logistics competence, that does not seem to have filtered in the civilian sector at all.

    A lot of the early work on Linear Programming (mathematical optimization when both target and constraints can be expressed using linear equations) was done by Russian economists like Kantorovich in the 1920s-30s, so it wasn’t all parroting Kafkaesque nonsense about Marxist dialectic, they actually spent legitimate scientific efforts in a misguided direction. It is Americans who cracked the code, however (Dantzig’s simplex algorithm, 1947) while working on logistics and optimization problems for the DoD.

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