Friday, November 3, 2017

Why Communist Economies Fail

This is excellent.



  1. I sometimes think the knowledge problem isn't the issue. There was ample knowledge in the Soviet Union to solve the "where do you build the railroad" question.

    The real issue is incentives and goals. If you attribute our values to the apparatchiks and nomenklatura, then there is a knowledge problem. But, assume you were a Soviet official sitting around a table similar to that in the video, then you suffered no knowledge problem. Your answer to the question is, "I would build it around the mountain."

    How could I possibly know that was the most efficient answer -- from a Soviet incentives and goals perspective? Simple. Comrade Stalin has a dacha near my proposed route and the excess steel needed would come from plants run by my patron, comrade Yagoda.

    Stalin is happy. Yagoda is happy. Problem solved.

    And don't think the US is immune from such solutions -- political solutions. The knowledge that prices provide is many times just part of the equation (e.g defense plants).

    1. That might be true for individual decisions, but over the long run if that's how decisions are made (and enforced) all around the economy then the wastage of scarce resources relative to satisfying consumer wants will mount, and eventually the economy will reach desperation point where basic needs can't be fulfilled. Scarcity doesn't care about values. Exhibit A is the Soviet Union, and Exhibits B and C are Venezuela and Cuba.

      Yes, the US is suffering from political solutions, and I would argue that (a) prosperity would be higher but for these decisions and (b) the low growth environment we are laboring under (at least as measured by government statistics) is a result of many resources being in the wrong places relative to consumer wants.

    2. @Mosin Nagant

      I feel like your example illustrates the very point you’re arguing against. When there are no prices, what would be economic decisions can only be made based on arbitrary or political considerations, which necessarily results in massive waste due to an economically suboptimal allocation of resources. It’s a critical blind spot of central planning and its importance shouldn’t be minimized.

  2. That 12 minute video is worth more than a semester's tuition at Berkeley, but to show it at Berkeley would be deemed microaggressive, white supremacist, hate speech leading to riots, followed by apologies from the invertebrate administration and required cultural (Marxist) sensitivity training.

  3. Evan --

    You cannot assume that Soviet officials shared your preferences. They could most certainly answer the "where to build the railroad" question, and they had the necessary knowledge for that answer. That the answer led to general deprivation meant little as those officials relaxed in Black Sea dachas.

    1. No, I would still say that ruling over an impoverished ant hill is a less-than-optimal outcome. With a depressed economy, there’s much less to plunder, which is a huge problem for someone who makes his living by plundering. Falling behind rival states economically and militarily compounds these problems.

      The western oligarchs have worked out a much better solution: to largely eschew top-down central economic planning (except in some areas key to retaining power) and to sit back and skim off the top of all of the ensuing productivity. Unless you’re a pathological megalomaniac, it’s clearly better to be a wealthy prince than a poor king.