Markets in everything (hardly anything)

by on February 3, 2009 at 3:13 pm in History | Permalink

From the former Soviet Union, markets in burnt out light bulbs:

For most of us, it is hard to fathom the rationale for a market in burnt-out light bulbs. But in the scarcity-driven Soviet economy, the market was entirely reasonable. Light bulbs were rarely available to individual consumers, but were obtainable for state-sponsored activities. Thus, it would be difficult to purchase a light bulb for a new lamp in one's home, while burnt-out bulbs in state-run offices or factories were routinely replaced. So if someone purchased a new lamp and needed a bulb, he would buy a used light bulb for a small fee and replace a functioning bulb at work with the dud. He would then take the functioning bulb home for the new lamp, while the burnt-out bulb at the office/factory would be replaced with a new functioning bulb. Meanwhile, the maintenance person at the office/factory would take the used bulb and sell it on the used light bulb market.

I thank Eric W. for the pointer.

Addendum: But from Singapore, no legal organ selling any time soon.

Anon February 3, 2009 at 3:47 pm

Tyler and Alex, I know this is a hijack, but I wonder if you’d be interested in commenting on how long the Fed can keep the lending rate at 0%? It seems like there is an awful lot of inflationary pressure being applied, but is that dwarfed by the risk of deflation?

Best,
Interested Party Worried About Prime Rate Returning to the 1980s Levels…

Sergey Kurdakov February 3, 2009 at 4:30 pm

Allan you say something fantastic. The communist system was absolutely inefficient and it was clear for us, who lived in the system. and more – it could not be improved even on personal level.

The way it worked was simple – to take best western example, scale it up and that is ( so best factories were just bigger copies of something already in the west ). But beyond that one step the system lacked ways to improve process – it just was not adaptive to changes and local specifics. Even compared to existing western examples the efficiency was less. And it was a recurrent theme in discussions of top officials – it was too clear – even bigger copies were less efficient. but bigger copies were also less flexible to adapt to changes ( and technological innovations) so that at one point when the population growth stopped – the whole system stopped to grow ( at level way below western standards of living ) and this stagnation caused drop in morale which in turn led to easy change of regime when hard times started in the end of 80s ( the cause were that external shocks in energy prices made a death blow to rigid system ).

MS February 3, 2009 at 4:42 pm

My dad who used to work at a factory that manufactured light bulbs in Soviet Union says he’s never heard of this. That’s not to say it never happened, of course, but seems a bit suspect.

Michael February 3, 2009 at 4:53 pm

Fascinating.

liberty February 3, 2009 at 5:15 pm

Allan:

What you’re saying isn’t wrong per se, but you miss out on the dynamic coordination problems, and other institutional problems (e.g. incentives) of the centrally planned model.

Markets waste, yes. But the shortage you describe that prevents waste in a planned economy is only a symptom of their inability to produce *enough*. It isn’t that they are able to produce exactly how much people want, they under-produce and hence there is no wasted inventory — but there also isn’t enough to fill demand.

But, beyond that, there isn’t even the right stuff to fill demand.

Also, in a market system, (1) the unwanted products are not necessarily thrown out- they can be sold on secondary markets — like used cars, or flea markets and (2) they still act as signals to alter production, so “waste” is useful.

There is much more to be said on this subject, but I’ll leave it there.

MS: Someone at a light bulb factory may not be the person in the best position to know. It would be someone in a factory that uses light bulbs who would know better. In any case, one person unaware doesn’t disprove the story. In any case, it makes logical sense that it would occur; it is just one example of appropriate the public provision for private use, which occurred all the time, and represents a “tragedy of the commons” sort of problem.

8 February 3, 2009 at 5:23 pm

Efficiency leads to greater waste by lowering the cost of inputs.

Allan February 3, 2009 at 6:25 pm

Sergey,

The Soviet system may have been terribly inefficient. But they wanted it to be more efficient than a capitalist system. In theory, it could be. Theoretically, government controlled companies can be as dynamic as privately owned ones. The problem is translating theory into reality and throwing in a portion of human nature.

My bottom line is that it is theoretically possible to create a communist economy that is more efficient than a capitalist economy, but impossible to implement the theory.

Toxic February 3, 2009 at 7:24 pm

Is it Allan?

The whole point of government owned companies and communism in general was to try to not be as flexible as capitalist countries, at least as far as labor practices go. If a government company fired and hired laborers based on their personal skill, market demand, etc, it wouldn’t be very communal.

And I am really f’ing tired of the “theoretically possible but human nature just isn’t up to it” excuse. Communists murdered tens of millions, enslaved millions more, oppressed billions, and still couldn’t make a decent toaster.

Allan February 3, 2009 at 8:36 pm

Toxic,

Don’t delude yourself. Yes, communists have murdered millions, but so have capitalists. So have Christians, and so have Muslims. For that matter, there were fascist monsters also. A financial system is not the same as a political system.

I seem to remember a capitalist system that enslaved millions, too. And the portion of the country that did was not that technologically savvy.

In any case, I don’t remember any purely communist systems in the past (other than, perhaps, the Kibbutz). There was a Soviet system, which had portions of communism, but it was not pure. Just as there are no purely capitalist systems.

JP White February 3, 2009 at 9:28 pm

For anyone interested in a good read, I recommend Hazlett’s “Time Will Run Back.” It is the best exposition I have ever seen of the problems central planners face. It covers the three principle problems: 1.) Mises’ calculation problem, 2.) the incentive problem and 3.) Hayek’s knowledge problem. It does this in the form of a novel, which is quite readable. link here

Vernunft February 3, 2009 at 11:33 pm

Allan, moral equivalence is a fallacy. And making up facts (capitalists murdered? I don’t recall that; fascists are Marxist so that goes in the radical Leftist murder column) isn’t helping either.

Wow. Aren’t we supposed to have universal education?

allan February 4, 2009 at 12:41 am

Vernunft,

Are you serious?

This whole post was about economics, not political systems. Capitalist economies have produced murderers, as have fascist, communist, monarchist …

I do believe the free market, free trade, and capitalism are the best systems practically. However, as a purely economic system, in theory, there are other choices.

Vlad February 4, 2009 at 1:16 am

Market in burnt out bulbs?!…
Bulbs rarely available to individual consumers?!…

Well, it’s not surprising that Prof. Cowen would easily believe ridiculous stories about the country in which he never lived. But it is surprising that Prof. Treml would tell his students patently ridiculous stories (well, let me be fair: at least one ridiculous story) about the country he had lived in.

Well, of course, it’s always possible that Prof. Treml and I lived in two different countries that somehow had the same name – USSR.

rhhardin February 4, 2009 at 4:42 am

According to rumor the NYC subways, back when they had bare bulbs, used left-handed threads.

Daniel Reeves February 4, 2009 at 8:20 am

Also wasted are bad products. In a capitalist society, if a product is bad, i.e., no-one wants to buy it, it is wasted. But the waste is absorbed by one of millions of producers. Certainly, if a product fails, the company that produced it might go out of business. but it is only one product. however, if it happens in a government controlled economy, it is the government who takes the hit.

And what incentive is there for government to make products that aren’t bad? Government doesn’t take the hit. Government could care less.

My goodness, are you really actually questioning the virtues of capitalism at its core? I thought we had all gotten over that.

assman February 4, 2009 at 11:18 pm

“In any case, I don’t remember any purely communist systems in the past (other than, perhaps, the Kibbutz). There was a Soviet system, which had portions of communism, but it was not pure. Just as there are no purely capitalist systems.”

There is no communist system because there is no definition of communism and no theory of it. So you can’t really criticize it because it doesn’t exist even in theory. Karl Marx never explained what a communist society would look like. And equality and egalitarianism have nothing to do with communism. Talking about a communist system is similar to talking about physics at the singularity of a black hole.

Actually its worse than that because communism is based on Marxism which has been falsified. Therefore communism cannot exist in practice because it is a theoretical construct of a false theory.

arkydee February 6, 2009 at 9:14 am

Uhh…, I’m missing something, I’m sure. Why buy a dead bulb in the first place, then sell the one from your lamp at home? WOuldn’t it be more practical to just put the bulb from home in place of one at work and cut out the middleman?

Roger Kovaciny February 7, 2009 at 2:22 am

To Vlad from the USSR, I have lived in Ukraine for 16 years and one of our dominant memories of earlier times was the number of burned-out light bulbs everywhere and the difficulty of finding good ones in the market. Maybe you went to the special shops for the nomenclatura.

Something these posts haven’t addressed is the corruption inherent in Communism. When the economy is government-run, everyone is supposed to have equal access to everything. But some people will always be willing to pay more, or more likely trade special treatment, for special treatment. In the free-market system you get extra light bulbs by paying for them honestly. In the Communist system–everywhere it’s ever been tried–you got more of what you needed by bribing someone, with cash or favors or pulling rank. I needed a bed. The clerk said “There aren’t any.” Fortunately I had a friend who knew the system, knew someone higher up, and we waited half an hour till he showed up and ushered us down to a huge basement FULL of beds. They were priced at a pittance–for the favored few.

Communism teaches you to bribe and steal, and Communism allows you to murder, torture, and “liquidate” (confiscate all someone’s assets and extract the last calorie of energy from their bodies before they die of starvation while doing slave labor–saving you the expense of a bullet.)

Communism only works in anthills. Great system–wrong species.

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