Soviet Growth & American Textbooks

by on January 4, 2010 at 7:35 am in Economics, Education, History | Permalink

In the 1961 edition of his famous textbook of economic principles, Paul Samuelson wrote that GNP in the Soviet Union was about half that in the United States but the Soviet Union was growing faster.  As a result, one could comfortably forecast that Soviet GNP would exceed that of the United States by as early as 1984 or perhaps by as late as 1997 and in any event Soviet GNP would greatly catch-up to U.S. GNP.  A poor forecast–but it gets worse because in subsequent editions Samuelson presented the same analysis again and again except the overtaking time was always pushed further into the future so by 1980 the dates were 2002 to 2012.  In subsequent editions, Samuelson provided no acknowledgment of his past failure to predict and little commentary beyond remarks about “bad weather” in the Soviet Union (see Levy and Peart for more details).

samuelsonAmong libertarians, this story has long been the subject of much informal amusement.  But more recently my colleague David Levy and co-author Sandra Peart have discovered that the story is much more interesting and important than many people, including myself, had ever realized.

First, an even more off-course analysis can also be found in another mega-selling textbook, McConnell’s Economics (still a huge seller today).  Like Samuelson, McConnell estimated Soviet GNP as half that of the United States in 1963 but he showed that the Soviets were investing a much larger share of GNP and thus growing at rates “two to three times” higher than the U.S.  Indeed, through at least ten (!) editions, the Soviets continued to grow faster than the U.S. and yet in McConnell’s 1990 edition Soviet GNP was still half that of the United States!

A second case of being blinded by “liberal” ideology?  If so, Levy and Peart throw another curve-ball because the very liberal even “leftist” texts of the time, notably those by Lorie Tarshis and Robert Heilbroner did not make the Samuelson-McConnell mistake.

Tarshis and Heilbroner were more liberal than Samuelson and McConnell but offered a more nuanced, descriptive and tentative account of the Soviet economy.  Why?  Levy and Peart argue that they were saved from error not by skepticism about the Soviet Union per se but rather by skepticism about the power of simple economic theories to fully describe the world in the absence of rich institutional detail.

To make their predictions, Samuelson and McConnell relied heavily on the production possibilities frontier (PPF), the idea that the fundamental tradeoff for any society was between “guns and butter.”  Thus, in the 1948 edition Samuelson wrote:

The Russians having no unemployment before the war, were already on their Production-possibilities curve.  They had no choice but to substitute war goods for civilian production-with consequent privation.

Note that Samuelson assumes all countries and economic systems are efficient (the Russians are “on” the curve) only the choice of guns versus butter differs.  When the war ended, the fundamental tradeoff became one between investment and consumption and since the Soviets invested a greater share of GNP they would naturally consume less but grow faster.  Moreover, since the Soviet’s had solved the unemployment problem they were, if anything, more efficient than the U.S. (here we see the Keynesian influence).

Levy and Peart conclude that although ideology may have played a role what arguably made a bigger difference was the blindness imposed by chosen tools.  As they write:

We are all constrained by means of models: we gain insight in one dimension by blinding ourselves to events in other dimensions. Competition among models may be necessary to insure that the benefits of the models exceeds their cost.

(Applications to the financial crisis are apposite.)

Addendum: Bryan Caplan also comments.  As Bryan notes, a very good economist can use PPFs and still get the story right.

Matt January 4, 2010 at 7:55 am

If you go and look at economists who actually studied the Soviet economy, even ones who where socialists of a sort, you don’t see as much of this. (A great example is Alec Nove, who always had very sober views of what the Soviet economy was like and what Socialism in a real sense could do.) This seems to me to show the importance of actually looking at the economies in question, and knowing something beyond the model. (That last bit might be Samuelson’s big problem- as a lover of the math he seemed disinclined to look at things.) But this fact seems to me to tell against Caplan’s idea that the problem with Samuelson was that the was a “socialist at heart”, since it seems that plenty of actual socialist economists saw lots of problems. That bit seems to me to show an ideological blindness in Caplan’s own thinking, I think.

Observer January 4, 2010 at 8:06 am

We also have Samuelson’s rosy appraisal of the economic performance of the East German economy. I am simply unable to believe that any unprejudiced mind could hold the views that Samuelson clearly did -and I mean based on information available in the West at the time. (To say nothing of his apparent lack of outrage at the police state governments involved.) I’ve long thought that his prejudices kept Samuelson from becoming a great economist.

Observer January 4, 2010 at 8:07 am

We also have Samuelson’s rosy appraisal of the economic performance of the East German economy. I am simply unable to believe that any unprejudiced mind could hold the views that Samuelson clearly did -and I mean based on information available in the West at the time. (To say nothing of his apparent lack of outrage at the police state governments involved.) I’ve long thought that his prejudices kept Samuelson from becoming a great economist.

liberty January 4, 2010 at 8:17 am

I agree that the main problem was model methodology not ideology. I know that ideology played a massive role in non-economists views on the Soviet Union, but within the economics profession I think it was all about methodology–however one’s preferred methodology or school may itself be influenced by ideology.

Many socialist economists who were not true-blue Marxists visited or studied the actual economy, rather than using a Keynesian / Samuelson methodology, and slowly became Market Socialist and even Smithian or Austrian by the time of the collapse. There is something about opening your eyes that really helps you see the truth, I think.

Andrew Edwards January 4, 2010 at 8:20 am

For example, here’s a conservative economist telling us even with hindsight that in the 80s the “growing Soviet threat loomed large”, as opposed to “the malfunctioning Soviet state was about to collapse”.

http://article.nationalreview.com/?q=Y2VmMThjNjcyNWY5MjhhZjkwMDI2MTY5OWMyZTU0ZTU=

Didn’t take much effort to find that one.

I really don’t think that “leftist ideology” is the issue here. If anything, Samuelson was in line with the US establishment line through the Cold War.

Erik Brynjolfsson January 4, 2010 at 8:41 am

What do you think of China’s past and future growth?

Here’s an interesting prediction (hoisted from your archives) by Chicago Nobel Laureate Robert Fogel:

In 2040, the Chinese economy will reach $123 trillion, or nearly three times the output of the entire globe in the year 2000, despite the influence of several potential political and economic constraints. India’s economy will also continue to grow, although significant constraints (both political and economic) will keep it from reaching China’s levels.

Zamfir January 4, 2010 at 8:58 am

I thought Soviet growth rates in the 1950s really were good, so that at least for the 1961 version Samuelson’s extrapolation was reasonable, as far as extrapolation can be.

Keep in mind that others extrapolated Japan’s growth figures from those years and concluded that Japan would within decades be as wealthy as Western countries. That turned out true for Japan and wrong for the USSR, but who would surely have predicted that, in the Gagarin year?

Continueing that story up to 1989 is less smart by a long run, but it does serve as a reminder how incredibly unexpected the collapse of the Soviet Union was.

Seward January 4, 2010 at 9:27 am

If the predictions are in error as each edition is tossed onto the trash heap and that continues to be the case over the decades then it is more than an issue of models; there has got to be some sort of bias involved. And of course (apparently) Samuelson wasn’t actually punished in any way for this error; thus the pattern could continue with no cost to Samuelson.

Seward January 4, 2010 at 9:34 am

Mark,

But the USSR was supposed to (at minimum) close the gap.

Millian,

During the post-war era there was significant current within the American left (and amongst American liberals) that viewed the Soviet Union as just an “alternative system” which was headed towards the same place that the West was headed just in on alternative track. Whether Samuelson was part of that current I cannot say, but the current did exist, it was significant, and it was generally willing to overlook all sorts of non-sense that came out of communist countries.

Paul McCaffree January 4, 2010 at 9:41 am

This sounds like a quantum conundrum:

“We are all constrained by means of models: we gain insight in one dimension by blinding ourselves to events in other dimensions.”

philosophking January 4, 2010 at 10:14 am

It’s a textbook. Its purpose is to demonstrate the theory and maybe an application or two of the models. Simply put, what could neoclassical economics tell us about Soviet growth in the 60s, 70s, 80s? Your call for a more institutionally rich theory is not only a cheap attack but it’s also completely out of the scope of neoclassical theory.

I’m pretty sure Samuelson knew what he was doing there, but he did it from a methodological alignment and not a political one. In fact, another related point is the simple fact that we would even think that comparing US efficiency with USSR efficiency is a good idea. Neoclassical economics has no qualms with this, but if you think about the vast institutional and technological differences between the two countries’ production possibilities it seems absurd to compare the two. Again, I’m sure Samuelson knew this but when writing a textbook “what do you do?”…

I’d also like to take issue with a few of the comments here, who seem to believe that you can just “look” at the Soviet economy and that would tell you the glaring differences. Social Sciences 101: everyone has a theoretical model, a framework, in which they view ALL social phenomena. It’s very hard, and perhaps impossible, to *objectively* look at a situation.

Bill January 4, 2010 at 10:42 am

Unfortunately, Samuelson and others may have been relying on information gathered by the CIA and other agencies on the status of the Soviet economy.

Garbage in, Garbage out.

Greg Ransom January 4, 2010 at 11:22 am

As Gene Epstein says, it’s been 60 years of economics with the net down from the rocket scientists who made “economics” safe for undergraduate engineers with no interest in economics.

Boonton January 4, 2010 at 11:38 am

Heh, so if 100% of the population is employed, then the economy is more efficient than with a certain percentage of the population unemployed?

Yes but only with all things being equal. An economy with 100% employment but the employed are allocated highly inefficiently will probably not beat an economy that is highly efficient in allocating labor but still has 5-10% unemployment.

But I think there’s a few errors that happened here:

1. Making a projection by drawing a straight line. Why was the USSR growing rapidly? Because it was a country with little capital and lots of outdated ways of doing things. The USSR was able to grow quickly by simply upgrading itself to what was then the state of the art circa 1950 or so. If you think about it, this makes sense. You have a farmer ploughing his field with a muel. If you give him tractor his productivity will go up dramatically. It doesn’t matter if the person who gives him a tractor is a gov’t planner or a private bank/investor.

1.1 But what happens when you’ve upgraded to the state of the art? At that point your poor incentive structure starts to catch up with you. to maintain your high growth, you need to innovate. But if you can’t do a good job there, you’re stuck waiting for other economies to innovate for you so you can copy them.

2. Relying a bit too much on ‘official numbers’. How does anyone know what the USSR’s GDP was in the 50′s, 60′s, 70′s etc.? Basically whether you were left wing or right wing you were using the numbers put out by the USSR. Anyone see the problem here?

I think the ‘model bashing’ might be a bit misguided here. For one thing, the straight line projection nicely serves a teaching purpose in that it illustrates how a higher growth rate is more important over time. Even starting at half the size, a country’s GDP can equal another country if it is able to maintain a higher growth rate. Also from the POV of anti-communism, the projection was a conservative, precautionary estimate. Anti-communists were not projecting the USSR’s economic growth because they wanted to see which system was better. They were projecting it because they wanted to see how much of an armed force the USSR could maintain. By assuming that the high growth rates would be maintained they were taking a worst case scenaro. This is why you find the right wing buying into the high-growth story even though you’d think ideologically they’d be skeptical of an observation showing a communist economy matching or outperforming a capitalist one.

3. Efficiency means what? I agree Samuelson and many economists under estimated the impact the USSR’s incentive structure had on causing it’s PPF curve to be less than the theoretical best possible curve. I suspect in the 50′s this deviation was relatively small for reasons given in 1.1.

The USSR was inefficient from the POV of utility since gov’t planning overrode consumer preferences in terms of output. But economists were focued not on utility but output. How many tanks and bombers was the USSR able to produce and the answer was quite a bit in 1950. From the anti-communism perspective, this was very worrisome because the US could not direct its economy to produce nothing but tanks and bombers. Our consumer driven economy would direct a good deal of output towards rock-n-roll records, cars with tail fins and tupperware. This might be ok if the US economy was 2x the size of the USSR’s since we could indulge in ‘luxury consumption’ and still have enough to spare to match the USSR’s tanks and bombers but if the USSR became equal to the US economy we’d have a problem.

Boonton January 4, 2010 at 11:49 am

Keeping my previous post in mind, I see some analogy here to global warming.

In the 1950′s economists had a reasonable set of data pieces to indicate that global communism was going to become a bigger challenge….namely by straight-lining economic growth rates one could see the USSR would eventually equal the US in economic size meaning it would be a more formidable foe.

Even then there were short comings to the model. Innovation was something that was not easily added to the model but could have a very real impact on how things turned out in real life. Yet the ‘precautionary’ model did not include that leading policy makers towards a patch of assuming the worst.

In some ways this might have been positive, say by being aggressive against communist expansion. In other ways, though, this could have lead to diaster…say by encouraging a ‘first strike’ on the USSR on the grounds that it was better to defeat them now than wait for them to be so big that it would be impossible.

what’s interesting is the lesson this holds for both sides of the GW debate. The estimates of the costs are almost certainly over-inflated because we don’t have a good system of projecting future innovation.

What do we do then? Well it seems we assume innovation is 0 and has no impact on our models. But in reality we know over the long term it probably has more impact than any of the variables included in our models.

liberty January 4, 2010 at 11:59 am

Boonton:

You are missing some key inefficiencies in the Soviet economy. It is not only that they were producing things planners wanted not things consumers wanted. This is indeed important – and you may underestimate the importance. Output levels mean something very different in a planned economy than in a market economy – was is the meaning of an output of $200 billion worth of cow turds, each individual cow turd “worth” $200 according to Soviet planners’ pricing scheme, but which nobody wants?

However, it is not the only “inefficiency” – how about the fact that planners often used (I can provides cites) very expensive inputs unnecessarily in order to produce this unwanted output–for example, using expensive (scarce) metals instead of cheap ones? These things might lower overall output, but not if output is counted in rubles rather than comparing physical units. When comparing physical units, e.g. with the United States, the Soviet Union might look good for some items and bad for others — but how will we know if these are the things they should have been producing, or whether they produced them in an excessively costly way, and could have produced other goods instead with those resources?

Then there is the question of quality and of waste. As is well known, factories would produce a mixture of inputs that their customers could not use, and produced even the things they could use in a distorted fashion (e.g. too long and thin, or too thick a material etc) due to their need to fill targets. Many inputs never made it to the other factories that relied on them, and so their materials would go to waste, etc. Total output figures often counted all of these intermediate goods even though they were wasted (I have cites on that too).

And this is still only the tip of the iceberg.

liberty January 4, 2010 at 12:15 pm

Boonton said: “What do we do then? Well it seems we assume innovation is 0 and has no impact on our models. But in reality we know over the long term it probably has more impact than any of the variables included in our models.”

And what if our policy response which we choose based on 0 innovation reduces innovation, preventing us from actually creating technology that might slow warming? Is it wise to use such models? Perhaps the assumption of 0 innovation is less the problem–perhaps the problem is the policies we choose to combat warming which then reduce innovation. It is still a problem of a vastly simplified and static model of the economy at fault – just as with the Soviet Union.

liberty January 4, 2010 at 12:21 pm

Boonton – OK perhaps I misunderstood what you were saying, I just latched on to something you said about inefficiency being definable different ways, and jumped on it. Sorry :)

Boonton January 4, 2010 at 12:38 pm

And what if our policy response which we choose based on 0 innovation reduces innovation, preventing us from actually creating technology that might slow warming?

That is a real danger but one I think is addressed in the two most popular policy responses, a carbon tax and cap-n-trade. Keep in mind these are ‘right wing’ ideas. The older regulatory model was to simply command the use of certain technology or targets on industries. This ignored the possibility that innovation in unexpected quarters might do a better job (say computer controlled homes that turn off lights automatically in unused rooms and adjust the thermostats accordingly) than whatever ideas regulators enacted (forcing coal plants to scrub for CO2).

But I think the issue here is how you approach models. There is no good model for ‘innovation’ even though we know it is real and over the long term has a huge impact. If you insist on including it in models, though, you’re essentially leaving the model open to manipulation. The 1950′s economist could honestly project that the USSR’s growth would slow as it finished copying all the major innovations of the west and the US would maintain a comfortable lead. But such a model would be little more than a guess. The straight line model, even though it was wrong, was at least objective in that it took what we already knew and projected what would happen if nothing changed.

Boonton January 4, 2010 at 12:43 pm

Let’s also not forget that this was not a textbook on Soviet economics or comparative economics but basic intro to economics. The graph is a good illustration of how growth rates matter more than starting points. I don’t know the context in which the graph was discussed but it seems to me that it was a valid way to illustrate that point back then with something that would have gotten the attention of a 1950′s audience. Today we’d probably use a graph showing China’s GDP growth versus the US’s.

liberty January 4, 2010 at 12:49 pm

oops, that should (obviously) say “ignores dynamic consequences and DOES NOT distinguish[] different kinds of institutions”

Fred Thompson January 4, 2010 at 12:52 pm

Two factors relevant to Samuelson’s analysis seem to have been overlooked in this analysis. First, the Soviet economy was dominated by military spending throughout the cold war — by US standards, the economy was nearly fully mobilized. Second, they sustained very high levels of investment in plant and equipment. What is remarkable is how unproductive that investment was. By the 1970s depreciation was nearly as high as gross investment, despite high levels of gross investment. In the 1980s the Soviets could continue to increase military output only by reducing gross investment (hence, negative net investment) or civilian consumption, both of which evidently occurred.

In retrospect, the problem looks like insufficient progress in the evolution of productive technology, combined with an inability to transfer resources from less productive activities to more productive ones — not enough creative destruction. One of the great tragedies of our times is the harshness of the transition that occurred when the Soviet system collapsed, when productive and unproductive assets alike were swept away by a gale of just plain destruction.

liberty January 4, 2010 at 12:58 pm

“In retrospect, the problem looks like insufficient progress in the evolution of productive technology, combined with an inability to transfer resources from less productive activities to more productive ones — not enough creative destruction.”

That is part of it – but not all. Restricted transfer of resources and lack of innovation were indeed huge problems. However, you also had the problems I described above and other similar ones, including wasted intermediate products as the wrong ones were made (because of issues with using targets), wasted investment as projects were started that were not worth completing (because of issues with centrally set interest rates), inefficient use of capital and inputs (because of lack of market prices), and poorly directed resources (because demand was unknown). All of these are documented extensively by Sovietologists – and have been since the 1960s at least.

Boonton January 4, 2010 at 1:34 pm

The 1989 quote seems accurate since it pops up on Google quite a bit but I can’t get a hold of the actual quote in context. Only constant repeating on right wing blogs. Does anyone have the actual paragraph or so that the quote appears in so we can judge it properly?

liberty January 4, 2010 at 1:47 pm

I apologize. I did not get that from an earlier version of this paper, I got it from:
Mark Skousen, “The Perseverance of Paul Samuelson’s Economics,† Forecasts & Strategies, February 1, 2002, at http://www.markskousen.com/article.php?id=1124 (November 17, 2009).

infopractical January 4, 2010 at 2:08 pm

Many of the posters here seem to be missing the point. This isn’t about liberalism vs. conservatism. This is about an economist missing the “fatal conceit” — that a nation that tries to play the role of the invisible hand is fundamentally different from a more free market system in which individuals following their incentives correct many of the problems that crop up with the national economy. Samuelson shows demonstrably that he is or was ignorant of this mistake by comparing the USSR and US economies using the same model.

Boonton January 4, 2010 at 2:30 pm

Samuelson shows demonstrably that he is or was ignorant of this mistake by comparing the USSR and US economies using the same model.

Actually he was comparing the two economies by using the same scale, GDP. And that does not seem to be a mistake. Today one of the fastest arguments against communism is its failure to meet and exceed the west’s success as measured by GDP.

The problem is:

1. If you don’t have access to the right GDP numbers your comparision will be off.

2. Straight lining a growth rate is tricky business….esp. straight lining rapid growth.

Jules Aimé January 4, 2010 at 3:27 pm

I’m not sure I see the logic of the claim regarding the possible ideological influence in the original post.

I’d spell it out like this: x and y both share an ideology and yet y does not make the same ideology-reinforcing mistake x did. Why does it follow from those facts that x was not influenced by ideology?

And Samuelson’s ideology, assuming he had one, was presumably liberal not communist. That is to say he was not looking for confirmation that communism was working but for confirmation that capitalism was in struggling and in need of significant liberal reforms. His focus, hypothetically assuming he was biased, is not on the details of the analysis of the Soviet economy but on the relative weakness of capitalism. He finds an example which appears to justify this and buys it as quick as you can say confirmation bias.

Boonton January 4, 2010 at 3:48 pm

Kudlow’s passage, though, is retrospective. Ideologues rewrite history every day. At the time and this includes the mid to even late 80′s right wing commentators saw the Soviet Union as still commanding an impressive military force which could only be supported by an underlying command economy capable of producing the goods to supply such an army (with Soviet consumers suffering, which was not a new insight in the 80′s or even in Samuelson’s original passage from the 50′s).

And Samuelson’s ideology, assuming he had one, was presumably liberal not communist. That is to say he was not looking for confirmation that communism was working but for confirmation that capitalism was in struggling and in need of significant liberal reforms. His focus, hypothetically assuming he was biased, is not on the details of the analysis of the Soviet economy but on the relative weakness of capitalism. He finds an example which appears to justify this and buys it as quick as you can say confirmation bias.

This is very dangerous business, trying to guess a person’s supposedly ‘hidden motives’. Why did more liberal economists not take it a step further? Why was a moderate liberal like Pat Moniyhan mocked in the late 70′s for predicting that the Soviet Empire barely had ten years of life left in it?

A more reasonable hypothesis is that Samuelson’s true ideology was math. He trusted numbers and equations over stories. Each time, in this pre-google age, he took the CIA’s numbers for the USSR’s GDP and noted their growth rate and straight lined them. To him a published number was more plausible than a ‘just so’ story. This is an understandable bias for a mathematician. The underlying weakness is that your argument is only as accurate as that number and ironically two opposing sides (the US Gov’t fighting communism and the USSR) had strong incentives to bias the published GDP numbers upwards.

I fear we are running around in circles – just as Samuelson was running around with blinders on.

I take it no one has the full paragraph of Samuelson’s 1989 quote huh?

Andrew January 4, 2010 at 4:26 pm

http://en.wikipedia.org/wiki/McCloskey_critique

“Paul Samuelson: In her view, Samuelson wanted economics to more closely resemble the hard sciences (especially physics), and elevated the “vice” of “blackboard proofs” and other mathematical (but not necessarily scientific) values, to accomplish this.”

Andrew January 4, 2010 at 5:16 pm

I’d rather have a cheap estimate that noone puts any faith in than an expensive one that everyone believes.

Boonton January 4, 2010 at 8:06 pm

Thank you zz. Again it might be helpful if someone could publish the actual context that either the graph or the 1989 quote appeared in. Unfortunately Google book search seems to have the page locked up….

William Newman January 4, 2010 at 9:05 pm

Andrew Edwards writes “Alex – be careful, it is very dangerous to attribute this to the ideologies of the writers. I think it is safe to say that Samuelson’s ideals are pretty different from Stalin’s – simply ‘being on the left’ doesn’t make one in any way sympathetic to Communism any more that ‘being on the right’ makes one sympaethetic in any way to Facisim.”

It’s quite true that jumping to conclusions about ideological motives can be dangerous. And Alex Tabarrok’s article doesn’t seem to provide enough evidence to justify the libertarians’ informal [grim, contemptuous] amusement that he refers to. But that doesn’t mean that there’s no justification. I own the 1976 edition of _Economics_, and there are other bits of analysis which point in the same direction. Consider two from the same chapter (#43, “Alternative Economic Systems”)…

First, Samuelson chooses to address the question of relative satisfaction in the Communist bloc. Well and good. How does he address it? He raises a semi-straw-man, dismisses it as a vulgar error, semi-justifies his dismissal by selective application of armchair psychology, and pointedly ignores how people are actually voting with their feet. That is, his entire treatment is this single paragraph, which I will quote in full: “It is a vulgar error to think that most people in Eastern Europe are miserable. Although it is undoubtedly true that few citizens of the West would trade their degree of economic comfort and political freedom for life in the Soviet, it is also true that a Soviet citizen thinks that he is living in a paradise in comparison with life in China or in earlier times. Remember that life under the Czars was no bed of roses for most classes, and to the eye of the traveler from impoverished Asia and Africa, the rising degree of Russian affluence must seem impressive.”

Perhaps someday someone will write a freshman econ text whose “alternative economic systems” chapter includes the antebellum US south, and which instructs college freshmen that “it is a vulgar error to suppose that most blacks were miserable,” and which justifies this by armchair psychology about ways that things could have been worse, and which pointedly declines to mention the system’s reliance on lethal force to prevent escape. If so, I would not consider it dangerous to conclude that the author is sympathetic to the South’s institution of slavery. (I might consider it dangerous *not* to conclude that.)

Second, in the introductory two pages of the chapter, Samuelson frames the point of his international comparisons as a response to criticisms of the mixed economy. But the only free-market-oriented criticism that he mentions is _The Road to Serfdom_ idea that centralized economies lead to despotism. He summarizes “Hayek is quite wrong,” and spends a page or so on backing it up, fair enough as far as it goes. But the chapter is almost 20 pages long, and it spends it respectfully (and, in hindsight, clearly optimistically) assessing the performance of more-centrally-controlled economies against the mixed economy.

Beating on _Serfdom_ is fair, OK — just because Samuelson enjoys it doesn’t make it wrong. But it’s not fair for Samuelson to treat that exercise in beating a dead horse as an answer to criticism of the mixed economy from the market-oriented side. I was a wide-eyed compulsive reader of 11 years old at the time, and neither my anecdotal experience nor the books that have come down to us from that time suggest that _The Road To Serfdom_ was representative of 1976 market-oriented criticisms of the mixed-economy policies of the day.

The chapter wallows in discussion of all sorts of socialist-oriented alternatives, devoting a respectful page or so to British socialism, to French “indicative planning,” to USSR-style, and to Yugoslav-style and to Mao-style Communism. To anyone who’s seen Milton Friedman’s books from that time, Hong Kong is a screaming omission — certainly worth including at the expense of a variant like France or Yugoslavia. And surely it’s more politically relevant than, say, Yugoslav-style Communism. In 1976, US trucking and airlines were about to be seriously deregulated, Reagan and Thatcher were soon to be elected, and top marginal income taxes were presently to be heavily reduced worldwide. Solemnly weighing the mixed economy against every leftist alternative (Tito? really?) while excluding alternatives like Hong Kong (or an entire class of freer-mixed-market alternatives, something like the great 1980s “how free are the high-growth mixed economies compared to the low-growth ones” debate) seems inexplicable as an innocent mistake. So I look for an explanation, and when Samuelson’s catalog of airbrushed international beauties is 100% socialist, it seems natural to explain it as Samuelson’s personal kink showing.

ziel January 4, 2010 at 10:45 pm

Well if your definition of economic success is enslaving one’s people to build a massive military machine, then you’ve got one bizarre view of economic success. But you’re entitled to your opinion, however lonely it may be. You got me on the “one liberal” – but Moynihan would certainly be the exception that proves the rule.

William Newman January 4, 2010 at 11:19 pm

Andrew wrote: “Oh, and the first thing that would pop into this engineers head would be: ‘You are projecting compounding rates into the future, forever? Furreal? Small errors compounded become, well, big errors compounded.’ Also: ‘Maybe the difference has something to do with Russia’s growth rate, as in they are learning some technology (catchup), if so, then therefore they can’t actually keep the same growth rate forever.’”

For what it’s worth, in my 1976 edition Samuelson addressed one of your points: “They [referring to 'many experts' from a previous sentence] suspect that, as the Soviet Union reaches stages of development more comparable with ours and places greater emphasis on services, she is likely to show a retardation in her rate of growth and may lose the advantage of imitation of more advanced technologies. So they caution against blindly extrapolating the data of the recent past into the future.”

(After that, he remarks “Although there is much that is persuasive in such arguments, there is also the fact that they may provide temptingly optimistic rationalizations to patriots who are wishful that America can stay forever ahead.” And I remark that there is also the further fact that patriots are not the only people who may be tempted by wishful optimistic rationalizations.)

Boonton January 5, 2010 at 9:57 am

Well if your definition of economic success is enslaving one’s people to build a massive military machine, then you’ve got one bizarre view of economic success

You seem to be confusing success in the production of goods and services with success in being ethical or good. The question facing policymakers in the cold war was how successful the USSR’s economy was and they weren’t asking that because they wanted to make sure the people in the USSR were living happy lives but because they wanted to know how much military force the USSR could sustain and project.

Nice job, though, on your attempt to poisen the well.

ziel,

This would hardly be the first time that rhetorical contradicted logic. The growing menance of the Soviet Union was a staple of the right for decades and by definition a growing military can only be supported by an economy. Like Samuelson (thanks W. for posting the 76 edition giving us at least a tiny bit of context), the right didn’t think the Soviet Union could out match the US in terms of producing consumer goods for their people. Even on this thread the implication was that you could have a successful economy by ‘enslaving your people’.

William,

Wow, Samuelson stole my idea from this thread back in 1976!

Boonton January 5, 2010 at 12:27 pm

liberty,

It would appear the left and Sameulson also saw them as evidenced by the 1976 text.

I think two different issues are being confused here. One is how desireable the Soviet economy was. The right was on top of this, the USSR did not provide its people with a good standard of living, did not match the US’s freedom and prosperity.

The second is how strong the economy really was. Here both Samuelson and the right took the numbers at face value. A strong economy produces lots of goods. There was no debate that the goods of the USSR were suboptimal for the citizen of the USSR. But was the Soviet economy producing the goods that its leaders wanted, namely a strong and expansive military?

Here the right was on record asserting it was, even if they put forth a distant future when the system would collapse on its own evilness. You should also recognize that Reagan at the time was not the right’s only spokesman. In fact, as the 80′s wore on Reagan aquired more and more critics on the right who didn’t believe that Glosnost & Gorbochev represented a real break from the past and were the signs of a major shift in the power and stability of the USSR. Even into the late 80′s you could find the idea on the right that all these things were an elaborate ruse designed to lull the US into a false sense of security while Soviet military build up continued.

After the Soviet Union fell history was rewritten (as it often is). It’s collapse was ‘obvious’ to everyone and a new narrative was written where the right united behind Reagan who single handedly did what a half century of Presidents before him couldn’t do, end the Soviet Union with some nobel words and a military build up. That’s nothing new. Hindsight is 20/20 and after any major event, once the shock wears off, you get pundits who predicted nothing telling us how obvious it was that it was going to happen.

jk January 5, 2010 at 2:38 pm

did Krugman cry when he heard the news about Samuelson?

Kaleberg January 5, 2010 at 10:17 pm

Interestingly, the Reagan era CIA parroted the same garbage as Samuelson and vastly inflated the threat of the supposedly invincible Soviet War machine. They not only bought the guns and butter argument, but they promulgated it to justify the big American military build up under the Reagan administration, probably the last group in the world with any faith in the Soviet economy and the Communist system. The Russians, in general, were much more cynical, but made a point of going through the motions as career moves. A cold water flat in Moscow is no great shakes, but it still beats the gulag. In fact, the Soviet economy was on the edge, and their empire was bleeding them dry. Sure, there were papers discussing all of this and the impending Soviet collapse, but the true believers were running in things in Washington, and their voices went unheard.

We need more and better accountants. They simply do the bookkeeping and let the books speak for themselves. Even better, they have a fairly powerful theoretical underpinning to their science. Economists try to paint with too broad a brush.

Barkley Rosser January 6, 2010 at 1:24 pm

Tyler argues that late comments are worthless (usually), but a)
I have been totally tied up at the AEA meetings the past few days
not following blogs (or newspapers or my email),and b) I know a bit
more about all this than most of the commentators here (and both
Alex and Tyler and even a few of the commentators know it also).
So…

a) While they have been arguing with each other, I commend both
liberty and Boonton for generally making intelligent and well informed
remarks.

b) Those who have pushed the meme (not pushed by Levy and Peatr, btw)
that all this shows that Samuelson was just a secret commie have their
heads stuck up some stupid and smelly neo-McCarthyite asshole. In all
the editions Samuelson pointed out the blatant micro inefficiencies of
Soviet socialist command central planning as well as the political and
civil political repressiveness of the society and system, even if he
said silly things about some aggregate stats and standards of living
that were widely repeated and reported in much official data and other
textbooks as well.

c) For those who want Samuelson’s ultimate bottom line on Hayek, see
his “A few remembrances of Friedrich von Hayek (1899-1992),” Journal of
Economic Behavior and Organization, January 2008, 68(1), pp. 1-4, where
he did his final settlement of accounts. Quick bottom line? Hayek was
right in his critique of Soviet socialist command central planning, but
was out to lunch in complaining about Samuelson’s characterization of
his “slippery slope” argument that many easily see in Hayek’s Road to
Serfdom, both those who are big fans of Hayek as well as those who are
or were not, with Samuelson defending both the accuracy and consistency
over the years and through his many editions of his handling of this
matter, despite Hayek’s protests against him over the matter.

d) On the matter of the Soviet stats, I shall simply note something
not noted so far by anybody. The aggregate stats were nearly accurate,
but they were misleading. Numbers on amounts of oil, wheat, steel,
cement, tanks, and so on being produced that were reported to GOSPLAN
and showed up in CIA reports and from there got into Samuelson’s textbook,
as well as the such Cold War outfits as the Committee on the Present Danger,
were not all that far off from accurate, although there were some mistakes,
such as the reports claiming that a cotton manufacturing plant in Uzbekistan
had been built that was not (the funds going to do so ending up in certain
well-lined pockets of some people who are still running Uzbekistan, as a
matter of fact), with this fact only being discovered by Soviet spy
satellites that observed an absence of a structure where one was supposed
to be. The biggest problem was the low quality of the goods being produced,
which was very relevant to the national security debates, but also to the
measurement of real GDP. So, there was lots of stuff, but while some of it
was the wrong stuff, the bigger problem was that with the lack of market
forces and incentives it was crappy quality. How crappy only became
evident when these economies were opened up to foreign goods and competition,
and the steel from the “Hero Plant” named for Lenin in Magnitogorsk that had
supplied the steel for the tanks at the battles of Stalingrad and Kursk was
found to be only saleable on world markets as scrap metal. Oooops! In any
case, quality is something that is very hard to measure without such openness,
so Samuelson was not quite as big of an idiot as people say (and neither was
the CIA, folks).

Barkley Rosser January 7, 2010 at 4:01 am

ziel,

But it was not “economic failure” that caused the end of the Soviet system. It was the other way around, with the political collapse triggering the economic collapse. The Soviet system did not do as well as the western market capitalist one, and it was falling farther and farther behind, but, in fact it was the push for political independence from the Eastern European satellite countries and then the Soviet republics that blew the system apart. Indeed, there are still some former Soviet republics whose economic systems are not all that different from what they had prior to the end of the larger system, e.g. Belarus and Uzbekistan.

There is also the odd fact that some of those who “forecast the collapse” actually said that the system could never function at all, which was clearly nonsense. I don’t have the quote you want, if that makes you feel all warm inside and just full of your self-righteousness, but I would also note that the number of people of any persuasion who said “it can work for quite a long period of time, but eventually it will collapse,” is/was extremely small. And in some parts of the world it did not collapse, but has evolved into something else without going through a collapse, notably China.

Boonton January 7, 2010 at 10:28 am

I think what makes this topic interesting is that it demonstrates how our current position in time taints our perspective. Today we look at how old textbooks described the Soviet economy thinking the issue was about comparison….which system produced better products. Back then I think the question was competition….which system is going to beat the other one.

This is why some here are making the error of assuming a projection of the USSR catching up with the US economy was one showing favoritism towards the Soviet Union. Actually such a projection was one of alarm. The 50′s and 60′s and 70′s were filled with fears of ‘gaps’. The US was suffering a missile gap, was losing the space race, a science education gap and so on with the Soviet Union. The people talking about this weren’t trying to say the US should copy the Soviet Union, they were sounding alarm about the Soviet Union. But today such statements may appear, to those who are not thinking about the time and place they were first written, to be praising the Soviet Union.

It also raises questions of how we know what we know. Take the idea that Soviet GDP numbers were suspect because spy satellite pictures did not look like those of other countries with rapidly growing GDP. Has anyone ever measured GDP in any other country using satellite pictures? Do we have any such record of GDP measurements taken that way that we can compare to actual GDP for accuracy? A policy maker in 1950 or 1960 or 1970 or even 1980 would have been very rational to note that GDP figures might have been leaving something out but he would have also been rational to have gone with the then official GDP numbers until proven otherwise. Hindsight is always 20/20 here.

Boonton January 7, 2010 at 12:28 pm

Probably not but it might be a useful way to get an objective measurement on GDP in a country that is making a transition from a primitive economy to an industrial one. Things like steel mills, power plants, roads and bridges show up very nicely on satellite observation. Hedge fund management, data base mining, web sites don’t…..although maybe there are alternative physical measures that can be used such as web sites hosted, internet traffic, text messages sent and so on that could be used as proxy measures of GDP in developed economies that are more service based.

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Flanket May 29, 2010 at 1:46 pm

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