The Soviet Experiment, Continued
I found the discussion in the comments on my earlier post interesting. I have a lot of follow-up, so I will put this below the fold.
Responding to my tongue-in-cheek remark “Replace Lenin and Stalin with Krugman and DeLong, and you would be fine,” one person wrote,
I don’t think that Krugman and DeLong, with their fancy charts and equations, would have had what it took to pull off a revolution in Russia in 1917 and seize power
Let me push back a bit. Lenin was a theorist. On p.2 of her book, Nell points out that Lenin’s collected works come to 45 volumes. Back then, theorists did not use charts and equations so much, but he was (and still is) taken quite seriously. There was no Nobel Prize in economics in Lenin’s day. But his theory that imperialism is the last stage of capitalism has more widely cited than many theories that have gone on to earn Nobel Prizes for their authors.
As Nell points out, the Soviet theory was that capitalist competition produced waste, such as duplication and advertising. It struck me as very similar to the views of Marcia Angell on drug companies, and I can recall at least one column by Krugman where he cited Angell approvingly.
The Soviets believed that by eliminating these market failures (admittedly, they would not have used that expression), they would achieve a superior standard of living. What Nell and I are saying is that we should take their experiment seriously.
I think all of us, left and right, can agree that we do not like the totalitarian methods that Lenin and Stalin used to carry out their experiment. That still leaves at least two questions.
1. Are totalitarian methods separable from socialist policies? Friedman and Hayek argued that they are not. One can counter that contemporary America, western Europe, and especially Scandinavia disprove The Road to Serfdom and Capitalism and Freedom.
2. Leaving aside the issue of methods, does it work? By “it” we can mean government attempts to fix market failures in particular or socialism more generally.
As I see it, the central claim of Nell’s book, Rediscovering Fire, is that the Soviet Union offers legitimate evidence about this second question, and the evidence is strongly negative. I think this is a point that is very much worthy of consideration.
In hindsight, it is easy for someone to say that Lenin and Stalin had some flaws in their models of the economy. But were those flaws only in their models, or is there something flawed about modeling per se? On the latter point, I quote the latest wisdom from Robin Hanson.
Since our minds are smaller than the world, the world tends to be more complicated than our mental models of it. Yes, sometimes we think things are more complex than they really are, but far more often reality is more complex than we appreciate. All else equal, since far mode makes us neglect detail, it tends to make us think things are even simpler, thus increasing our error. So far mode is a major source of human overconfidence
On a related note, I came across a law review paper by M. Todd Henderson, who writes,
It is a debate about experts versus markets. In one camp, we find those who believe that optimal social policy is something that can be discovered by experts based on an analysis of data and argument. The problem with schools or health care or crime policy, they say, is that the right people aren’t in charge, or we don’t have enough money to implement the right solutions, or we just need more research on the questions to determine the correct approach. The right answers, the socially optimal answers, are there for the getting. Those holding this vision–what Sowell calls the “unconstrained vision”–believe there are solutions to policy problems that are discernable from the reason and logic of smart people. They believe in experts. Sowell describes the “unconstrained vision” as follows: “the conviction that foolish or immoral choices explain the evils of the world – and that wiser or more moral and humane social policies are the solution.”
…In the other camp, we find those who believe that social problems are not comprehendible by the human mind and that no amount of conferences, policy papers, or deep thinking will find solutions for them.
This paper was mentioned by Stephen Bainbridge in a post recommended to me by John Samples.
The Masonomics view is, “Markets fail. Use markets.”
To me, the theme of faith in experts wielding models vs. skepticism of experts and respect for decentralized markets keeps showing up. Again, I ask, did the Soviet experiment fail just because they used the wrong experts? Or does it reflect a deeper problem, that centralized expertise is not the answer? And if the latter is the case, does the Soviet experiment not tell us something about less drastic attempts to correct market failure?