Monday, May 01, 2006

Paul Samuelson: Back in the USSR

I received my BA in Russian and East European studies specializing in Soviet era history, politics and economics, so I found this story on Cafe Hayek bringing back old memories. H/T Don Luskin

That is, Samuelson predicted in 1961 that if the Soviets achieved their maximum possible economic growth over the next four decades, they would have to wait no more than 36 years for their output to surpass that of America's.

In the 1970 edition of the textbook a similar graph is displayed, this time showing projected rates of growth for the two countries from 1970 to 2010. As with the graph in the 1961 edition, projected Soviet economic growth is substantially higher than projected U.S. growth. And as with the 1961 graph, U.S. real GNP starts off as twice that of the Soviet Union - but this time, remember, the starting year is 1970, rather than 1960.

The 1970 graph shows that if the Soviets achieved their maximum possible economic growth over the next four decades, they would have to wait no more than 35 years to 2005 for their output to surpass that of America's.

In short: Samuelson's readers were told in 1961 (and shown in a graph) that the economy of the Soviet Union was growing, and would continue to grow, significantly faster than the American economy. Nine years later, readers were told the very same thing – even though, according to Samuelson's own 1970 graph, the ratio of Soviet GNP to U.S. GNP in 1970 was the same as it was in 1961.

A Soviet miracle: its real GNP grew faster than America's real GNP without ever getting closer to America's real GNP.

In short, economics as practiced in the Soviet Union, was completely worthless. It was not based on any type of scientific observation or prediction, but purely on Marxist philosophy. OK, some have argued the same about some economists in the US, but this is on a completely different scale.

So as a result any economic numbers that came out of the Soviet Union were completely bogus. Sure, there were your Walter Duranty types who would just repeat it as gospel, but no self respecting economist should have taken it seriously. In fact there was an ongoing argument at the CIA for decades over how to value the GDP of the Soviet Union, with multiple factions each coming up with their own elaborate formulas of estimating production. In turns out even the pessimists were being optimistic.

Sure, massive human suffering aside, Stalin's industrialization led to some spurts in production, but this was never based on increasing worker productivity, but rather on Stakhanovism, which is basically the principle of working yourself until you drop for the good of the motherland. This of course is not sustainable, you can't keep this up very long, thus left wing predictions, like our Professor Samuelson, ended up being wildly optimistic. Now we find out they were dishonest as well. To paraphrase Ayn Rand, "You can force someone to work, but you can't force him to think". Increasing productivity long term is the result of coming up efficiencies and technologies, not just forcing more slaves to work harder.