Samuelson on the USSR - why did he get it so wrong?

silverharp

Why in particular was Samuelson so wrong on the Soviet economy? I can only guess that there wasnt enough care in dstngushing the difference between a cubic meter of concrete and a cubic metre of computer equipment (vey blunt but you get the idea)

http://online.wsj.com/article/SB10001424052748704869304574595823818190240.html

As early as the 1960s, economist G. Warren Nutter at the University of Virginia had done empirical work showing that the much-vaunted economic growth in the Soviet Union was a myth. Samuelson did not pay attention. In the 1989 edition of his textbook, Samuelson and William Nordhaus wrote, "the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive."

SLUSK

Well Austrians have been rejected by the intellectual academics they got it right. Here is a video on Keynesian predictions versus actual results.
http://www.youtube.com/watch?v=6XbG6aIUlog&feature=player_embedded

Keynesians get it so wrong so often because their model is crap. They just look at mathematic functions and aggregate numbers.

The Keynesians said, hey the Russians GDP numbers are great, excellent output! Forget about that they made stuff that was not demanded by the market, just produce any crap and the GDP soars and the Keynesians think the economy is doing great.

nesf

At a guess, status quo inertia. The numbers coming out of the Soviet Union were so strong for decades by that point that you're bound to find that some still believe in the old opinion.

It's hard to appreciate now but for a very long time there were genuine beliefs held by well informed, intelligent commentators that the USSR could overtake the US.

SLUSK

nesf wrote: »

At a guess, status quo inertia. The numbers coming out of the Soviet Union were so strong for decades by that point that you're bound to find that some still believe in the old opinion.

It's hard to appreciate now but for a very long time there were genuine beliefs held by well informed, intelligent commentators that the USSR could overtake the US.

This belief was never held by Hayek or other Austrians. It seems you have to be a jackass to have "academic credibility".

Économiste Monétaire

"Credibility;" something SLUSK has garnered is spades around here.

SLUSK wrote: »

I think prostitution is great, if there were no prostitutes I would not get any sexy time

Thank god for the prostitutes.

SLUSK wrote: »

I do not care about any so called externalities, people who are against a free market are usually, socialists or fascists or conservatives or a mixture between these.

SLUSK

Why is it that on issue after issue the Austrians get it right and Keynesians get it totally wrong?

Économiste Monétaire

Why do you think you're qualified to make judgements of 'right and wrong' in a field you're wholly ignorant of?

SLUSK

Économiste Monétaire wrote: »

Why do you think you're qualified to make judgements of 'right and wrong' in a field you're wholly ignorant of?

I can look at what different people have said and then see what has happened in reality and judge who is right and who is wrong.

Ben Bernanke said before the crash there was no bubble.
The Austrians said there was a bubble.

Now who was right and who was wrong?

Économiste Monétaire

SLUSK wrote: »

I can look at what different people have said and then see what has happened in reality and judge who is right and who is wrong.

Ben Bernanke said before the crash there was no bubble.
The Austrians said there was a bubble.

Now who was right and who was wrong?

So you're qualified by watching youtube? Listening to Peter Schiff et al, who lost a shit ton of money in '08? Where's the hyper inflation SLUSK? Why hasn't the Dollar been reduced to toilet paper SLUSK?

SLUSK

Économiste Monétaire wrote: »

So you're qualified by watching youtube? Listening to Peter Schiff et al, who lost a shit ton of money in '08? Where's the hyper inflation SLUSK? Why hasn't the Dollar been reduced to toilet paper SLUSK?

I don't think ANY Austrian has said that the Dollar would turn into toilet paper just yet, they say we will have a huge currency crisis within 5-10 years because of American deficits...

Économiste Monétaire

SLUSK wrote: »

I don't think ANY Austrian has said that the Dollar would turn into toilet paper just yet, they say we will have a huge currency crisis within 5-10 years because of American deficits...

Hm,

SLUSK wrote: »

Ben Bernanke will be known as the man who destroyed the dollar.

Where's the hyperinflation, SLUSK? When is it coming?

SLUSK

Économiste Monétaire wrote: »

Hm,


Where's the hyperinflation, SLUSK? When is it coming?

Hard to say, how long is a white string? How much money will the central banks print? You tell me.

Économiste Monétaire

SLUSK wrote: »

Hard to say, how long is a white string? How much money will the central banks print? You tell me.

Hard to say, or you're completely clueless because Youtube hasn't told you yet? Austrians are right on issue after issue according to you, so enthrall me with your Austrian-esque foresight.

SLUSK

Économiste Monétaire wrote: »

Hard to say, or you're completely clueless because Youtube hasn't told you yet? Austrians are right on issue after issue according to you, so enthrall me with your Austrian-esque foresight.

Come on you know as well as I do you can't predict an exact date when stuff will happen but you can predict what will happen given certain policies are enacted.

Économiste Monétaire

What are you predicting for the future, SLUSK, given current policies being enacted? Dollar collapse? Food riots around the world? Society imploding à la Mad Max? Ben Bernanke being made Pope?

silverharp

Slusk, You should try not to be so "shouty" in your posts.

nesf At a guess, status quo inertia. The numbers coming out of the Soviet Union were so strong for decades by that point that you're bound to find that some still believe in the old opinion.

It's hard to appreciate now but for a very long time there were genuine beliefs held by well informed, intelligent commentators that the USSR could overtake the US.

The article caught my attention and reminded me of a school trip we had to East Berlin in the mid 80's . It was clear even to our class where there was much hilarity at the expense of the local guide when she was pointing out their marvels like a shopping centre.

I guess my question was trying to get at what models or data analysis one would have used to defferentiate between growth obtained from putting more peasants on tractors versus real productivity growth due to new technology etc.
There may have been an incentive in certain quarters to build up the USSR for political reasons, but was surprised he or likewise the CIA could have been caught out so badly.

SLUSK

Économiste Monétaire wrote: »

What are you predicting for the future, SLUSK, given current policies being enacted? Dollar collapse? Food riots around the world? Society imploding à la Mad Max? Ben Bernanke being made pope?

You have already started seeing signs of inflation in China and India + USA and Britain. In the short run the dollar will rally further on worries about the economies in the Eurozone. But in the long run the bull market in commodities will continue, it will mean more expensive food and petrol. All metals will increase in price making consumer electronics more expensive. People in the western world will find it more and more difficult to make ends meet.

Économiste Monétaire

SLUSK wrote: »

You have already started seeing signs of inflation in China and India + USA and Britain. In the short run the dollar will rally further on worries about the economies in the Eurozone. But in the long run the bull market in commodities will continue, it will mean more expensive food and petrol. All metals will increase in price making consumer electronics more expensive. People in the western world will find it more and more difficult to make ends meet.

Thanks, Jim :rolleyes:.

SLUSK

He seems to get it right more often than not.

Économiste Monétaire

He does and he's made a lot of money. Jim Rogers has charm, though.

Anonymous1987

Austrian economics seems to be more a political philosophy than a school of economics. Hayek never proved anything with data, he was a theory guy. Doesn't exactly give me confidence about his beliefs in the market.

As for the USSR, like Silverharp2 said, I guess the production and output figures masked the actual value and productive use of the goods produced. I'd imagine from an organisational point of view the hierarchy in place and the pressure to meet targets e.g. x amounts of steel, set on the top level lead to confusion and general mayhem not to mention bribery which wasn't recorded in any figures and made the target an end in itself. In fairness though they did manage technological advancement, e.g. nuclear arms and the space race but the motives were political rather than productive.

Flamed Diving

Well, if one were to judge the performance of the USSR economy back then, where would one get the data? The politburo? Perhaps it wasn't easy to tell, either way. As I once read, steel kettles with several inches of steel at the base were not uncommon due to over-production and mis-management. This, coupled with poor/manipulated record keeping meant that painting the full picture was impossible.

That said, I would agree that a command economy could function, but highly advanced networking technology would be required for it to work. Far more advanced than we currently have.

Time Magazine

SLUSK wrote: »

Keynesians get it so wrong so often because their model is crap. They just look at mathematic functions and aggregate numbers.

No, they don't. Most modern Keynesian economics is focused on very much micro-based decision-making.

Can you say exactly why the Keynesian model "is crap"? (Firstly you'll have to specify what the Keynesian model is because unless you're talking about IS-LM, there are many varieties.)

The Keynesians said, hey the Russians GDP numbers are great, excellent output! Forget about that they made stuff that was not demanded by the market, just produce any crap and the GDP soars and the Keynesians think the economy is doing great.

"The Keynesians" didn't.

SLUSK wrote: »

This belief was never held by Hayek or other Austrians. It seems you have to be a jackass to have "academic credibility".

Hayek has academic credibility as a libertarian thinker. (Does that make him a jackass?) His economics is fairly weak, though. Is it only in economics where you think jackasses get the credibility?

Économiste Monétaire wrote: »

"Credibility;" something SLUSK has garnered is spades around here.

Don't get so personal.

Anonymous1987

My favourite example of soviet planning is the Trabant car in East Germany. Waiting for an average of 15 years to get this piece of junk



Back to the drawing board

Flamed Diving

Anonymous1987 wrote: »

Back to the drawing board

Please fill out this form, and this form and join that queue for a month. You will get your drawing board in 8 years.

Anonymous1987

Flamed Diving wrote: »

Please fill out this form, and this form and join that queue for a month. You will get your drawing board in 8 years.

SLUSK

Well in Samuelson's defence the USSR was doing some serious fiddling with their reporting on GDP numbers and so on. How was poor Samuelson supposed to know that they were fiddling the numbers. I mean sure they were looking up people in Gulag and they were one of the worst murdering regimes in history but whoever thought that they would be dishonest in their financial reporting. I mean you could not have seen that coming at all

silverharp

Flamed Diving wrote: »

That said, I would agree that a command economy could function, but highly advanced networking technology would be required for it to work. Far more advanced than we currently have.

I remember the head of SAP saying that their system could have kept the USSR going. However my problem is that the best information is when a market economic transaction takes place. So while SAP might prevent a factory meeting his 10 ton of nails by producing oversized ones, a centralised system cannot tell people what they want. Hard to see the USSR producing a tech revolution, high tech medicine.........
Even looking at Ireland look how bad the coordination was between tax incentive hotel rooms versus maintenance of the water system.

Flamed Diving

Silverharp2 wrote: »

I remember the head of SAP saying that their system could have kept the USSR going. However my problem is that the best information is when a market economic transaction takes place. So while SAP might prevent a factory meeting his 10 ton of nails by producing oversized ones, a centralised system cannot tell people what they want. Hard to see the USSR producing a tech revolution, high tech medicine.........
Even looking at Ireland look how bad the coordination was between tax incentive hotel rooms versus maintenance of the water system.

Yeah, I'm talking about everyone having a blackberry thing on their wristwatch and paying for every transaction with it and it being fed to a supercomputer which calculates all the allocations of capital and so on. Civil liberties out the window, but all I'm saying is that the system could function.

Flamed Diving

Flamed Diving wrote: »

Yeah, I'm talking about everyone having a blackberry thing on their wristwatch and paying for every transaction with it and it being fed to a supercomputer which calculates all the allocations of capital and so on. Civil liberties out the window, but all I'm saying is that the system could function.

Shadow market would win out there, in some form.

Flamed Diving

Deleted User wrote: »

Shadow market would win out there, in some form.

Yeah, but it's the future, and cameras are everywhere. Even little robot ones that look like flies. People who engage in shadow market activities get sent to a Mars penal colony. There is no escape.

Anyway, my point is that sufficiently advanced technology would mean that a command system could efficiently work. If that is true, there would be little need for a shadow market.

Flamed Diving

Flamed Diving wrote: »

Yeah, but it's the future, and cameras are everywhere. Even little robot ones that look like flies. People who engage in shadow market activities get sent to a Mars penal colony. There is no escape.

Anyway, my point is that sufficiently advanced technology would mean that a command system could efficiently work. If that is true, there would be little need for a shadow market.

I personally (and with little evidence really) believe that anyone who thinks a command economy could work out is missing the point on why the Sovs failed. And is probably reading too much work by Lucas!

Time Magazine

Flamed Diving wrote: »

Yeah, I'm talking about everyone having a blackberry thing on their wristwatch and paying for every transaction with it and it being fed to a supercomputer which calculates all the allocations of capital and so on. Civil liberties out the window, but all I'm saying is that the system could function.

And makes large assumptions about ergodicity, which Samuelson would be proud of. Also even if you're assuming that such data were made available, I see little reason to assume that a central planner would make use of it/innovate better than the invisible hand.

Flamed Diving

Deleted User wrote: »

I personally (and with little evidence really) believe that anyone who thinks a command economy could work out is missing the point on why the Sovs failed. And is probably reading too much work by Lucas!

Well, you know I am talking about information, so what am I missing?

Flamed Diving

Flamed Diving wrote: »

Well, you know I am talking about information, so what am I missing?

The inherent animal spirits - the ghosts in the machine if you will.

**** - I've just outed myself as a Sci-fi Keynesian.

Flamed Diving

Time Magazine wrote: »

Also even if you're assuming that such data were made available, I see little reason to assume that a central planner would make use of it/innovate better than the invisible hand.

Ah, but I am not assuming a human central planner. I am talking about a supercomputer. Say, five hundred years from now. It can handle all the information provided and allocate optimal bundles, so to speak.

Flamed Diving

Deleted User wrote: »

The inherent animal spirits - the ghosts in the machine if you will.

**** - I've just outed myself as a Sci-fi Keynesian.

Meh, what do we need humans for anyway...

Flamed Diving

Flamed Diving wrote: »

Ah, but I am not assuming a human central planner. I am talking about a supercomputer. Say, five hundred years from now. It can handle all the information provided and allocate optimal bundles, so to speak.

But then you are assuming a central utility function. Good luck with that..

Flamed Diving

Deleted User wrote: »

But then you are assuming a central utility function. Good luck with that..

It's the future. I can do anything I want. :P

Flamed Diving

Flamed Diving wrote: »

It's the future. I can do anything I want. :P

This is what you are looking for.