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The Russians (Were) Coming

Matthew Yglesias on bizarre thoughts from Bryan Caplan:

Matthew Yglesias: Overestimating the USSR: I’m apparently new to the fact that for a long time a number of well-known economics textbooks featured the idea that the Soviet economy was likely to soon overtake the American one....

Something that I think is revealing about the mindset of economists is that [Bryan] Caplan refers to the view that the Soviet economy’s growth prospects were bright as “pro-Soviet” and talks about the possibility of left-wing ideology tilting one’s assessments of the Soviet economy in this direction. If you look at the issue through an international relations lens, or through a focus on US domestic politics, you’ll get a different picture. The main political tendency inclined to overestimate Soviet economy performance was Cold War hawks who spent much of the sixties, all of the seventies, and some of the eighties warning that America was at risk of becoming the “number two” country in the world. A minority of the hawks, like Senator Scoop Jackson, also had left-wing views about economic policy, but the majority were inclined to right-wing views. And now we have Frank Gaffney wanting to do it again on the threat of Islamic fundamentalism. I bring this up because conservative faith in the workability of the Soviet economic model reached its apogee in the late seventies during the “Team B” exercise when a bunch of neocons teamed up with congress to produce alternate reports suggesting that official US government accounts were massively underestimating Soviet capabilities. This was basically the same as the mucking with intelligence that this same crew did with regard to Iraq.

Economists who used PPP and production functions to predict that the Soviet Union would outstrip the United States did so through the following chain of reasoning:

  • Start with your production function: output Y as a function of technological and organizational competence A, capital K, and labor L: Y = AKαL1-α

  • The level of technological and organizational competence in the Soviet Union is lower than in the United States--centrally planned economies are inefficient, you know--but there is no strong tendency for the proportional gap in A between the US and the USSR to widen: A in the USSR will stay roughly the same fraction of A in the United States.

  • However, because the Soviet Union is a totalitarian state it is very good at squashing consumption--at reducing consumption C as a proportion of output Y to some near-subsistence minimum, and in channelling the extra savings into boosting the capital stock.

  • Thus in the long run even though the USSR has a lower A than the US does, it will have a much higher K.

  • And that much higher K will ultimately give it a larger economy: in the end quantity has a quality all its own.

Calling this argument "pro-Soviet"--as Bryan Caplan does--is simply wrong. It is, as Yglesias notes, at bottom a very right-wing argument.