Arnold Kling  

The Soviet Experiment

PRINT
How Don Boudreaux Got Hooked o... More on the Austerity of 1945-...

Rediscovering Fire, by Guinivere Liberty Nell, has a basic premise: The Soviet Union was a genuine experiment in trying to fix market failures, and we might want to learn from it. On p. 30,


The Bolshevik theory was that the state could outcompete private traders and slowly take over retail...State funding gave the state stores significant advantage, but only restrictions on private retail allowed the state to finally win the battle.

So much for the "public option."

If you believe that government should try to correct market failure, why did the Soviet experiment fail? Some possibilities:

1. Bad leadership. Replace Lenin and Stalin with Krugman and DeLong, and you would be fine.

2. Government has to focus on the most severe market failures. It should have stuck to health care and the environment, and not tried to fix so much at once.

3. Don't trust one-offs. (But then there's Cuba, East Germany, North Korea...)

4. ??

When I recommended Jim Manzi's paper on the limits of social science, several commenters on this blog and elsewhere argued that there is a selection bias: robust results in social science that run counter to preferred techniques in social engineering get ignored; flimsy studies that support social engineering get a lot of play, only to be discredited later.

If the selection-bias story is true, then you can be quite certain that Nell's book will be widely unread.



COMMENTS (37 to date)
Daniel Kuehn writes:

I suppose my response would be #2, but I think we need to rewind and present some clearer definitions before proceeding.

What exactly is the "market failure" in retail that you're refering to? You don't seem to reference any market failure at all - simply a state desire to overtake retail, apparently for the sake of overtaking retail (presumably the satisfaction of some Marxist article of faith). I'm extremely concerned that you're holding up the Soviet case as comparable to a market failure argument. I see no attempt to engage market failures in the Soviet case.

What is an experiment in addressing actual market failures that are reaonsable conceptualized as "market failures", traditionally understood by economists?

- Western Europe
- the United States
- Canada
- Australia
- Japan

These experiments in "trying to fix market failures" seem to me to have done quite well.

I have no idea what market failure the Soviet experiment is supposed to illustrate.

The problem is not in finding examples of societies that have use the state to address market failures (as traditionally conceived by economists). The real problem is finding examples of societies that haven't. There is no libertarian counter-factual - that's the biggest problem with getting a sense of this. There are several comparison cases that have gone considerably beyond concern with market failures (the Soviet Union, for example).

Daniel Kuehn writes:

Or, to put it more succinctly:

What person that thinks the state should address market failures that you know thinks that that means the market can do nothing successfully? What person that thinks the state should address market failures that you know thinks that the government should get involved in retail trade or that the market fails at retail trade?

I don't know of a single person. If you actually think things like that, it's not a market failure argument that you're using to justify your position. It's something very different - probably a variant of Marxism that has exactly zero to do with any kind of classical liberal, traditional notion of market failures.

ThomasL writes:

I think it will go largely unread, but for another reason.

I think that in the West, what happened to Russia, East Germany, etc. is usually looked at as a crime.

No one looks for the ideological underpinnings or philosophical framework behind a mugging.

People tend to look on Lenin and Stalin much more as muggers than as ideologues or politicians. When a mugger preying on old women is jailed or killed, people are relieved rather than curious.

By tossing these regimes into the same category, one can accept that the USSR failed to produce a good result without ever descending so deeply into it as to ask why. "Why?" becomes a silly, time-wasting question; the mugger is gone, so it can't ever happen again, what's the point?

"...probably a variant of Marxism that has exactly zero to do with any kind of classical liberal, traditional notion of market failures."

Nell's book discusses how the rationale for market failures that derived from classical liberal notions of perfect competition informed the Marxist conception of how to improve upon capitalism or "bourgeois economics."

I'm only so far into the book, but it suggests that modern economics has shed many of the earlier ideas of perfect competition: "price takers," "price makers," and all of that.

In other words, though the ideal libertarian society has not been achieved, the interventionism you speak of has been tempered by the slow subversion of traditional market failure theorizing. In the area of anti-trust, for example.

Daniel Kuehn writes:

The serious consideration of market failures that I'm aware happened after the foundation of Marxism had already been laid down, and I'm not personally aware of any tenets of Marxism that someone like Krugman or DeLong (I mention because Arnold mentions) would think of as "market failures". That having been said - I'm no Marxism expert and I also haven't read Nell's book.

I'm just a little curious about the logic, given what I do know. Could you explain in a more detail?

Either way, if we take people who take market failures seriously now, it seems to me they would say "do it how Western Europe and the U.S. do it, do not do what the Soviet Union did - that has nothing to do with the case we are making".

Maybe ThomasL is right that it's thought of as a crime, rather than a lesson. But if its not thought of as a lesson I think that's probably because it's not any goal that any advocates of market-failure logic are in support of anyway.

liberty writes:

I don't believe that I quite phrased it the way that Arnold phrased it above - that "The Soviet Union was a genuine experiment in trying to fix market failures." (It's my book)

I do argue that it was a genuine experiment with a system that was believed to be superior - more efficient and more fair - than the market system.

I also would agree with the sentiment Arnold is making about the relationship to market failure arguments, and that I think Dain is making (though I am confused by his phrasing), about the relationship to antitrust and perfect competition theory -- both of these are discussed in the chapter on competition (chapter 1) which Arnold quoted from.

I agree with Daniel that Marxists were not trying to fix market failures in the sense that advocates of intervention are today. They were trying to replace markets with a superior system, which is distinct. However, the lessons are still relevant. For example, as Arnold points out: so much for the "public option."

If public firms cannot be subsidized in such a way that they can effectively outcompete private firms, for specific reasons that cut across all industries, then the public option might be expected to fail. Proponents of the public option should be asked to explain how that industry differs. They may have "market failure" reasons why it differs--however, they must weigh these against the "government failure" lessons from the Soviet experience of competition by publicly subsidized firms.

I also understand that many people argue that the Soviet experience is not relevant because it was too extreme - however, I argue that it is a good case study for precisely this reason: it is a more "pure" case. As Elinor Ostrom put it:

"The biologists’ scientific strategy involves identifying the simplest possible organism in which the process under investigation occurs in a clarified, or even exaggerated, form. The organism is not chosen because it is representative of all organisms. Rather, the organism is chosen because particular processes can be studied more effectively using this organism than using another. These cases are in no sense a “random” sample of cases. Rather, these are cases that provide clear information about the processes involved."

Lenin and Stalin did not fail to bring about a more prosperous society because they were "bad leaders" or a "criminals" but because the theories underlying their policy choices were wrong. The idea that they were just bad men (and selection-bias) is widespread. Combating that was really my motivation for writing the book.

Dave writes:

"Replace Lenin and Stalin with Krugman and DeLong, and you would be fine."

This is the funniest thing I've read today. Thanks.

BintheD writes:
1. Bad leadership. Replace Lenin and Stalin with Krugman and DeLong, and you would be fine.

I think this is exactly the rationale, and was demonstrated during the healthcare debate. There were critics of the legislation who - shouting from the rooftops - offered plenty of examples of failures in the British/Canadian/French/Swedish healthcare systems.

And what did the proponents respond with? 1.) It will save money (using fraudulent accounting gimmicks); 2.) Foreign systems are better than ours (based on flawed metrics that fail to accurately compare systems across countries; and 3.) We are smarter and can run this better than other instances.

ThomasL writes:

@liberty

By calling them criminals, they are turned into a kind of scapegoat, where the entire weight of failure--both moral and economic--is borne away and ultimately buried with them. That done, no one is obliged to look critically at the system, nor really even at the actions of Lenin or Stalin to determine what can and cannot be traced to their doorsteps. In one bout of hand-waving, they are made to shoulder all blame and absolve all other actors.

It is good to get past that and look into what really happened.

The book is #1 on my wishlist.

Daniel Kuehn writes:

liberty -
I suppose I'm just scratching my head on why Arnold thinks:

1. People who think market failures are important would have predicted anything different regarding the Soviet Union than he did, and

2. How the Soviet Union is at all a test of anything that can be construed as a "market failure-based intervention" approach

I'm not challenging the idea that the Soviet Union has lessons for us! It certainly does! It's simply that I would have thought that test cases for what "market failure" type interventionists are suggesting would have been societies where that sort of approach is actually implemented.

To build off of Ostrom's point - you want to "the simplest possible organism in which the process under investigation occurs in a clarified, or even exaggerated, form". I would have assumed that for the "market failure" approach that would have been the Western Europe or the United States. To look at the Soviet Union would be to take "the simplest possible organism" exhibiting an entirely different process.

We have many examples to look at for totalitarian/centrally planned approaches. we have many examples to look at for market-failure approaches. Unfortunately we have something of a lack of libertarian examples to look at.

But no matter how you cut it, I don't see how you can construe the Soviet Union as an example of anything that anyone invoking the phrase "market failure" would propose. If you want an "extreme" form of that (to use Ostrom's words) perhaps there's some kind of Scandanvian example. I'm not especially strong on comparative systems. But he Soviet Union bears no resemblance at all.

Daniel Kuehn writes:

In a sense, the Soviet Union vs. the West produces the finding that we can identify a "global maximum". Market economies with liberal states are better than planned economies with totalitarian states.

What is a lot harder is finding the "local maximum". Is Kling right or is Krugman right? Or, perhaps, is someone like Mankiw right? That sort of local maximum is considerably harder to identify with these sorts of comparative systems approaches, but none of these "market economy with liberal states" is exemplified by the Soviet Union. That argument is a dead-end, and it only works if you infantilize or stereotype Kling's perceived opposition.

Les Cargill writes:

My personal metaphor is:

Markets are allegedly about signaling. In classic communications theory, Everything Runs On The Clock. That gets you to, oh, T3 speeds or so (maybe variations on OC48, depending on how you want to look at things - those are more complex and on, IMO, the other side of the line. )

In post-modern communications with high-horsepower DSP, you get orders of magnitude better performance for declining price. It doesn't matter what the "clock" says; a receiving node knows what it's looking for by diverse methods.

Central dogma of "we must all vibrate synchronously to the same 'clock'" is simply inherently information-inefficient. It's the information equivalent of a potato famine - when the clock goes.... ~~~~&*^%@ NO CARRIER.

By denying the logic of "every bit is sacred" and allowing *for failure as a perfectly normal matter*, it's simply a matter of ... bandwidth. You get delay for your trouble, but that's a pretty easy trade. If you still need every bit, you can still get it the old fashioned way. But it's good to have options.

The first part of David McDysan and Darren Spohn's masterpiece "ATM Theory and Applications" explains all this far, far better than I can, and it kind of preceeds ever more modern stuff like wireless or ever faster Ethernet, all of which depend on stuff that *used* to look like noise.

Z writes:

1. Bad leadership. Replace Lenin and Stalin with Krugman and DeLong, and you would be fine.

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 from the tsarist regime and then make sure that the new regime survives the civil war, the coup attempts, World War II etc. The Soviet Union had to be ruled with an iron fist.

James writes:

Daniel Kuehn:

Marxists had their own understanding of market failure: situations where market transactions lead to unsatisfactory results. Some Progressives seem to share this understandingm but I don't think Arnold was suggesting that Marxists and Progressives had the same beliefs as to which markets are cases of failure.

But both Marxist and Progressive thinking are absolutely united in their false presumption of government success. Seriously, can you quote any Marxist or Progressive arguing for laissez faire in any area of the economy where the government was actively intervening?

Various writes:

Arnold,

I couldn't agree more! When speaking to my non financial buddies, I describe gov't central planning as just another form of monopoly. And for various reasons, monopolies have lousy productivity, especially in the long run. Some counter that democratic mechanisms (representative gov't, voting, etc.) keep the self-centered tendencies of a monopolistic gov't in check. But I don't see that happening in the real world, especially when you're talking about something like healthcare, where gov't planning depends on a bureaucracy that is many levels removed from voters.

ted writes:

Uh, I wasn't aware the Soviet Union was ever trying to correct a market failure - at least as defined by just about everyone on the planet. What externality were they attempting to correct? There is a massive difference between, say, imposing a carbon tax to correct problems with pollution (though I think that's more of an issue of poorly defined property rights than market failure per-say) or a misguided attempt to resolve the endless problems in insurance markets with a public insurance option. Neither of these, if you they are misguided (which the latter certainly is) are the same as "communism."

I don't know why libertarians find it necessary to equate any attempts by government to improve a social outcome as tantamount to communism. Not everything is communism in disguise. Sometimes it's just that people happen to have a philosophical disagreement on the role of government. I would hope our arguments would be good enough on their own merit to convince people without having to resort to absurd hyperbole, like equating attempt at market-failure correction with communism.

By the way, the real reason why Nell's book will be read by nobody is because everyone is sick of hearing the same arguments about why the Soviet Union didn't work, why communism doesn't work blah blah blah. I think by now just about every argument and reason why communism can't / doesn't work has been heard by everyone. We're bored of it. That's why nobody will read his book!

Daniel Kuehn writes:

James -
Arnold wasn't talking about Progressives, he was talking about people who think the government should correct market failures. A lot of Progressives are naive on this point, I agree - and a lot of Progressives don't really put forward a solid thesis of the sort that Arnold was talking about.

Regardless, ted's point is right - the Soviet Union didn't work on the logic of market failure (unless you're just referring to the idea that markets exploit workers - but if that's all you mean don't call that market failure and confuse it with the technical term "market failure" that modern economists use). No Progressive that I'm aware of, no matter how naive, ever suggests doing what the Soviet Union did. And that's just Progressives. Certainly no people that think the state should correct market failures suggest doing what the Soviet Union did!

If you want to look at societies where states correct market failures, look at Western Europe, the U.S., Japan, Canada, etc. Those are the test cases that make sense. If, as liberty suggests, you want an extreme version of it, maybe look at a Nordic country.

Tracy W writes:

Communism was meant to save all the waste from competition, wasn't it? Eg, multiple companies running multiple factories churning out the same thing, rather than one big, efficient factory churning out the same product? Wasn't that the market failure that was being fixed? Along with resources being idle, eg unemployment was meant to be eliminated. And waste, eg people making more baby shoes than there were babies to wear them, because they didn't know how many babies had just been born.

Z would have had what it took to pull off a revolution in Russia in 1917 and seize power from the tsarist regime

As far as we know, neither did Lenin have what it took. Lenin seized power from the provisional regime that did overthrow the tsarist regime, he only returned to Russia after the February revolution. The Bolshevists led a coup against that, not against the tsarists.

then make sure that the new regime survives the civil war, the coup attempts, World War II etc

Well Stalin didn't make sure that the new regime survived WWII. The Soviets only survived by the skin of their teeth, along with the aid of some bad strategic decisions from Hitler. Stalin did a lot to make the Soviet's situation at the start of WWII more dangerous (eg unclear orders, allowing Germans to overfly Russian land, ordering more armies to march into destruction). The Russian people were what defeated the Nazis once Stalin got out of their way, along with the Nazis' own mistakes.

The Soviet Union had to be ruled with an iron fist.

This depends on who you are talking about. The Bolshevists didn't have any other claim to legitimacy, so perhaps they had to rule with an iron fist. Live by the sword, die by the sword. But a democratic regime under a constitutional monarchy, such as developed in Britain, might well not have needed such a strong hand. (I don't automatically defer to monarchies, but a lot of people in Tsarist Russia did, a power-sharing situation might have been able to get enough support from the people supporting democracy and the people supporting the old regime to withstand people like Lenin. The British monarchical system had enough support for the English to invite the king back after Oliver Cromwell's death and manage a relatively stable political settlement from that (not a proper democracy, but they eventually got to universal suffrage without having another bloody civil war on the scale of the French).
Another example that springs to mind is the Americans, who did manage to go to a semi-democratic system after their revolution, despite needing a civil war eventually over the slavery issue. They did that too in a hostile international environment (didn't the British burn down Washington in 1812?)

On the whole, while one can never truly know about the counter-factual in history, I find your hypothesis that the Soviet Union had to be ruled with an iron fist unconvincing.

fundamentalist writes:

I'm usually impressed with the comments section on this blog, but I would have to take some of you guys to the woodshed. No one should even discuss this topic without having read Mises and Hayek, who devoted their lives to the subject. At least read Road to Serfdom for goodness sakes!

The problem with the Soviet Union was the lack of accurate pricing. It's the problem with all state intervention in the marketplace. In the early days, Lenin got rid of money, banking and prices completely and mass starvation became very likely, so Lenin backed away and allowed some aspects of markets. As Mises and Hayek pointed out, prices guide producers toward efficient (less wasteful) production techniques and guide them what to produce. Without prices as a guide, bureaucrats made all of the decisions. Waste of resources skyrocketed and made the nation poorer every year.

Yes, the USSR was the first experiment in correcting market failures. Yes, it was far more complex than cap and trade because the USSR was trying to fix all perceived market failures at once, not just one alleged market failure. People think the USSR was evil because it was a dictatorship, but if they had read Hayek's Road to Serfdom they would know that any attempt to correct all alleged market failures at the same time requires a ruthless dictator. If a nation attempts to be faithful to socialism and correct all alleged market failures, you have no choice but the USSR and communist China.

Why are European socialist countries not dictatorships, then? They got cold feet. European socialists are not consistent socialists. They are willing to accept a great deal of market "failures" in order to maintain their democracies and some material wealth. Between the wars, Germans saw what the USSR would become and didn't like it. So they decided to compromise on their socialism. To the credit of Russians, they were unwilling to compromise on their socialism as much as the Europeans and tried to live consistent socialism.

Naturally, that doesn't lead to the conclusion that any attempt to fix any market "failure" at all, such as cap and trade, will fail. But the pricing argument does. Only prices in a free market are guides to efficient (less waste) production. Bureaucrats cannot simulate market prices because they don't have enough information or the right kind of information. That was Hayek's main message in "Fatal Conceit". The information is too specialized and too fragmented.

But the great American hubris is the belief that we can make something work that everyone else in the world for the past 200 years has failed at. Keep trying, America. You only prove Mises and Hayek right every time.

Daniel Kuehn writes:

fundamentalist-

I think you're underestimating people's (and I'm assuming I'm high on that list) understanding of Hayek and Mises's (and many, many other's) insights and you also seem to be misunderstanding what I'm talking about (and I'm assuming what most others are talking about) when I say "market failure".

What "market failure" was the Soviet Union correcting in the retail sector? Be serious and be specific. It has nothing to do with people who advocate intervention in the case of market failure.

Market failures occur precisely where there is a problem with the price mechanism. You can't appeal to the efficiency of the price mechanism if the concern is that in a specific case the price mechanism isn't efficient!

Daniel Kuehn writes:

"I would have to take some of you guys to the woodshed"

Ya... speaking of fatal conceits and hubris...

hacs writes:

"If you believe that government should try to correct market failure, why did the Soviet experiment fail?"

I am not favorable to big government, but that (rhetorical) approach doesn't work. For example, why does the Earth planet (USA) support life (economic puissance) and Uranus (CCCP) and Mercury (state of nature) don't ?

fundamentalist writes:

Daniel:

What "market failure" was the Soviet Union correcting in the retail sector?

They are too numerous to list. Socialism found everything wrong with retail. The first failure is private property. All other failures flow from that. Socialists in general, and the USSR in particular, consider retail itself to be a major market failure, every aspect of it, from advertising to profit to producing too many choices to pandering to the wealthy. It would be easier to say what they found right about retail: its where people pick up the goods they need.

In Soviet style socialism, the state knew what people needed better than the people did. So the state determined what would be produced and sold. Retail was merely the place that people went to pick up those things. Everything else about retail was considered a market failure.

I can give you my definition of market failure: their ain't any. Or I can give you a textbook definition, but it wouldn't satisfy you. Or I could give you the popular idea. The problem is that everyone has his own private definition. Based on the way Kling used it I think he means by the term everything that socialists found wrong with free markets, which was pretty much everything about it, beginning with private property.

The goal of socialism has always been equality of wealth. Because the market can't produce that, it has failed.

Jeremy, Alabama writes:

My wife is Belarussian. My father-in-law is the director of a Belarussian fish farm. One time, driving me around it, he said

"This used to be such a profitable business, back when Moscow sent us the fish food for free."

Thus did Belarussian fish farms, in their own small way, contribute to the economic collapse and total ruin of the USSR.

Tracy W writes:

What "market failure" was the Soviet Union correcting in the retail sector?

Wasteful competition. In particular, having multiple shops selling the same products in the same place, and multiple factories making the same products.

It has nothing to do with people who advocate intervention in the case of market failure.

It does apply to those people who advocate intervention in the case of market failure without considering the possiblity of government failure.

You can't appeal to the efficiency of the price mechanism if the concern is that in a specific case the price mechanism isn't efficient!

Yes you can if there are reasons to worry that the alternatives to the price mechanism will be even less efficient than the price mechanism.

John Fast writes:

How about . . .

4. Bad (i.e. either nonexistent or actually counter-productive) incentives for decision-makers.

Set up a government agency where the employees -- and particularly the decision-makers -- are rewarded for good results and penalized for bad results, and it will work as well as a private organization would.

Of course it's often difficult to define "good results." For example, different children have (at least under our current, highly-unequal, unfair-to-minorities government skool system) different abilities in a particular subject. How do we measure (and reward) a teacher's performance for students with different abilities?

On the other hand, while coming up with such formulas is sometimes difficult, it's always possible, and even if our first set of standards isn't perfect, it can be corrected when we see how it's going wrong.

fundamentalist writes:

Jeremy, great story! Thanks!

Tracy, good responses. I might add that the price mechanism is always efficient in a free market, if the only job of the price mechanism is to accurately reflect the preferences of market participants, which is the only real true goal. Now if you want to burden the price mechanism with all kinds of socialist goals, that's a different matter. But in a market in which the state intervenes, the pricing system can't even fulfill its basic role of accurately reflecting preferences. An inaccurate price system causes greater waste and loss of wealth.

Tracy W writes:

fundamentalist - Thanks for the compliment, but I wouldn't agree with you that the price mechanism is always efficient, if the only job of it is to accurately reflect the preferences of market participants. Public goods for example will tend to be undersupplied by markets, relative to the preferences of participants.

liberty writes:

John Fast,

There were rewards for "doing a good job" in the Soviet Union (and a huge amount of rewards for decision-makers -- the Nomenklatura). This was the first and most frequent reform that the Soviet planners implemented in order to try to improve efficiency and increase output.

Yes, it started out, and in some ways remained, more egalitarian (for the masses) than many market systems--this was, after all, one of the raison d'etres for socialism--but this did not take the form of the perfectly equal society with no reward for harder work or better results. They did not even stick at all close to the formula "to each according to his work" let alone "to each according to his needs" and though they used the LTV for some calculations, they veered far from it on wage policy. They used piecework, bonuses, and other monetary rewards (in addition to extensive "moral" rewards and publicity) on a vast scale.

In any case, if you are interested in the many reasons why this was not enough--as fundamentalist notes, there is the issue of not having market prices, for example--you could read the book. You could also look into Austrian economics and public choice economics.

Joe Calhoun writes:

"If the selection-bias story is true, then you can be quite certain that Nell's book will be widely unread."

Anyone here think Daniel Kuehn will read Nell's book?

fundamentalist writes:

Tracy

Public goods for example will tend to be undersupplied by markets, relative to the preferences of participants.

That depends upon the public good. If you mean police work, courts, national defense, then those belong to the role of the state and not the market. Of course the market can't do what it was never intended to do. However, other things that are often called public goods, such as parks, should not be public goods, but should be privatized. Again, that is a market distortion. The market can provide roads and utilities better than can the state. The ocean is difficult. State control of them if probably better because private ownership would be difficult. Fishing in the ocean is a good example.

Nikki writes:

Why did the Soviet experiment fail? Because there was no experiment. There was nothing but a bunch of primitive uneducated drunks who were envious of those in the power, so they overthrew the government.

You are now trying to romanticize it, pretending (or, more likely, believing) that those were people just like you, except with different beliefs, but it is simply not the case.

"We'll build our own new world: he who was nothing will become everything!" -- that was the whole point. They didn't consider fixing market failures in their wildest dreams. It was never a matter of creating something better for all: it was exclusively about turning have-nots into haves and viceversa.

Have you ever been to the Soviet Union? And I don't mean Moscow in the 2000s: that, too, is a place you don't want to be, but for different (if overlapping) reasons.

You guys are terrific, bright, insightful and brilliant, nearly always a pleasure to read, but you have no business discussing Soviet policies: you simply don't know what you are talking about.

fundamentalist writes:

Daniel

I think you're underestimating people's (and I'm assuming I'm high on that list) understanding of Hayek and Mises's

Show me any insights in these posts that are remotely similar to Hayek and Mises. I see no indication of it at all.

Lori writes:

4. Beware of false dichotomies.

Krugman and DeLong are not on Team Obama. Summers and Geithner are. Obama may be no emergentist, but he's not a socialist by any stretch of the imagination. Neither, for that matter, are Krugman or DeLong.

Jeremy, Alabama writes:

Hi Tracy W.

Are fish a public good?

What sets the price of
- fish
- fish food
- alternatives to fish
- alternative uses of the resources that create fish food
- alternative uses for the land used for fish ponds

and so on and so forth. Evidently, in the USSR, some mid-level konohiki decided that fish are food, that fish should be farmed, that fish need food, that ponds need land, and so-on, and dictated that it should be so.

There was a hunting lodge at the fish farm. Perhaps the whole thing was a scheme so that the konohiki could hunt in peace. Who knows? It is as good a reason as any to run an unprofitable business using someone else's money.

James writes:

D Kuehn,

Yes, the ideological underpinnings of the USSR were different from the underpinnings of some modern calls for government intervention. Yes, the diagnoses differ.

You are so hung up on this that you miss the major point: The Soviet prescription and the prescription of modern interventionists are both based on the identical presumption of government success. This presumption is false, no matter the diagnosis.

Tracy W writes:

Jeremy, the economists' definition of a public good is a good that is:
- non-excludable (so I can't stop you from consuming it)
- non-rival (so your consumption doesn't reduce the ability of me to consume it).

The classic example of a public good is defence. Since the demise of castles, it's been impractical to defend one person against invaders but not their neighbour. And my enjoyment of not being invaded doesn't prevent you enjoying not being invaded. So you could free-ride on my purchase of defence services, a situation that the price mechanism can't obviously cope with (which is not to say that government intervention is automatically better, but the optimal provision of defence services is a matter for another day).

Fish aren't public goods by this definition. If I eat a fish, you can't eat the same fish so they fail the non-rival condition.

Comments for this entry have been closed
Return to top