The cost of empire

So now the newspapers are filled with triumphalist natterings about how Ronald Reagan was responsible for the fall of the Berlin Wall (even though it happened during the presidency of George H.W. Bush) yada yada yada. To which I have only one word to say:

BULLSHIT.

The Soviet Empire fell because the cost of empire bankrupted the Soviets and their creaky command economy was incapable of dealing with the information age, not because of anything Reagan did or didn't do. The first cracks in the Soviet economy were visible as early as the late 1960's, when Soviet attempts to build a moon rocket failed because their creaky command economy was simply incapable of building big rocket engines or the complex computer systems needed to control large clusters of smaller engines. The basic problem was the intermediaries problem -- modern technology requires thousands of intermediate steps to create the final product, and arranging for the production of those intermediate products in order to get the final product is a huge task. Capitalism's solution to the intermediaries problem is to train economies via tokens ("money") to produce the intermediaries needed for the final product, i.e., it is a neural network type solution that "trains" the economy towards the desired goals. But the Soviets never managed that, meaning that their economy by nature was inherently inefficient and could achieve complex goals only with horrific overheads. Couple that with the huge costs of maintaining an empire -- oil deliveries to Cuba alone took up massive amounts of oil that could have been sold for hard cash on the open market to buy things the Soviets needed from the open market, for example -- and the outcome was certain.

Indeed, by the end entire sectors of the Soviet economy actually had *negative* outcomes -- they consumed more resources than they produced in outputs. As a result, the Soviet infrastructure started collapsing in the early to mid 1980's. The most important collapse was of their oil and gas delivery infrastructure, which suffered multiple explosions due to leaks caused by poor construction and maintenance during those years. In fact, the most direct cause of the collapse of the East German regime was nothing that anybody in the West did: rather, the cut-off of natural gas deliveries to East Germany in the aftermath of the Ufa gas pipeline explosion resulted in much suffering and misery to the point where even the secret police had finally had enough.

In short, all that Reagan managed to do was scare the bejeezus out of everybody who was concerned that "Ronnie Ray-Gun" was going to push that red button. In that Reagan was crazy like a fox -- he had no intention of starting a nuclear war, he just wanted to bluff the Soviets into thinking that he was willing to do so if the Soviets did something stupid like mount a conventional invasion of U.S. client states, i.e., he did exactly what the Soviet leaders were doing at the time -- but this didn't cause the fall of the Berlin Wall. The collapse of the Eastern Bloc economies, and eventually the collapse of the regimes that controlled those economies, is what caused the fall of the Berlin Wall. All the Reagan triumphalism aside, this should be an excellent lesson for those who believe that America can continue absorbing the huge cost of empire and ignoring its economy. The Soviets thought they could do that because they were, after all, Communists, and thus thought they could merely command things into existence. But reality doesn't work that way, and right now it looks an awful lot like the USA is going the same way as the USSR, as the costs of empire and leaders who refuse to understand fundamental economics principles drag us down...

-- Badtux the Economics Penguin