Monday, November 09, 2009

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:


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


  1. I read an article decades ago - real paper in a magazine about how the CIA failed to predict the collapse. Bottom line - the CIA was tied into the Kremlin and got the same secret reports that the Party heads did, and the reports were pure BS.

    The CIA didn't see that the nature of the beast precluded any bad news - even honest bad news - that would have given warning and at least a hint that the bubble was about to burst. The CIA and the Kremlin did not see it coming, kinda like the most recent Wall Street bubble, which, in retrospect, was quite predictable.

  2. Actually, Gorbachev *did* see it coming, and did his best to head it off, introducing one reform after another in attempts to reform the crumbling Soviet economy, sometimes contradictory reforms when prior reforms failed. But he lacked the imagination to do the drastic things necessary, and of course the cronyism and yes-man-ism of the Soviet government didn't help either. In the end Gorbachev's best was not good enough.

    The hilarious thing is that as Gorbachev was quietly trying to save the crumbling Soviet Union as its infrastructure collapsed and things got increasingly desperate, the CIA was stating that the Soviet economy was booming. Uhm... yeah, right. Seems that yes-man-ism is an issue with the CIA too, they told Ray-Gun what he wanted to hear, not the truth. So it goes.

    - Badtux the History Penguin

  3. they told Ray-Gun what he wanted to hear, not the truth. So it goes.

    there is a lot of that in GOP isnt there

    another turning point was in 1972 when the US began selling wheat to the Soviets - who couldnt feed their own people after devastating agricultural losses. (collective farming)

    it is amazing how much credit reagan gets for so little work he did

  4. Back in the early 80's an engineer who was a Russian immigrant came to work at the company where I was working. I think his Russian job was in electric power generation. He said that when they got part for equipment and machinery, they never worked. They had to either fix it, or cannibalize it to make something that would work.

    BTW - I think you Reagan far too much credit. He was a simpleton in love with playing with his expensive star wars toys. Before he went senile, I mean.

    JzB the not-a-Reagan-fan trombonist

  5. But--but--but-- Reagan told Gorby to tear down that wall! And the Russkies were so afraid of him that they did it! Ronnie was magic! A living saint! They named an airport after him! YOU are a dirty filthy commie for suggesting otherwise!

  6. You forgot Afghanistan. That would have made this post really long, but not off topic if one of the points we are discussing is the bankrupting effects of Empire, right?

  7. The would be Russian conquest of Afghanistan, or the would be American conquest of Afghanistan?

    Correct me if I wrong, but Afghanistan has been impervious ti Imperialism as long as there have been Imperialists.

    JzB the exceptional American trombonist

  8. My opinion was that Gorbachev recognized that Reagan was senile (Gorbachev had a lot of experience observing his Kremlin colleagues), realized the American rhetoric was bluster, and saw there was no imminent military threat. This analysis was bolstered by assurances from Thatcher, Mitterand and Kohl. Gorbachev then pushed for perestroika and conversion of the economy from military production to civilian production. However, military production doesn't need to be cost-effective or efficient (since the survival of the nation is at stake), so the whole production & economic structure collapsed when faced with "market discipline". Everyone forgets that the U.S. had a concurrent recession but the defense industry was a much smaller part of the U.S. economy than the Soviet economy, so we didn't have the total collapse suffered by the Soviets.


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