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February 17, 2010

The Obama Administration and Central Planning

On Monday, I wrote about the overwhelming number of “czars” that have appeared in the Obama Administration.  That analysis included how not only their duties overlap with cabinet level positions, but how many overlap with each other.  Whether it was lawyers leading the way for healthcare reform or a clear socialist steering the auto industry, the Obama czars bring an increasing presence of government in many of America’s largest private industries. 
As I looked at the czar situation, I could not help but to ask myself “how much does this situation parallel with the Soviet government and economic model?”  I discovered a number of interesting parallels while examining the two.
First, the idea of communism in America has always seemed to be a joke, especially since the fall of the USSR in 1991.  However, the American idea of what communism is and what it really is appear to be two separate things.  The average American views communism as this command-style repressive force that destroys liberties and punishes the people.  This is, in fact, is the political side of communism. 
However, very few people have come to understand the economic side of communism, where the state manages the economy.  When we separate the two, we come to the logical conclusion that the state can take an increasingly active role in the economy, but still provide freedoms, liberties, and independence (or they can take them away through unintended consequences that politically get an excuse when discovered).  Today, this is known as socialism, where the political side smiles down on the people and the economic side works feverishly to produce the goods and services the people need.
To get an idea of what the economic side of the USSR was like, I took a look at The Soviet Economic System by Alec Nove.  Nove was a long-time Soviet economist who studied the closed economy from his college studies in 1936 to his death in 1994.
He defines ‘fully fledged socialism’ in his book as a “state of affairs in which scarcity would have been overcome, and production would be for use and not for exchange, socially planned for the benefit of the educated and participating working masses.”  To me or to the novice reader, this may sound pretty harmless, but I can’t help to think of General Motors ramping up production after “cash for clunkers” despite still posting losses.
Nove noted that different types of economic activities were the responsibility of different ministries.  Each ministry was responsible for and ‘planned’ the activities of its respective industry.  As Nove explains, “The government and its agencies issue binding instructions to subordinate units.  While of course these subordinate units are expected to make their own proposals, they must carry out the plan-instructions which they receive.  These will usually instruct them what to produce, to whom to deliver the product, from whom to obtain inputs, and in what quantities.”  I can’t help in reading that to draw parallels between central planning and the administration’s climate initiative.  If you’ll recall in the President’s State of the Union, he mentioned that a climate bill from Congress would be needed to make green energy profitable. 
Nove also noted that while the USSR was a communist and centralized economy, there were still notable private sectors within the country.  He noted that the majority of agricultural output was in fact private.  There are many people in the United States today who will argue that there are too many private industries around for there to be communism.  As Nove pointed out in agriculture and public/private co-ops, a private presence was still active within the USSR, especially before Lenin died.
Nove added that the central planners put tons of brain-power and resources behind trying to estimate demand and material needs.  Planners were extremely meticulous in their estimations and many were brilliant at understanding the relationships between industries.  If this was the case, then why did they fail?  First, politics (as usual) got in the way of several rational courses of action, and second the infinite number of interactions and unknown variables involved in forecasting made it virtually impossible to manage such a large economy.
I cannot help but to think how many Americans believe that the Soviet planners were reckless slobs who lazily threw out plans and numbers in a careless fashion.  In fact, as we have seen above, the opposite was true.  With that knowledge, and the knowledge that 40% of output today in the US comes from government spending, how comfortable are you with the government’s influence and management of the economy?
So is the United States moving closer or further from the Soviet model?
Should we support the government’s efforts to be more involved with our economy? 

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