T Nation

American Centrally Planned Economy


#1

The American Centrally Planned Economy
.by Thiago Veloroi on Saturday, October 22, 2011 at 2:54pm.
(Written by yours truly)

The recent economic crisis has brought many of the status quo assumptions about the politico-economic environment into question. In reaction, some have advocated the establishment of expanded Government regulation and involvement into the market. This ushers in the introduction of a more centrally planned economy into the USA, perhaps not mimicking but entering more closely into the realm of the former Eastern Bloc states.

Frighteningly this transition is confirmed by numbers as the US government expenditures have grown to form 38.9% of the national GDP while the Communist government of China�¢??s only account for 20% of their GDP. Moreover, the TARP bail-out, alongside the Keynesian-inspired pork-barrel American Recovery and Reinvestment Act of 2009, and now Obama�¢??s shovel-ready American Jobs Acts are all startling examples of a rapid growth in government interference into the market. These vast increases of involvement into the economy could be considered a shift towards a centrally planned economy. Unfortunately, like everything our government does, it is being implemented to seemingly short term gratification in exchange for long term detriment. Despite typical neo-Cold War propaganda, there are some major benefits to a centrally planned economy functioning under authoritarianism. I will here explain what they are, and why however they will not work for America.

From 1946 to nearly 1970, the Soviet Union�¢??s economic policy was considered by many to be superior to that of the United States in the same way China�¢??s is today. This was one of the major exacerbents for the Red Scare of the era, and the subsequent flirtation with Socialism by the American Left and the implementation by Western Europe. Many people forget that at that time, the Soviet system was economically robust and Socialism appeared to work better economically than Capitalism. These presumptions were not without basis and indeed derived from the cold data and compiled information on the Soviet Union�¢??s rebuilding and industrialization efforts. During this period nearly every year the Soviet Union grew by a rate 3x that of the US economy and even outstripped the economic miracles of both West Germany and Japan of those decades. The Soviet Union went from an impoverished agrarian society to the number 2 industrial powerhouse in the world in a shorter period than any other country�¢??s industrial revolution.

What they did not understand (apparently Obama does not either), is that the fantastic growth of a CPE is not something that can be mimicked by a society or an economy such as ours. The growth of a CPE cannot be sustained nor can it be introduced to an advanced economy. The reason for this is that the growth is not based on an augmentation of efficiency but rather an increase in inputs. Soviet growth was driven by often mandated labor involvement, the integration of untapped capital and the successful conquest of universal basic education. The quality and quantity of labor increased upon a canvas of pre-existing vast natural resources drove growth to its ceiling where it thereafter became highly inelastic without the addition of new factors. This inelasticity is founded in the fact that, mass population growth requires time and money, and that while Government programs may effectively achieve basic education for the citizenry, it is highly improbable that the program could churn out a comparable number of PHDs in its next stage. The distribution of human capital is as finite as any other natural resource and cannot be increased by sheer mandate; only expanded efficiency could augment education and training, and even then probably at a dramatically diminished rate.

We can see how America, a nation with a skilled, educated and economically involved population could not improve its lot through the expansion of inputs, as inputs have already been optimized. The USA long ago reached its ceiling of optimal inputs, which the USSR reached in 1970 when it achieved an economy of 60% to 70% of the total size of the American one. After said point the USSR experienced, negative, zero or pitiful growth until the introduction of perestroikia (free market reform) which resulted in its untimely death. Once the level of optimal inputs has been reached the only growth that can occur in an economy are those of efficiency. That is the crossroads that America is at and a CPE has in every instance proven incapable of improving efficiency. If America is to recover, she will have to cut costs, increase productivity, make effective use of technology and most of all focus on innovation; not creating jobs for the unskilled to shovel gravel for 20 dollars paid by tax dollars that further indebt the nation. In conclusion, a CPE might work for a country like Guatemala in the first stage of its development but would never work for the USA where it stands now.