The Economic
Demise
of the Soviet
Economics
Online
for Teachers,
PartUnion
1
The Economic
Demise
of the Soviet
Economics
Online
for Teachers,
PartUnion
1
The Economic
Demise
of the Soviet
Economics
Online
for Teachers,
PartUnion
1
The Economic Demise of the Soviet Union
Lesson 1: Opportunity Cost
Lesson 2: Missing Markets and Missing Prices
Lesson 3: Incentives Matter
Lesson 4: Private Property Rights
Lesson 5: Transaction Costs - Life in a Soviet Household
Lesson 6: Applying the Lessons of the Soviet Union
Conclusion
The Economic
Demise
of the Soviet
Economics
Online
for Teachers,
PartUnion
1
The Economic
Demise
of the Soviet
Economics
Online
for Teachers,
PartUnion
1
A Journey of Choices
Opportunity cost – the benefits of the foregone
(next best) alternative
The Economic
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Changing Perception: Benefit
propaganda trains
The Economic
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Changing Perception: Cost of Opposition
genocide in
Ukraine
toll:
5-12 million
arrest of kulak (landholder)
gulag (forced labor camp)
The Economic
Demise
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Economics
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Nazis Invaded USSR, June 1941 . . .
and . . .
The Economic
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. . . lost the war
German POWs in Moscow
The Economic
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Other Examples: Cuban Missile Crisis
The Economic Demise of the Soviet Union
The Economic
Demise
of the Soviet
Economics
Online
for Teachers,
PartUnion
1
Soviet State Stores – Administered Prices
lines common:
part of “price” is
time in line
“Universam” – state supermarket
The Economic Demise of the Soviet Union
The Economic
Demise
of the Soviet
Economics
Online
for Teachers,
PartUnion
1
very little choice of
style, quality, or
sometimes, even size
Centrally directed production– consumer goods low priority
State stores:
Unpredictable
availability
Unchanging
prices
Because little
available, most
everything
purchased
The Economic
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1st-come-1st –served rationing: life lived in line
The Economic
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Incentive:
Gold Star Hammer and Sickle Hero of Socialist Labor
For outstanding
achievements in socialist
labour that improved
production and the might
and prestige of the USSR
Alexey Stakhanov : miner & Hero of Socialist Labor
He became a celebrity in 1935 as part of a movement that was
intended to increase worker productivity and demonstrate the
superiority of the socialist economic system.
He mined a record 102 tons of coal in 5 hours and 45 minutes (14
times his quota).
http://www.acepilots.com/medals/soviet/highest.html
The Economic
Demise
of the Soviet
Economics
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for Teachers,
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Perverse incentives: output targets
“Suppose you were in charge of nail production
and your quota was set in tons of nails. What
would be the easiest way to beat your quota? By
weight, spikes are easier to produce than small
nails. If your quota were in units of nails, you
might produce lots of tacks. Length? Long
skinny nails.
. . . The result is that consumers' needs have
been poorly met. Gold-filigreed sewing
machines that did not work resulted when
quotas were set by value.
Similarly, quotas for square feet of housing
generate warped floors and cracked walls, and
required units of clothing invite sloppy sewing on
shoddy material.”
The Economic
Demise
of the Soviet
Economics
Online
for Teachers,
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http://www.unc.edu/depts/econ/byrns_web/Economicae/sovietecontransition.html
“what’s not measured is sacrificed”
Weight
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# units
no bridge from invention to innovation
Invention:
new knowledge or ideas
The Economic
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Innovation:
application of knowledge
to production
no bridge from invention to innovation
Invention:
scandium alloy
Innovation:
baseball bats
bicycle frames
Scandium alloys were first made commercially available in 1996 by the Ashurst
Technology Group. Easton Sports first used Scandium alloys in February 1997, the
product was the Redline C-Core bat.
http://www.precisiontandems.com/eastonscandium.htm
The Economic
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What Do I Care Who Owns It?
Collective farming
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1921 -New Economic Policy (NEP)
private ownership changes incentives
farmers’ market
“State Capitalism”
The Economic
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“The Terror Famine” 1932-33
collectivization changes incentives
The Economic
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Virgin Lands Campaign: 1954
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Soviet “tragedy of the commons”
the Aral Sea :
an environmental tragedy of the
commons resulting from Soviet
collective ownership
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Pollution: “tragedy of the commons”
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Photos: http://www.gerdludwig.com/html/stories_soviet.html
August, 1991
White House – Russia’s (not USSR’s) parliament
The Economic
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August, 1991
Boris Yeltsin declares Russia’s
independence from the USSR
The Economic
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1940 Katyn Forrest Massacre
”I was dumb; I believed it all.
I would have given my life for
the Motherland.” *
The Economic
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*Lenin’s Tomb
by David Remnick
Reagan: On-going Challenge
Strategic Defense Initiative (“Star Wars”)
“The Soviet Union is an Evil Empire, and Soviet
communism is the focus of evil in the modern world”
March 8, 1983
The Economic
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Afghanistan: Dec. 1979 – Feb. 1989
Soviet casualties:
Killed: 15,000
Wounded: 30,000
# Served: 600,000
Avg Troop strength: 100,000
The Economic
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Chernobyl Nuclear Accident: April 26, 1986
The Economic
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Message: they don’t care about us
Message: “they really don’t care about us”
Children born with deformed or
missing limbs, post-Chernobyl
Women gasping for breath after
shift in cement plant
The Economic
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Photos from gerdludwig.com
Transaction Costs: Non-monetary costs
that are not captured in an exchange
Benefit
Cost
Cost
Benefit
The Economic
Demise
of the Soviet
Economics
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Transaction Costs: “Dead Weight” Costs
Benefit
Cost
Cost
Benefit
The Economic
Demise
of the Soviet
Economics
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for Teachers,
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