(Attention conservation notice: 1700 words or so, more or less thinking aloud and bringing together some ins, some outs, and some what-have-yous from inside the duder’s head.)
I’m reading White and Wildavsky’s The Deficit and the Public Interest: The Search for Responsible Budgeting in the 1980s, as mentioned earlier. Turns out that, at least up to page 200 or so, it’s a paean to and a requiem for budget director David Stockman — the ideological standard-bearer of the Reagan Revolution, who gradually gained an education in how actual politics works. He seems like a quite tragic figure: the guy who’s trying to do right by his convictions, thinks that he can honor those convictions in public life, and eventually realizes that this is impossible. I’ve been interested in reading Stockman’s The Triumph of Politics: Why the Reagan Revolution Failed ever since it played a starring role in The Politics Presidents Make. Like many books that are more than 10 years old, Stockman’s is available used for a penny on Amazon.
If you’re not up for reading a whole book on Stockman, you might enjoy William Greider’s article “The Education of David Stockman”, which came out in the middle of the Reagan budget debacle and brought a shitstorm down on Stockman. This is the article in which William Greider famously quoted Stockman as saying that “None of us really understands what’s going on with all these numbers,” thereby convincing Reagan’s Democratic opposition that they needn’t trust a word out of the White House on how the budget would work. In penance, Stockman was forced to grovel and genuflect publicly; James Baker instructed Stockman, according to White and Wildavsky,
“You’re going to have lunch with the President. The menu is humble pie. You’re going to eat every last mother-f’ing spoonful of it. You’re going to be the most contrite sonofabitch the world has ever seen.” In a lengthy press conference after lunch, Stockman proclaimed his loyalty and described the lunch as “a visit to the woodshed after supper.”
So The Deficit and the Public Interest turns out, so far anyway, to be more about legislative and executive sausage-making (and Bismarck was right: I think I’d prefer not to know how my sausage is made) than about the intricacies of Senate procedure. I’m sure it’ll land on procedure soon enough, when we get to Gramm-Rudman. In the meantime, it’s quite sadomasochistically enjoyable — like removing a Band-Aid from the suppurating wound of my idealism.
As I read it, I realize how little I knew about the actual Reagan Revolution. I picked up some details in The Politics Presidents Make, whose overarching idea is that real revolutions get harder and harder to make as constituencies calcify around the results of earlier revolutions. What I didn’t understand was the intensity of the disconnect between Reagan’s principles and his policies, or the sheer ignorance that led him to believe that one could simultaneously cut taxes, vastly increase defense spending, and eliminate the deficit.
So now I’m thinking back on the common story about Reagan and the collapse of the Soviet Union. The story goes like this: Reagan knew that the Soviets were spending unsustainably on defense. Because they had to spend so much of their GDP on weapons that they couldn’t afford, they couldn’t afford to buy their people any consumer goods. As the Russian people got wind of how much fun we in the West were having, they revolted. Hence the end of the dictatorship. White and Wildavsky provide some evidence that Reagan did, indeed, think this way: they quote Elizabeth Drew, retelling her interview with Reagan “in early 1980″:
Reagan replies [italics in White and Wildavsky]: “I think the Soviet Union is probably at the very limit of its military output. It has already had to keep its people from having so many consumer goods. Instead, they’re devoting it all to this military buildup. I think it’s the greatest military buildup the world has ever seen. … what I think the Russians would fear more than anything else is a United States that all of a sudden would hitch up our belt and say, ‘OK, Buster, we’ve tried this other way [of reducing military expenditures]. We are now going to build what is necessary to surpass you.’ And this is the last thing they want from us, an arms race, because they are already running as fast as they can and we haven’t started running.”
(The Drew article is behind the New Yorker paywall; I’ve cached a copy. Warning: owing to the New Yorker‘s really odd and seemingly ill-advised archiving system, the cached copy is a 60+-megabyte PDF.)
I wonder about the mechanism that Reagan imagined here. Had they wanted to, the Soviets could have spent on defense entirely out of debt. This is unsustainable in the long-term, probably: too much debt, and eventually inflation shoots through the roof. (I’m not going to enter into the macroeconomics, which in any case I don’t understand.) But in the short term, some debt is fine. If Reagan thought that the Soviets couldn’t sustain the debt load that they had taken on to fund the arms race, this would only seem plausible if their debt as a fraction of GDP was really exorbitant. That is, the “let’s jack up their debt until they die” approach would only work if Reagan expected that hyperinflation was just around the corner. A bit of googling doesn’t turn up any numbers on Soviety debt-to-GDP ratios, though it sounds like Soviet accounting was dodgy, to say the least.
Relatedly: a Communist, centrally planned economy is a different kind of beast from a capitalist one, but doesn’t debt have to come from the same avenues? That is, if a Communist government spends more than it takes in — and I suspect that what “it takes in” is a difficult concept when the government controls the means of production — doesn’t it need to issue debt, some of which will go to foreign creditors? So then, no matter what budget numbers the Soviets reported to the world, couldn’t the world tally up Soviet debts and get a more accurate picture?
Clearly I need to learn a lot more before I can answer this.
There’s also a military logic that I don’t entirely grasp. It’s common knowledge that the Soviets and the Americans had enough nuclear weapons on hand to more than destroy each other in the event of a war. What’s the logic of an arms race once you’ve reached that point? What does it buy you to spend 5x on defense, when x is already sufficient to completely destroy your enemy? Isn’t there a point where the arms race would just stop?
Obviously the amount that the Soviets can afford to spend on consumer goods is a product both of Soviet revenues and of Soviet expenditures. The “Reagan toppled Communism” story only focuses on the latter. I always thought there was a tidiness on the other side, which comes out in Ken Deffeyes‘s Beyond Oil: The View From Hubbert's Peak:
Stephen Kotin points out that the Soviet Union, up to 1985, was exporting two million barrels of oil per day. The hard currency from oil allowed the Soviets to import items that were internally in short supply, from electronics to soap. At that time, Soviet oil production was larger than Saudi production by a factor of three, but Saudi Aramco had much lower production costs. Saudi Aramco resorted to a familiar tactic: a price war. They flooded the world with oil and drove the world price of crude oil below the Soviet cost of production and transportation. The severe shortages of everything that developed within the Soviet bloc are illustrated by this story:
A Polish businessman is going on a trip to Moscow and his wife asks him to bring back notes about the shortages in Russia. He goes into a butcher shop, and there are only a few little scraps of salt pork, so he writes in his notebook: NO MEAT. He then goes into a greengrocer and writes NO VEGETABLES. A shoe store: NO SHOES. After several more shops, a man stops him on the street and asks, “Are you spying for the CIA?” The businessman explains that his wife asked him to take notes. “Don’t you know that ten years ago you would have been shot for doing this?” He writes: NO BULLETS.
After six years without hard currency, the Soviet Union collapsed.
(internal footnote omitted)
I don’t know to what extent to buy this story, either. If you look at historical real crude oil prices, they only really spiked in the early 70s, and have stayed above their historical average ever since. So in real terms, a barrel of crude was still buying the Soviets more in the mid-80s than it did in Stalin’s time. If you’re going to use the drop in crude prices to explain the collapse in the Soviet economy, you have to explain why it didn’t collapse 40 years earlier. And in any case, a lot will depend upon how important those 2 million barrels were to the overall Soviet economy. Where else did their GDP come from?
As Krugman wrote in Pop Internationalism, the Soviet economy grew at a rapid clip in the middle of the 20th century in large part because of a phenomenal savings rate: the government shoved all savings into building out the country’s infrastructure. Krugman:
Economic growth that is based on expansion of inputs, rather than on growth in output per unit of input, is inevitably subject to diminishing returns. It was simply not possible for the Soviet economies to sustain the rates of growth of labor force participation, average education levels, and above all the physical capital stock that had prevailed in previous years. Communist growth would predictably slow down, perhaps drastically.
So there are at least a few explanations for the Soviet collapse: Reagan pushing their defense spending beyond the breaking point; the Arabs cutting off their main source of revenue; or economic logic finally catching up to the inefficiency of a centrally planned economy. It seems sensible to me not to look for the Soviet collapse in any one of these, but instead to understand how they all worked together. Statisticians here would look for a model that assigns each cause its proper weight. I’ll look around and see if anyone has done this.