Pur Autre Vie

I'm not wrong, I'm just an asshole

Tuesday, January 24, 2012

Flinging Magnetic Curses

So here's a random thought. What if for a long time capitalism was misunderstood and economic strength mismeasured? That is, what if everyone was impressed by tons of steel, miles of railroad track, etc., when really economic vitality was a function of much "softer," "squishier" factors? Basically people were in a sort of industrial, military mindset, ignoring the subtle work done by prices and incremental innovation. (The confusion could have arisen because associations were formed at a time when heavy industry really was at the cutting edge of economic growth.)

So everyone was subject to this delusion, but only the Communists had the misfortune to put it into action by centralizing their economies, building steel mills in their backyards, etc. My understanding is that Soviet accomplishments in heavy industry were actually quite impressive, though they weren't winning any sustainability awards. (It would be pretty awesome if they were, in fact, establishing and then rigging sustainability awards.)

But in the West, while people were generally just as deluded about what constitutes a strong economy, it didn't matter nearly as much: aside from a bit of protectionism, heavy industry was subjected to the same price discipline as everything else, and the economy kept advancing in spite of the misunderstanding.

I suspect this is anachronistic, and that in fact economists were pretty sophisticated about this stuff fairly early on. Keynes badly wanted to avoid wartime rationing by a program of forced saving, partly on the grounds that prices were still the best allocation mechanism, even in wartime. So anyway, just a thought.

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