Commentary
Ronald Reagan must be doing Cartwheels in His Grave
Ronald Reagan must be doing cartwheels in his grave! I read an article in The Economist this week called “Greed – and Fear,” which is the first in a 14 page special report on the future of finance. I was struck by the opening statement, which described both the aftermath of the Soviet Union’s collapse, and the bursting of the latest American asset bubble. The Soviets created a legacy of surplus left boots, and America ended up with endless rows of empty, unsold homes.
It’s Friday, and I don’t want to ramble on too much about the irony that the collapse of the Soviet Union and the apparent end – or pause – of modern American finance left similar legacies due to an enormous misallocation of national resources. The Economist assigned the blame for the Soviet Union’s economic decline to Gosplan, the former central planning agency that mustered legions of workers to toil in poorly lit factories, regardless of their talents or the true needs of society.
The American system of unregulated free market finance funneled the best and brightest to fill cavernous trading floors in Manhattan, and across the pond in London. While America’s most able were sowing the seeds of our current misery, the nation’s infrastructure crumbled, its schools decayed and millions were added to the growing list of those without health insurance.
The Economist merely used this haunting comparison as an attention getter – and it worked. The rest of the article explained why, in their opinion, the current meltdown of western finance occurred. But, I think the comparison of state planning and an unregulated free market system should be examined much further.
Both systems offer rewards to those who further what are considered society’s end goals. But the central planners in the Soviet Union set production targets for products that were not aligned with society’s needs. Another example of this can be found in China’s disastrous Great Leap Forward; farmers were busy making steel instead of growing crops in order to meet ridiculous goals set by Chairman Mao – who had no grasp of economics.
The American-inspired unregulated free market economy aimed to deliver prosperity to all by allowing citizens to exchange goods and services for currency in competitive and open markets. Problems arose when the system of exchange, led by the financial services industry, became the central focus of the economy. Finance created jobs and wealth – for a while at least – but was built upon the reckless accumulation of debt, much of which is now turning sour. Too many homes were built because they were made artificially affordable, not because they were needed. This, like the Soviet and Chinese examples from decades ago, resulted in a huge and costly misallocation of resources.
Let me end this internal dialogue by saying that I believe in free markets and capitalism when they serve the public good. As you may have noticed in the course of my ramblings, I am neither advocating central planning, nor pounding the table for the return of stringent regulation. I believe that both the Soviet Union in the post WWII period, and the United States in the last two decades became wedded to ideologies without considering the cost to their respective societies. I will return to this topic again. Please leave a comment; I would like to know what you think.
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Tags: asset-bubble, central planning, China, collapse, Commentary, economic decline, finance, free markets, Gosplan, Great Leap Forward, Mao, Soviet Union Discussion
6 comments for “Ronald Reagan must be doing Cartwheels in His Grave”
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Nice article. Your whole site needs to be updated though. Kinda hard to find stuff.
Yes, you’re right, Angie. It’s like my office – a ton of good stuff scattered all over the place. Can you help me out?
As usual I enjoyed reading your comments. Good work.
interesting…would like to read more on that topic.
Do you know anything about these supposed surplus boots? Is it an actual happening, an urban legend, or a figure of speech? I read the same Economist article and felt like I was missing the allusion, but in my online searching, I only find the boots referenced by you and others who are quoting the recent article. Any enlightenment you could provide would be appreciated.
Actually, I don’t know much about the surplus left boots. But I did read about the final days of the Soviet Union a few years ago. So, the boot story seems very plausible – but I will check it out. I would pick up a copy of “Age of Delirium” by David Satter. It’s a startling account of the Soviet Union’s road to collapse.