Central Planning Meets Socialist Realism

After reading my "The Other Manhattan Project," a reader asked why central economic planning worked so well for America in WWII but so badly almost everywhere else—most notably in the Soviet Union.

“The Workers’ Paradise.” Illustration in Socialist Realism Style. By Robert Graboyes+Midjourney.

I just published three related posts on the mathematics and logic of international trade and finance and planned to move on to other topics. But one reader, William Krebs, asked such a great question in a comment that it deserves to be answered in a separate post. So, after today’s post, THEN, we’ll move on.

“Real-World Trade-Deficit Math-Magic” told of an equation I taught to international bankers I was advising back in the 1980s. It explained why the equation, (X-M)=(S-I)+(T-G), is essential to an understanding international trade and finance. “The Other Manhattan Project” offered some background on how the equation emerged from a World War II project that was critically important to America’s victory. That project was the development of the National Income and Product Accounts (NIPA), which gave America an unparalleled and unprecedented knowledge of the country’s economic structure and productive capabilities—an analytical framework that America’s enemies lacked. The post compared the NIPAs’ master builder, Simon Kuznets, to Robert Oppenheimer. “Farm-to-Table International Economics” returned to that critical equation, seeking to make its derivation and importance more intuitive.

In the comments section of the “Manhattan Project” essay, Mr. Krebs posted the following question:

“You point out in your post that Simon Kuznets was suspicious of central planning, but your post implies that he enabled the most successful central planning project ever performed, the Allied victory in World War II. This leads me to wonder why central planners following Kuznets (particularly the Soviets) were much less successful in their attempts in central planning. I suppose that would have to be another full post.”

Below is an edited version of the reply I posted to his query. I argue that the answer can be found in comparing NASA’s first eleven years (starting gate to manned lunar landing) with the half-century that followed the Apollo program (low-earth-orbit-only and inability to develop new launch systems). Below that, reader Tony White shares Hungarian comedian Géza Hofi’s “The Seven Wonders of Socialism.”

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PLANNING SUCCEEDS. PLANNING FAILS.

“The plan is law, fulfilling it is a duty, over-fulfilling it is an honor!” — Stalinist slogan. Graphic by Graboyes+ChatGPT.

Fantastic query! Here’s how I’d explain the difference:

Of course, WWII America was not a Soviet-style planned economy, but 50% of the economy was government, and the government did exert an unusually heavy influence over the private sector during that period. So, a central planning enthusiast can plausibly argue that the U.S. had a quasi-centrally planned economy and that it was a rousing success. But the key to that success (versus the Soviets’ 75-year failure) was that in WWII, America had a single, clear, time-limited, objectively verifiable goal—survival. Everything else was secondary. There was essentially universal agreement among Americans of all political groupings with that urgent and temporary goal. Given the extreme threat posed by the Axis Powers, Americans were willing to endure great sacrifices they would not ordinarily tolerate. And they were willing to put aside much of the self-interested behavior that characterizes more normal times.

A shared goal in the face of external threat can temporarily provide a burst of bureaucratic efficiency and selflessness that is unsustainable for more than a few years. In 2006, I attended a lecture by Burt Rutan, the aviation pioneer who built the first successful private-sector manned spacecraft—Virgin Galactic’s SpaceShipOne. In his lecture, Rutan explained why NASA (which he called “NAY-SAY”) went from nothing to manned lunar landings in eleven years and then sank into a dreary 34-year (now 53-year) doldrums in manned spaceflight. He argued that in NASA’s fertile decade, Americans viewed the Soviets as a constant and lethal threat and saw the space program as a tool for beating the Communists into submission. NASA operated like the central planner’s dream, with everyone working relentlessly, minimal bureaucratic squabbles, high tolerance for risk, absence of self-serving behavior. Plus, the American people were overwhelmingly willing to hand over to NASA whatever resources were necessary to do the job.

Once the moon landings were accomplished and the Soviet Union was revealed to be a tired, wheezing second-rate superpower, Rutan explained, all that changed. NASA became plagued by bureaucratic inefficiencies. The organization sank into internal bickering, organizational sclerosis, and crippling risk-aversion. (Rand Simberg’s Safe Is Not an Option explores the dangers of risk aversion.) American voters grew bored with space travel, and their representatives were no longer willing to fund exploration of the solar system. So, following six successful manned lunar landings, you got decades of low-earth-orbit, workaday space shuttle missions, with the thrill of exploration receding into the past. Two shuttles were destroyed in flight, arguably because of bureaucratic malaise. This post-1972 experience is the norm of central planning, not the 1958-1969 supernova of accomplishment that marked NASA's early days.

A decade or so ago, seeking to differentiate my own views from those of libertarian colleagues, I argued that government planning was a perfectly fine way to accomplish enormous goals, providing three conditions were present:

1. The task must be one of engineering, not pure science. People knew long before NASA was founded how to send astronauts to the moon, land them, and bring them back. For Wernher von Braun and his engineers, the challenge in the 1960s was to build machines that could take advantage of well-known physics and to do so within budget constraints.

2. The task must have a relatively short time horizon, with success or failure immediately and objectively clear in hindsight. NASA opened its doors in 1958. In 1961, President Kennedy told Congress that America “should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth.” The moon landing occurred less than eight years later, and no one but weirdo conspiracy theorists can doubt that the goal was met. Once the goal was accomplished, however, Americans rapidly tired of outer space. NASA itself grew inward, inefficient, and afraid of its own shadow. For a while, America had to pay exorbitant prices to Russia to send Americans into low-earth orbit. That problem was solved by private space entrepreneurs, the most successful of whom has been Elon Musk and his SpaceX fleet. Meanwhile, nearly half a century has passed since NASA successfully developed a workable manned spacecraft and launch system.

3. The public must not care what the task costs. NASA had astonishing budgetary leeway. From NASA’s founding to Neil Armstrong’s walk, the cost was nearly $200 billion (around $2 trillion in today’s money). At its peak, the Apollo Program consumed over 4 percent of the total federal budget—an astonishingly high amount. As soon as Armstrong, Aldrin, and Collins returned to earth, the drumbeat to “spend that money here on earth” began. By 1972, later Apollo missions were canceled, and no one has ventured much past the outer edge of earth’s atmosphere for fifty-three years.

When I first enumerated these three conditions a little over a decade ago, I listed five projects in which these three conditions were all met and, hence, central planning was a rousing success in all five cases:

1. The Manhattan Project’s development of an atomic bomb;

2. The Apollo moon landing project;

3. The eradication of smallpox;

4. The development of ARPANET (the early Internet); and

5. The Human Genome Project.

World War II qualifies for all of these exceptional conditions, whereas permanent peacetime planning does not. That was the fallacy of the Soviet Union and of all the less malignant versions of socialism and central planning.

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SEVEN WONDERS OF SOCIALISM

I have absolutely no idea what Hungarian satirist and comedian Géza Hofi is talking about in the above video, but his name came up in my abovementioned conversation with William Krebs on the subject of Simon Kuznets and central planning. Reader Tony White offered a list of traits associated with central planning, enumerated by Hofi, who was considered to be the most popular and daring Hungarian stand-up comic of all time. The following version, offered up by ChatGPT, has slightly different wording from Mr. White’s version:

“SEVEN WONDERS OF SOCIALISM” (by Géza Hofi)

1. There is no unemployment, but nobody works.

2. Nobody works, but the plan is fulfilled.

3. The plan is fulfilled, but there is nothing to buy.

4. There is nothing to buy, but everyone has everything.

5. Everyone has everything, but everyone steals.

6. Everyone steals, but nothing is ever missing.

7. Nothing is ever missing, but no one is happy.

This list encapsulates better than I ever can why central planning is doomed to failure in all but the rarest circumstances.

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BASTIAT’S WINDOW publisher Robert F. Graboyes is an economist, journalist, and musician whose five degrees include a PhD in economics from Columbia University. An award-winning professor, he received the Reason Foundation’s 2014 Bastiat Prize for Journalism. His musical compositions are on YouTube.