While Robert Oppenheimer's team developed the atomic bomb, Simon Kuznets's team developed national income accounting. Debate topic: Which was more important to America's victory in WWII?
The NIPA identities comprise a marvelous set of absolute truths, truths that should help us reach beyond guesses, intuition, and idiocracy. Sadly enough, these truths can be and typically are misconstrued by the political class and media wags for their mutual benefit. The Achilles heal of the identities is rearrangement and assertions of causality, as you have noted.
Thanks, Robert, for extending your earlier essay. All the more delightful material for my fledglings in principles of economics. 😊
On the matter of accounting, I should mention the _Arte dell'Abbacco_, published in Treviso, Italy, in 1478. This book teaches the sort of arithmetic now taught in elementary school; but in 1478, it was high technology. Reportedly, _Arte dell'Abbacco_ was the third book published in Europe with movable type.
Congratulations on another tremendous post, Professor Graboyes. 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.
The soviets were less successful with central planning because they didn't ask people about the figures but told them what the figures should be. Therefore, people beautified statistics, fearing harsh retribution.
Then, the soviets began to export goods based on punishing plans and false statistics. That's when Holodomor happened in Ukraine.
Read my longer answer to Mr. Krebs. What you mention here is a specific facet of the general problems with peacetime planning that I described to him. Thanks for the great example.
Fantastic query. And yes, that would be a wonderful post. I'll put it on the list. Off the top of my head, I can offer two related possibilities.
First, WWII had a single dominant goal--survival. Everything else was secondary. There was essentially universal agreement with that temporary goal, and Americans were willing to endure great sacrifice that would not ordinarily tolerate.
Second, 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. Some years ago, I attended a lecture by Burt Rutan--the aviation genius behind Virgin Galactic, Richard Branson's commercial space company that launched the first successful private manned spacecraft. Rutan was explaining why NASA (which he called "NAY-SAY") had gone from opening its doors to manned to moon landings in 11 years and then sank into dreary doldrums for 34 years (now 53 years). He argued that in that fertile decade, Americans viewed the Soviets as an existential threat and 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. And the American people were overwhelmingly willing to give them whatever resources were necessary to do the job.
Once the landings were accomplished and the Soviets revealed to be a second-rate superpower, Rutan explained, all that changed. NASA became plagued by bureaucratic inefficiencies. Lots of internal bickering and organizational sclerosis. Crippling risk-aversion. And an unwillingness by the American voters to keep funding the programs. So, you got decades of low-earth-orbit space shuttle missions, with the thrill of moon landings receding into the past. This is the norm of planning, not the short-term 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 several conditions were present: (1) The task was one of engineering, not pure science; (2) The task has a relatively short time horizon and can, in the end, be objectively judged to be a success or a failure; and (3) If you don't care what it costs. I recall listing five examples where these conditions held. I'll have to dig up that piece of writing, but I believe my examples were: (1) The Manhattan Project; (2) The Apollo moon landing; (3) The eradication of smallpox; (4) The development of ARPANET (proto-Internet); and (5) the Humane Genome Project.
I believe WWII 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 malign versions of central planning.
And I especially appreciate your question, because I shall recycle my answer here as the core of a separate article. Thanks for asking. You'll see these words soon, and if you don't mind, I'll credit you with the question.
Actually, all five-year plans were "successes" in the Soviet Union & Co., and yes, they required money and dedication, and had success criteria, and were of engineering nature. But they were economically unsound plans, revolving around a fixed idea of "heavy industry needed and all will be well". And, literally the whole country had to work on it!!! Not a NASA-project "oh, we just drop money on clever people and they will deliver", but if I think of you, when you were young and had school to attend, you weren't commanded by the state to go pick apples, work on the fields for food and shelter at maximum. They called it building camp. The only tolerable aspect was that you had company of your age group. And why was your help needed? Because adults worked in the heavy industry, and there were only inefficient solutions for the field workers.
They didn't really want to invent everyday items like washing machine, or make anything more efficient because that would take away money and effort from heavy industry.
That fixation on one industry and freezing free thought with fear cost the whole economy to the country.
Go, read some Kornai. I do warn you, he had to hide his thoughts to get them out of the country, so you have to be very good to interpret it the right way.
The 7 wonders of socialism:
1. Everybody had a job.
2. Though everybody had a job, nobody worked.
3. Though nobody worked, the Plan was fulfilled over 100%.
4. Though the Plan was fulfilled over 100%, you could not buy or get anything in the shop.
5. Though you couldn't buy anything in the shop, everybody got everything.
6. Though everybody got everything, everybody was stealing.
7. Though everybody was stealing, nothing was ever missing.
And a joke:
John works in a washing machine factory. Greg asks:
"Why haven't you yet tried to smuggle parts out of the factory and build a washing machine at home? Your wife would be happy!"
John:
"I have smuggled out all the parts, but every time I tried to assemble it, I got a tank instead."
Please note that the joke doesn't criticise the free healthcare (even if tools were basic, doctors were good), the kindergartens (women worked, some in the heavy industry, and not only accountants and HR), and the universal duty to go to school.
Thank you for your detailed response Dr. Graboyes. I had thought about the Apollo program myself as an exercise in successful planning. Your detailed discussion fleshes out that point.
When I have read accounts of American economic planning during World War II, I have heard about a lot of voluntary co-operation, particularly by business owners. I had wondered whether another element might be the social capital accumulated by the market economy as an element in planning success. That is, the habits and expectations derived from a (relatively) free economy might make it easier to implement central plans. Of course, over the longer run, central planning alters the culture so that you get the distortions Mr. White discusses in his comment.
Arthur Herman's book Freedom's Forge contends that most of the heavy lifting for WWII military production was achieved by leveraging existing industrial assets and expertise via free market style organization and voluntary cooperation within and across industrial sectors. He focuses on Henry Kaiser, William S. Knudsen, and a few other major figures but the main story is a successful pattern of large private corporations accepting huge contracts (both for production and for research), mixed financing from government and private sources, and a galaxy of smaller subcontractors arising spontaneously to get it all done. It was centrally planned at the top (although the industrial guys did a lot to help the military figure out how to figure out what needed to be built) but his argument is that market forces were allowed to play out in a way not normally appreciated. His chapter on Progressive historical revisionism on the topic is pretty savage, as is his analysis of the negative effects of the labor movement during the war. It's definitely worth a read.
Great recommendation, and great info, Mark. Thanks much. I'll look into it. As I note repeatedly in my comments, I'm not saying that WWII was American central planning. Rather I say that a central planning fan can point to it as having a lot of components of central planning. (And half the economy was, in fact, the federal government.) My point is that even if you want to cite WWII as a shining example of planning, that success was limited to a narrow time, with really peculiar circumstances. And that momentum could not have been maintained after the existential threat passed.
This takes me back to Elba Collier’s Development of Economic Thought class. There’s a universe to be understood in the various combinations of those eight letters.
I'm intrigued. I find an Elba Collier on LinkedIn, but I know nothing of her. And which eight letters are we discussing? Do you mean C+I+G+(X-M)=C+S+T? We could call that eight letters or seven letters, but I'm guessing that's what you mean.
I included Y, and meant the various combinations in your illustration.
I believe the Elba Collier on Linked In is the one I’m referring to. She influenced my decision to pursue an MS in Econ rather than an MBA with this question: “Wouldn’t you rather learn something?” Her Monetary Theory class was the stuff of nightmares.
This delights as much as it informs... thank you.
And thank you!
Great way to start my morning; exercise my brain.
The NIPA identities comprise a marvelous set of absolute truths, truths that should help us reach beyond guesses, intuition, and idiocracy. Sadly enough, these truths can be and typically are misconstrued by the political class and media wags for their mutual benefit. The Achilles heal of the identities is rearrangement and assertions of causality, as you have noted.
Thanks, Robert, for extending your earlier essay. All the more delightful material for my fledglings in principles of economics. 😊
On the matter of accounting, I should mention the _Arte dell'Abbacco_, published in Treviso, Italy, in 1478. This book teaches the sort of arithmetic now taught in elementary school; but in 1478, it was high technology. Reportedly, _Arte dell'Abbacco_ was the third book published in Europe with movable type.
Congratulations on another tremendous post, Professor Graboyes. 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.
The soviets were less successful with central planning because they didn't ask people about the figures but told them what the figures should be. Therefore, people beautified statistics, fearing harsh retribution.
Then, the soviets began to export goods based on punishing plans and false statistics. That's when Holodomor happened in Ukraine.
Read my longer answer to Mr. Krebs. What you mention here is a specific facet of the general problems with peacetime planning that I described to him. Thanks for the great example.
Fantastic query. And yes, that would be a wonderful post. I'll put it on the list. Off the top of my head, I can offer two related possibilities.
First, WWII had a single dominant goal--survival. Everything else was secondary. There was essentially universal agreement with that temporary goal, and Americans were willing to endure great sacrifice that would not ordinarily tolerate.
Second, 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. Some years ago, I attended a lecture by Burt Rutan--the aviation genius behind Virgin Galactic, Richard Branson's commercial space company that launched the first successful private manned spacecraft. Rutan was explaining why NASA (which he called "NAY-SAY") had gone from opening its doors to manned to moon landings in 11 years and then sank into dreary doldrums for 34 years (now 53 years). He argued that in that fertile decade, Americans viewed the Soviets as an existential threat and 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. And the American people were overwhelmingly willing to give them whatever resources were necessary to do the job.
Once the landings were accomplished and the Soviets revealed to be a second-rate superpower, Rutan explained, all that changed. NASA became plagued by bureaucratic inefficiencies. Lots of internal bickering and organizational sclerosis. Crippling risk-aversion. And an unwillingness by the American voters to keep funding the programs. So, you got decades of low-earth-orbit space shuttle missions, with the thrill of moon landings receding into the past. This is the norm of planning, not the short-term 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 several conditions were present: (1) The task was one of engineering, not pure science; (2) The task has a relatively short time horizon and can, in the end, be objectively judged to be a success or a failure; and (3) If you don't care what it costs. I recall listing five examples where these conditions held. I'll have to dig up that piece of writing, but I believe my examples were: (1) The Manhattan Project; (2) The Apollo moon landing; (3) The eradication of smallpox; (4) The development of ARPANET (proto-Internet); and (5) the Humane Genome Project.
I believe WWII 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 malign versions of central planning.
And I especially appreciate your question, because I shall recycle my answer here as the core of a separate article. Thanks for asking. You'll see these words soon, and if you don't mind, I'll credit you with the question.
Actually, all five-year plans were "successes" in the Soviet Union & Co., and yes, they required money and dedication, and had success criteria, and were of engineering nature. But they were economically unsound plans, revolving around a fixed idea of "heavy industry needed and all will be well". And, literally the whole country had to work on it!!! Not a NASA-project "oh, we just drop money on clever people and they will deliver", but if I think of you, when you were young and had school to attend, you weren't commanded by the state to go pick apples, work on the fields for food and shelter at maximum. They called it building camp. The only tolerable aspect was that you had company of your age group. And why was your help needed? Because adults worked in the heavy industry, and there were only inefficient solutions for the field workers.
They didn't really want to invent everyday items like washing machine, or make anything more efficient because that would take away money and effort from heavy industry.
That fixation on one industry and freezing free thought with fear cost the whole economy to the country.
Go, read some Kornai. I do warn you, he had to hide his thoughts to get them out of the country, so you have to be very good to interpret it the right way.
The 7 wonders of socialism:
1. Everybody had a job.
2. Though everybody had a job, nobody worked.
3. Though nobody worked, the Plan was fulfilled over 100%.
4. Though the Plan was fulfilled over 100%, you could not buy or get anything in the shop.
5. Though you couldn't buy anything in the shop, everybody got everything.
6. Though everybody got everything, everybody was stealing.
7. Though everybody was stealing, nothing was ever missing.
And a joke:
John works in a washing machine factory. Greg asks:
"Why haven't you yet tried to smuggle parts out of the factory and build a washing machine at home? Your wife would be happy!"
John:
"I have smuggled out all the parts, but every time I tried to assemble it, I got a tank instead."
Have a nice day!
I absolutely love this comment. I will still part of it for a future post and credit you. Are the 7 wonders of socialism yours or Kornai’s?
Hofi Géza, a stand-up comedian. The failures of the system were common knowledge.
Please note that the joke doesn't criticise the free healthcare (even if tools were basic, doctors were good), the kindergartens (women worked, some in the heavy industry, and not only accountants and HR), and the universal duty to go to school.
Thank you for your detailed response Dr. Graboyes. I had thought about the Apollo program myself as an exercise in successful planning. Your detailed discussion fleshes out that point.
When I have read accounts of American economic planning during World War II, I have heard about a lot of voluntary co-operation, particularly by business owners. I had wondered whether another element might be the social capital accumulated by the market economy as an element in planning success. That is, the habits and expectations derived from a (relatively) free economy might make it easier to implement central plans. Of course, over the longer run, central planning alters the culture so that you get the distortions Mr. White discusses in his comment.
Good morning, all! Great discussion!
Arthur Herman's book Freedom's Forge contends that most of the heavy lifting for WWII military production was achieved by leveraging existing industrial assets and expertise via free market style organization and voluntary cooperation within and across industrial sectors. He focuses on Henry Kaiser, William S. Knudsen, and a few other major figures but the main story is a successful pattern of large private corporations accepting huge contracts (both for production and for research), mixed financing from government and private sources, and a galaxy of smaller subcontractors arising spontaneously to get it all done. It was centrally planned at the top (although the industrial guys did a lot to help the military figure out how to figure out what needed to be built) but his argument is that market forces were allowed to play out in a way not normally appreciated. His chapter on Progressive historical revisionism on the topic is pretty savage, as is his analysis of the negative effects of the labor movement during the war. It's definitely worth a read.
Great recommendation, and great info, Mark. Thanks much. I'll look into it. As I note repeatedly in my comments, I'm not saying that WWII was American central planning. Rather I say that a central planning fan can point to it as having a lot of components of central planning. (And half the economy was, in fact, the federal government.) My point is that even if you want to cite WWII as a shining example of planning, that success was limited to a narrow time, with really peculiar circumstances. And that momentum could not have been maintained after the existential threat passed.
This takes me back to Elba Collier’s Development of Economic Thought class. There’s a universe to be understood in the various combinations of those eight letters.
I'm intrigued. I find an Elba Collier on LinkedIn, but I know nothing of her. And which eight letters are we discussing? Do you mean C+I+G+(X-M)=C+S+T? We could call that eight letters or seven letters, but I'm guessing that's what you mean.
I included Y, and meant the various combinations in your illustration.
I believe the Elba Collier on Linked In is the one I’m referring to. She influenced my decision to pursue an MS in Econ rather than an MBA with this question: “Wouldn’t you rather learn something?” Her Monetary Theory class was the stuff of nightmares.
Thank you, had heard the name Kuznets before but knew no details. Looking forward to the follow-up posts!
This is the Substack that keeps on giving, a giving that you can rest assured is properly balanced in the books.