The Early Days of a Better Nation

Wednesday, January 30, 2008

From Russia with Love

Helpful, considerate advice from people who know what you're going through, and feel your pain:
Today, Americans are too misguided to understand that even if hundreds of billions of dollars disappear in the credit crisis, or the American banking system collapses, or they and hundreds of thousands of American families lose their homes to the waves of foreclosures--that these are not necessarily bad things. It's like ripping off a bandage, I like to say. So if you lose your house, your job, your kids, your future, it's actually just like ripping off a bandage. How hard is it to understand that?

Hard, apparently. That is why I believe that the world's Ascending Powers (APs), namely China, Russia, and India, should demand that the United States halt its state intervention into its failed banks and let the market sort it out.
(From the eXile, in case you hadn't guessed.)


I wonder why I am reminded of the "economic shock treatment" that hit Russia after the USSR withered away, and typical US reactions to that? Oh, cruel irony, that Americans might ever face uncomfortable developments.

More seriously, there is one big difference. The USSR turned a blind or at any rate purblind eye to a surprisingly large private economy, subsistence rather than trade oriented, that helped people survive (effectively subsidising the official economy, and in turn subsidised by it - it made sense for people to feed artificially cheap bread to pigs). That was in place and able to help people survive the shock treatment. However, the USA has nothing like that on any material scale today (I have somewhere heard, I think in a John Barnes essay, that there was enough of a subsistence economy around in the USA that none of the 19th century depressions risked the unemployed starving since they could always work for board and lodging; I suppose the lack of need was what led to no adequate separate support systems developing and being in place for the USA in time for the Great Depression of the 1930s - and they're certainly not there now).

As I should have made more obvious, the article is a satire on the sort of advice American journalists hand out to Russians ...

Good points about the parallel economy, and lack thereof.

Damn, and I thought the advice sounded quite good, apart from the satirical voice-over. It's like a divorce, really. I've tried both the slow and the quick way, and my impression is that a quick divorce rather than years of "trying to make it work" is the way to go.

But what do I know, living in a basement and being envious of anyone living above ground.

Can I say the Raven's posting made me laugh more than any internet posting I've read in ages?

The USSR turned a blind or at any rate purblind eye to a surprisingly large private economy

Of course there is a very large private economy in the US too, albeit of a rather different sort. It does however serve the same function of keeping many people paid (and therefore housed and fed) who would otherwise go without.

The difference is, the USSR parallel economy produced more of the means of subsistence. What goes on in the USA merely redistributes it, so if the directly productive sectors hit trouble it wouldn't make up any of the shortfall.

The FT - o irony upon irony - has a piece saying much the same thing ("Stop behaving as whiner of first resort", 30 Jan) written by the head of the Harvard Center for International Development, which, of course, was behind "shock therapy" in the first place.

Personally, I think shock therapy would have been moral if it were deliberately designed to wreck the Russian economy. Lots of KGB and Red Army veterans can't collect the pensions they earned with their meritorious service in (inter alia) Siberia, Afghanistan, East Germany and Hungary? Cry me a river.

Yes, well, not all military personnel spend their time shooting people.

And it wasn't just military personnel who were numbered among the two million (at least) excess deaths that occurred as a result of shock 'therapy' in 1990s Russia.

Two questions:

1. Was the "cure" Russia got really a doctor's cure, or was it quackery?

2. In the cases where you actually have a cure, would you blame the cure for what happened during the cure, rather than the preceding disease? If you use chemotherapy to treat cancer, you will lose your hair; but will you ultimately blame the chemoterapy or the cancer?

In the US now, they've severely depleted their resources, and the cure will be a real recession (rather than a drawn-out affair where the Fed feeds the rich while the poor pay the price). People will suffer in a recession, and as always it will be many of the wrong people doing the suffering. But then again, the alternative is not better, and the recession is not to blame; rather, it is the preceding economic "party" of excesses that is to blame.

'This Irish famine will only kill one million people, and that is not enough to do any good'.

- the words of classical liberal economist Nassau Senior, from 1845 or thereabouts.

"In the cases where you actually have a cure, would you blame the cure for what happened during the cure"?

Yes, when there are other ways of achieving the cure (unless there were political obstacles I don't know about, Russia certainly had other paths it could have followed). Certainly in the Russian case the who/whom question was never clearly stated, and there were huge transfers to one group from others - just as in the Enclosures of the English Commons, the Irish Evictions, the Highland Clearances, and US Reconstruction. It may be arguable that these were the only ways of getting enough people on side, i.e. that eggs needed to be broken for those omelettes, but as against that, curiously enough it never is argued - the alternatives are just selected out of the agenda (or is that instead an argument for, inherent in getting a constituency on side?).

That quotation from Nassau Senior is apocryphal. That is, words to that effect were recorded by Whewell, but he did not record the particular economist who uttered them; it is often surmised that it was Nassau Senior, since he was the most obvious economist who said such things. However, if you look at his writings, you will find that he comments about such things not as good things but as inevitable although undesirable - and at least having a silver lining to the cloud. Seen in this light, that comment was probably a clumsy way of saying that there was no silver lining to that particular cloud.


I think we agree that the answer to my question 1 is "quackery" moreso than "cure", so question 2 doesn't really apply. If it was to be applied, it would be

2b. Would you blame the quack "cure" for what happened during the fake cure, rather than the preceding disease? If you use rat poison to treat cancer, you will get quite a few extra health problems; but will you ultimately blame the rat poison or the cancer?

As for the Nassau quote, thank you for the clarification. And I agree that that's what it all boils down to: no silver lining. All the silver has already gone in the US's frivolous spending spree, and if a silver lining showed up, it would have to be sold off to cover their debt.

Nicely written...

When she crashes it will leave the disbelieving agape at their own dismissals.

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