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Only a moron would allow economists to make decisions for him. So, this week, we give thanks to morons. We're referring to those who took part in the largest, longest and most complete test in economic history. Two generations and 20 million of them. The poor lumpen of Mitteldeutschland proved that capitalism – even with heavy state interference – delivers the goods better than a planned economy.
Readers may know Mikhail Gorbachev as a fellow who advertises Louis Vuitton luggage. But before that, he was the top man in the Soviet Union. It was not an easy job. The empire was falling apart. So, in a rare act for a public official, Gorbachev told the Soviet people the truth: "We can't go on like this," he said in 1986. Three years later, on 9 November 1989, the test was over.
What they were going on with was a system of compulsory economics – in which bureaucrats made the key decisions. They decided how much capital to allocate to what sector; how many people to employ; how much to charge for the output; and so forth. Of course, to make these decisions, Soviet economists needed to make a lot of other decisions too – such as where people would live, what they would do, and which of them would be starved to death. So, it was a very controlled experiment. Conditions were so miserable in the east that the government needed a whole system of spies and gulags to keep the malcontents from ruining the test. Still, 5,000 people fled to the west – 136 were killed trying to get over the wall that separated west Berlin from the east.
The results were obvious even before the test began. Ordinary people, looking out for themselves, always make better decisions than economists working for the government. Car manufacturers are better at making cars. Bakers bake better bread. And capitalists make better investments. But just because a thing is absurd doesn't mean it's unpopular. Some people want aparatchiks to make their decisions for them. Many Germans in the east long for the days when things were under control. They call it 'ostalgie'.
After a bit of food and a roof over his head, a man becomes more concerned with status than survival. It is not how rich he is that matters; it's how rich he is compared to those around him. Status brings reproductive advantages, say the sociobiologists. But it also brings disappointments, and envy. Societies suppress envy in a variety of ways. Some tax the rich. Some force everyone to wear the same clothes. Many level the population by sticking everyone into the same education, retirement and healthcare systems. Capitalism doesn't make anyone rich. It only allows people to compete for wealth on more or less equal terms. Some are better at it than others. Most prefer alcohol, television or jobs on Wall Street to the rough and tumble of real enterprise. Almost everyone is prey to bubble delusions, hoping to get rich from the latest fad investment. When capitalism corrects their mistakes, they turn ostalgic, longing for the state to intervene and rig the game in their favour.
"After the wall fell: capitalism is a disappointment," said a headline this week in one Montevideo paper, La Republic. A poll showed that of people asked in 27 countries, only 11% thought capitalism was working properly now. We're surprised anyone thought so. With so much finagling by the feds, it's a wonder that it works at all. But even among the complainers, few suggest a return to the policies that wrecked East Germany between 1949 and 1989. What they want is a gentler form of capitalism with the state as a benevolent partner. Full employment, with Audis. Guaranteed health benefits, with wifi and cappuccinos. Unlimited government bail-outs, but without state bankruptcy.
Alas, the lumpen are not very good at playing the game, or rigging it. The elites are better. The elites use corrections as a general uses a ceasefire – to strengthen their positions. They connive with the government for more regulations to keep out rivals, bail-outs to save them from their mistakes, and handouts to enhance their status. That's why, scarcely a year after they were all on the edge of insolvency, the world's big financial firms are paying the biggest bonuses ever. Does rigging the system like this make people better off? Many thanks to those Teuton guinea pigs again! They conducted another test. After the wall came down, the Federal Republic in Bonn intervened in the eastern states to lift it out of poverty and put it on a level playing field with the west. From 1991, the west transferred an amount equal to 4% of GDP a year to the east. Public works, health and education. Welfare! Handouts! Bail-outs!
Unwittingly, which is the only way to do this sort of thing, they were just adding to the test data. For next door was the Czech Republic, which also suffered under the Soviet boot, also engaged in absurd, counterproductive policies, and which also flew the coop as soon as the Soviets dropped their guard. The Czechs had no booming economy they could join. No money. No port. Not even a language anyone else could speak. Guess who won that race? The Czechs, of course. GDP growth rates in the Czech Republic pulled ahead of those in East Germany in the early 1990s; since then, they've been pulling farther and farther ahead each year.
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Bill Bonner
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