Selected Skirmishes: Comrade, Can You Spare a Kopek?
First, an apology to Karl Marx. I always pooh-poohed his basic thesis that anarchy would eventually replace socialism. I can see now that he was right. The state did just wither away, Dr. Marx. I stand corrected.
It appears that the primary impediment to civilized conditions in the formerly communist lands was, in fact, communism, and so the return to more or less normal human hysteria is in full swing. I marvel at the West, ever so relieved to have those warheads pointed in some other direction, but ever so goofy about the process of decommunization. It is a bitter transition, we are continually told, and the harsh realities of the marketplace will make many an ex-USSRian nostalgic for the Party before it's all over.
So-called TV journalists are particularly fond of going on location in some backwater Georgian hut-dom, interviewing a weather-beaten old apparatchik coot who yearns for the return of Papa Joe. Soon the reporter is frothing over ominous political stirrings, and a counterrevolution is virtually under way.
The Commonwealth of Independent States does indeed harbor retrograde influences. Soon after Boris Yeltsin's vaunted January 1 price reforms, a few thousand party hacks posed as demonstrators to denounce the social chaos. Many of them shouted at the alleged "Jews!" who were behind the capitalist plot. But, c'mon. Let me take a minicam crew to our Georgia wilderness, and my video footage will go one-on-one with tape of perverse reactionaries anywhere on the planet.
The conventional wisdom here is that letting controlled prices go to market levels is excruciatingly painful to the body politic. One wonders: As opposed to what? Another 75 years of "bad harvests"? Queues so pervasive that every weekday morning looks aerially like "Hands Across Russia"? A technological edge that makes Portugal's consumer electronics sector appear futuristic? The great advantage blessing Russian reformers is their baseline: When you start at a point trivially different from zero, it's really hard to screw up too badly.
Virtually the entire free world misunderstands Yeltsin's dilemma. Half of us believe that releasing price controls destroys wealth, while the other half believe that it will restore free-market economies. One hundred percent are wrong. Letting prices rise to market levels simply shifts goods around to those who are willing to pay the most; as nothing is lost from the system, no general impoverishment will follow.
But neither will prosperity. As necessary as free prices are to an efficient social structure, the active ingredient in economic growth kicks in only when sellers get to pocket those higher prices. Let legal ownership rights flourish, and Presto! goods magically appear. Social scientists are ever amazed that when you pay those stupid little peasants more, even those who have never set one foot inside a University of Chicago classroom seem to figure out that supplies should rise. Even better: They volunteer to do it.
High prices are always painful for customers, but they are good medicine when clever Zionist profiteers are on the other end, responding avariciously to tight supplies with ruthless efficiency. While the word is that the East Bloc masses will not sit through their therapy, I am stunned by the assumption: My source material informs me that there wasn't a great deal of instant gratification going on in the USSR between 1922 and 1991. These are people who have been fed bitter medicine for the best part of a century. Who better to swallow the pill than the recently sprung inmates of Bolshevism?
Ah, the argument goes, now everything is different. Today we have identified some individuals in Russia who a) have publicly criticized their government and b) are expected to live an actuarially normal lifespan. Democracy is a fertile field for free speech—and for the sort of demagogue who would exploit price inflation for his own political gain.
Well, I hate to be any less cynical than other manic-depressive individuals, but some nations have actually escaped that trap. The Germans in 1948 did considerably better out of hyper-inflation than they had the first time; the difference was a bold stroke of free-market economics, including a stable monetary policy. Ludwig Erhard and Konrad Adenaeur invented the "social market economy" to avoid looking piggishly right-wing with their tough anti-inflation, deregulation, and free-trade policies. The result was the "German miracle." And today the Polish reforms of two years' standing have stabilized prices; given free prices combined with ambitious and ongoing privatization schemes, the market is beginning to twitch. The example is not Poles apart from Russia; the average Polish wage is but $ 150 a month.
Without an iota of help from the West, the Russian people figured out that the slick Mikhail Gorbachev had become a dangerous obstructor of justice, and that their future lay with the boorish Boris Yeltsin. They are now rejecting a ubiquitous Western pessimism to press forth with radical measures to quickly spring their economies free. They are making mistakes; wouldn't we in so daunting a task?
But trepidation from afar, which often translates into expert advice to take "the middle path" of gradual reform (keying on the notable successes of Khrushchev, Gorbachev, and, most sensationally, the Yugoslavian Communism with a Happy Face), is overpriced even when proferred gratis. This is one place we ought to maintain rigorous price controls—and welcome a shortage.
Contributing Editor Thomas W. Hazlett teaches economics and public policy at the University of California, Davis.