Mao and Later: How Markets Benefit Well-Being

Berkeley economist Brad DeLong put together the chart above. In it, he uses 1991 data and matches an Iron Curtain country with a free-market equivalent. The appalling result of trying to "attempting to reproduce the Rathenau-Ludendorff Imperial German war economy of World War I" in communist countries is plain to see.

In 1989, the Iron Curtain came down, and we could see what a difference it made as we could examine levels of material well-being on both sides of the Curtain. This is as close to a perfect natural experiment as anyone could wish: the Iron Curtain's location was determined by where Stalin's and Mao's and Giap's armies marched--which is as exogenous to other determinants of economic well-being as anyone could wish….

Eschewing markets robs you of between 80% and 90% of your potential economic productivity.

Now you can argue that the difference in human well-being is less than this gap in material wealth. Cuba, after all, has a high life expectancy and a low level of inequality.

Or you can argue that the difference in human well-being is much, much greater than this gap in material wealth.

More here.

Hat Tip: Alan Vanneman.

Comments

[Old Mexican]

Now you can argue that the difference in human well-being is less than this gap in material wealth. Cuba, after all, has a high life expectancy and a low level of inequality.

I am not sure about the much vaunted high life expectancy in Cuba, especially since the numbers come from the government itself.

[Pro Libertate]

Of course Cuba is lying! I've never understood why people accept data from a totalitarian state. Shoot, we lie plenty in our data, just not usually to the insane extent of such countries. Besides, a more or less open society is limited in how far it can go with statistical deception.

[Episiarch]

If you don't automatically assume Cuba is lying, you are irredeemably stupid and deserve your moniker of "useful idiot". Even if you can somehow rationalize a way they aren't lying, the fact that is has been shown that every totalitarian government in the past 100+ years has abjectly lied makes it so that it almost assured that they are lying as well.

It's like having been screwed by 10 Ponzi schemes in a row, and then saying "yeah, but this eleventh one is legit!"

[JW]

I think they're being honest about the low level of inequality, being that most are is equally impoverished.

[JW]

Gah. "most Cubans are is"

[fresno dan]

I thought it are perfectutely cromulent the first time.

[Jerry]

I don't think they're lying much about their life expectancy. Cuban women tend not to become pregnant as much as for example African American women in the United States. Therefore, less child mortality. Also, they're not eating as much supersize-me food as Americans.

[Spiny Norman]

Do their life expectancy figures include the people they execute?

[Zeb]

A starvation diet has been shown to increase life expectancy.

[KPres]

Plus, I don't really give a shit about life expectancy. Pretty much goes without saying I'd rather live 78 years making $50k a year than 80 years making $3k or whatever cubans make. Two years of my dotery is pretty much worthless to me.

[fresno dan]

The numbers reflect how long you think your living (suffering)

[DirtCrashr]

High life expectancy among Party Cadres!
The inequality among the Proletariat is achieved by everybody living equally in crushing State poverty - except the Party Cadres!

[Old Mexican]

The GDP for North Korea looks suspiciously high to me, especially for 1991 FRNs(*).

(*)Federal Reserve Notes.

[Government of Wolves]

Remember, their embassies are centers for organised crime, including human trafficking.

[Joshua Corning]

The GDP for North Korea looks suspiciously high to me, especially for 1991 FRNs

Missiles are a lucrative export.

[T]

Want the simpler version? Go into a food market in Cuba and a supermercado in Mexico and see where you'd rather shop.

[Old Mexican]

Sheesh, go to a mercadito (corner store) in Mexico or a Pulga (flea, for "flea market") and you will see a veritable cornucopia of goods, compared to any store or market in Cuba...

... and the avocadoes are cheap, not like here in Protectionist Paradise, USA. Fuckers!

[Joshua Corning]

and the avocadoes are cheap, not like here in Protectionist Paradise, USA. Fuckers!

Avocados do not travel well.

[Jerry]

So when the Communists took over, they followed Marx and said: "we don't want no stinking markets in our economies." This naturally raised the question of how they were then to coordinate economic activity.

By looking at western market prices. What do I win Brad DeLong?

[KPres]

That's why the Soviets managed to last 50 years. Otherwise they'd have been toast in 10.

[Trespassers W]

I just... I really don't approve of the way that table is formatted. Are those hanging indents? Why? And why are the numbers left-justified? Why Courier instead of Gill Sans or Trebuchet?

[Ska]

Courier is the font of accounting when not using Times New Roman; or Arial or Calibri if they're Microsoft's default fonts.

[Restoras]

Yeah, it's b-b-bad.

[Spiny Norman]

Computers are hard.

[Fiscal Meth]

All that matters is that everyone within the countries are paid equally.

[Warren]

1991???
Couldn't get something more recent? Say, after the housing bubble, Iraq War, 9/11, tech bubble, election of Hugo Chavez, NAFTA, or the USSR?

[EJM]

Supposedly, the table was created in 1997--which I noticed because apparently Mr. DeLong is one of the very few people who confuses "block" with "bloc".

[Rrabbit]

Misleading statistic. The numbers are wrong, but that isn't the real problem.
Those are ancient numbers anyways.

The real problem is that there is no reliable way to convert 1990 rubls, zlotys, or forinth into dollars.

[The Gobbler]

I have a zloty. It's pretty neat. My understanding is that 1991 was chosen because that's very close to when the wall came down, so it provides a great opportunity for comparison.

I was immediately reminded of Poland by James Michener, where he draws a contrast between what communist Poland had for consumer goods (very little, poor quality and long lines) and what was available in Austria, which is about 120 miles away.

[Rrabbit]

Back then, some parts of Poland were doing OK, whereas some other parts of Poland were stuck in 1850.

The point is that the method used for comparison is inherently flawed. International exchange rates in no way reflect price parity.

The wages in underdeveloped countries, when converted into dollars or euros, are much lower than wages for similar jobs in the US or western europe.
That carries over to prices for locally produced goods when converted into dollars.

The method of comparing GDP per capita in US dollars basically claims that if you pay $40 for your new haircut, and your barber then pays you $40 to mow his lawn, then both of you are off 8 times better than if you had paid him $5 for the same haircut, and he then would have paid you $5 for mowing his lawn.
That makes no sense.

A reasonable study would have tried to compared actually produced goods per capita, including quality. Most socialist countries then would do ok for some categories of goods and horribly bad for almost anything that requires decent technology because the fools in their administrations decided that physical labor is much more important than research or science.

[Yakov Smirnoff]

The real problem is that there is no reliable way to convert 1990 rubls, zlotys, or forinth into dollars.

At grocery store in soviet union milk not sold in gallon jugs...people are.

[vanya]

It's nitpicking but the proper comparison for Cuba is Jamaica or the Dominican Republic, not Mexico. It is also sort of ironic to call Mexico pre 1991 a "market" country - the economy was distorted by state ownership of much of the industrial plant and the PRI was very socialistic.

[Jason]

I was just coming here to point out that the PRI is a member of Socialist International...

[sloopyinca]

Actuallly, the DR would be the closest. Mexico has supply routes (roads) leading into their biggest trade partner, skewing transportation #'s to the point of affecting cost of goods. The DR is right there and is a lot closer in size than Jamaica.

[Rrabbit]

Similar arguments can be made for other countries on the list. For example, Finland depended on the USSR so much that they went into a great depression after the Wall came down.
Their unemployment rate rose from
3,4% in 1990 to 18,4 % in 1994. Their economy shrank by more than 10%, by 7% in 1991 alone.

(There were other factors such as a banking crisis)

[Billy Gibbons]

A-Mao-Mao-Mao-Mao
Where the air is fine...

[Irresponsible Hater]

Brad DeLong - isn't he the one that deletes and edits his commenters' comments in order to favor his own positions?

http://volokh.com/2010/10/07/delong-doubles-down/

[Enyap]

So does Krugman

[matth]

Judging by the comments I'd say he's pretty slow at deleting and editing. He's getting eaten alive over there.

[Joshua Corning]

Judging by the comments I'd say he's pretty slow at deleting and editing. He's getting eaten alive over there.

I think he is being eaten by his own cheer leading squad and simply does not know what to do.

This is a very weird post for DeLong who normally spews left wing nonsense.

[Juice]

So Sweden, Finland, Austria, and Greece are free market countries now? Mexico? All of these countries were much more socialistic in 1991.

[Juice]

Oh yeah, and Thailand? Free market? wut?

[cynical]

Were they socialistic or redistributionist? Meaning, did government interfere a lot with production, or just with consumption?

[Smoke Screen]

I try to tell people this, over and over again - if you give more people freedom ( freedom to give, freedom to take, freedom to build, freedom to make mistakes ), this country will recover. This country is the only country in the history of the world to be based of an idea, rather than a boundary, religion, ethinicity, etc. We have made mistakes, but we are the best chance.

I only hope the candidaqte I work for will follow that.

[Joshua Corning]

When did Delong stop being a communist?

[Tom]

I went to the main website for the article and it had a little more detail than what was presented here.

That was not the interesting part. The interesing part came from the comments on the article.

People were still trying to defend the eastern block economic model. It amazes me that 20 years after the wall came down and people actually saw how these regimes work, people are still trying to say that a horrific humanity destroying system of government and economics was somehow justifible.

Incredible really. I can't belive people are so incapable of admitting they were wrong.

[cynical]

We should really get more active about helping lefties get long-term experience with those models through a sort of exchange program, except involuntary.

[Contemplationist]

Hahaha Check out the comment thread over at DeLong's to see enormous amounts of equivocation and class-antagonist rhetoric. Who said lefties are socialists? well, BELIEVE IT. Even this chart is suspect to them, and if its not, it doesn't really bode that well for markets. lolz