« Shhh................ | Main | What I read some time ago »
Markets in everything (hardly anything)
From the former Soviet Union, markets in burnt out light bulbs:
For most of us, it is hard to fathom the rationale for a market in burnt-out light bulbs. But in the scarcity-driven Soviet economy, the market was entirely reasonable. Light bulbs were rarely available to individual consumers, but were obtainable for state-sponsored activities. Thus, it would be difficult to purchase a light bulb for a new lamp in one's home, while burnt-out bulbs in state-run offices or factories were routinely replaced. So if someone purchased a new lamp and needed a bulb, he would buy a used light bulb for a small fee and replace a functioning bulb at work with the dud. He would then take the functioning bulb home for the new lamp, while the burnt-out bulb at the office/factory would be replaced with a new functioning bulb. Meanwhile, the maintenance person at the office/factory would take the used bulb and sell it on the used light bulb market.
I thank Eric W. for the pointer.
Addendum: But from Singapore, no legal organ selling any time soon.
Posted by Tyler Cowen on February 3, 2009 at 03:13 PM in History | Permalink
Comments
Tyler and Alex, I know this is a hijack, but I wonder if you'd be interested in commenting on how long the Fed can keep the lending rate at 0%? It seems like there is an awful lot of inflationary pressure being applied, but is that dwarfed by the risk of deflation?
Best,
Interested Party Worried About Prime Rate Returning to the 1980s Levels...
Posted by: Anon at Feb 3, 2009 3:47:02 PM
I find this a very interesting on communism versus capitalism. In communism, the government would decide how much of a product a person needed, and produce precisely that amount. However, it did not seem that the government accounted for the need for inventory. And, since inventory just sitting around was a waste, it did not make sense. Except that the people who got the product would sit on it, because you never knew when you would need it.
In capitalism, the inventory costs are built into the costs of the light bulb. That is, the consumer, not the government, would pay for the "wasting" resources. And the capitalist system also allows for waste. Instead of having grocery stores sitting empty, and getting ravaged when supplied, grocery stores in the US allow for waste of perishable goods.
The bottom line is that the capitalist system is inherently more wasteful than a government controlled system. But since the waste is paid by, in the US's case, 300,000,000 people individually, it seems small. When it is paid by a government on behalf of 300,000,000 people, it seems high.
Also wasted are bad products. In a capitalist society, if a product is bad, i.e., no-one wants to buy it, it is wasted. But the waste is absorbed by one of millions of producers. Certainly, if a product fails, the company that produced it might go out of business. but it is only one product. however, if it happens in a government controlled economy, it is the government who takes the hit. Also, since products are expensive to develop, market, and sell, it is possible that the companies in a capitalist system will figure out they have a bad product before dropping lots of resources into it. While it might be hard to stop producing someing that the local Commissar in the communist system liked.
I wonder if the Communist system took their want for economic efficiency too far.
That capitalism is so wasteful is a problem. But maybe not so much as it would be were there lest waste.
Posted by: Allan at Feb 3, 2009 4:04:09 PM
Allan you say something fantastic. The communist system was absolutely inefficient and it was clear for us, who lived in the system. and more - it could not be improved even on personal level.
The way it worked was simple - to take best western example, scale it up and that is ( so best factories were just bigger copies of something already in the west ). But beyond that one step the system lacked ways to improve process - it just was not adaptive to changes and local specifics. Even compared to existing western examples the efficiency was less. And it was a recurrent theme in discussions of top officials - it was too clear - even bigger copies were less efficient. but bigger copies were also less flexible to adapt to changes ( and technological innovations) so that at one point when the population growth stopped - the whole system stopped to grow ( at level way below western standards of living ) and this stagnation caused drop in morale which in turn led to easy change of regime when hard times started in the end of 80s ( the cause were that external shocks in energy prices made a death blow to rigid system ).
Posted by: Sergey Kurdakov at Feb 3, 2009 4:30:00 PM
Actually, Allan, capitalism (or, to be more accurate, a free price system, since that seems to be what you are discussing) is far more efficient than the Communist (or a fixed price system) system because the price of goods is a signal that automatically regulates supply to correspond to demand without any central coordination necessary. See http://en.wikipedia.org/wiki/Free_price_system for more info.
Posted by: Neil at Feb 3, 2009 4:32:34 PM
My dad who used to work at a factory that manufactured light bulbs in Soviet Union says he's never heard of this. That's not to say it never happened, of course, but seems a bit suspect.
Posted by: MS at Feb 3, 2009 4:42:53 PM
Allan and Sergey - Which is exactly why so many of us are fearful of bailouts and firehoses of cash streaming from a massive stimulus package.
Posted by: John B. Chilton at Feb 3, 2009 4:44:54 PM
Fascinating.
Posted by: Michael at Feb 3, 2009 4:53:01 PM
Same thing existed in Serbia in early nineties. I remember an interview with the guy who was selling burnt-out bulbs on the flea market.
Posted by: marko at Feb 3, 2009 4:54:52 PM
Allan:
What you're saying isn't wrong per se, but you miss out on the dynamic coordination problems, and other institutional problems (e.g. incentives) of the centrally planned model.
Markets waste, yes. But the shortage you describe that prevents waste in a planned economy is only a symptom of their inability to produce *enough*. It isn't that they are able to produce exactly how much people want, they under-produce and hence there is no wasted inventory -- but there also isn't enough to fill demand.
But, beyond that, there isn't even the right stuff to fill demand.
Also, in a market system, (1) the unwanted products are not necessarily thrown out- they can be sold on secondary markets -- like used cars, or flea markets and (2) they still act as signals to alter production, so "waste" is useful.
There is much more to be said on this subject, but I'll leave it there.
MS: Someone at a light bulb factory may not be the person in the best position to know. It would be someone in a factory that uses light bulbs who would know better. In any case, one person unaware doesn't disprove the story. In any case, it makes logical sense that it would occur; it is just one example of appropriate the public provision for private use, which occurred all the time, and represents a "tragedy of the commons" sort of problem.
Posted by: liberty at Feb 3, 2009 5:15:35 PM
Also, I love Vladimir Treml, he is awesome.
Posted by: liberty at Feb 3, 2009 5:21:48 PM
Efficiency leads to greater waste by lowering the cost of inputs.
Posted by: 8 at Feb 3, 2009 5:23:51 PM
The solution is to manufacture light bulbs and lamps with different sockets for Government buildings. Problem solved!
Next time any one tries communism, give me a call. I'm a central planning genius.
Posted by: Jonas Cord Jr. at Feb 3, 2009 5:48:06 PM
Sergey,
The Soviet system may have been terribly inefficient. But they wanted it to be more efficient than a capitalist system. In theory, it could be. Theoretically, government controlled companies can be as dynamic as privately owned ones. The problem is translating theory into reality and throwing in a portion of human nature.
My bottom line is that it is theoretically possible to create a communist economy that is more efficient than a capitalist economy, but impossible to implement the theory.
Posted by: Allan at Feb 3, 2009 6:25:48 PM
But don't worry - Brad Delong has shown (or linked to) that privatization does not work - ever!
Posted by: Russell at Feb 3, 2009 6:49:32 PM
Is it Allan?
The whole point of government owned companies and communism in general was to try to not be as flexible as capitalist countries, at least as far as labor practices go. If a government company fired and hired laborers based on their personal skill, market demand, etc, it wouldn't be very communal.
And I am really f'ing tired of the "theoretically possible but human nature just isn't up to it" excuse. Communists murdered tens of millions, enslaved millions more, oppressed billions, and still couldn't make a decent toaster.
Posted by: Toxic at Feb 3, 2009 7:24:40 PM
this is a cute story (and I am sure there is a moral to it), but it is a total fiction. Of course some people weren't above stealing a light bulb from work, or neighbors entryway, or whatever. But the elaborate scheme described (and any kind of "black market" for used bulbs) are a complete invention. (Or, if they are not, I lost a small fortune in light bulbs that I used to just throw in the garbage for years :) )
Posted by: Passing By at Feb 3, 2009 8:09:46 PM
Toxic,
Don't delude yourself. Yes, communists have murdered millions, but so have capitalists. So have Christians, and so have Muslims. For that matter, there were fascist monsters also. A financial system is not the same as a political system.
I seem to remember a capitalist system that enslaved millions, too. And the portion of the country that did was not that technologically savvy.
In any case, I don't remember any purely communist systems in the past (other than, perhaps, the Kibbutz). There was a Soviet system, which had portions of communism, but it was not pure. Just as there are no purely capitalist systems.
Posted by: Allan at Feb 3, 2009 8:36:01 PM
Allan,
So it is coincidence that government control over resources and government control over media (which requires resources) and one-party politics (which, when government is controlling resources, must decide how those resources are to be allocated) go hand in hand?
No, political and economic systems are not completely separate. It is no coincidence that, in the 20th century, the more state control over resources a government had, the more totalitarian it was, the more inefficient it was, and the more deaths of citizens resulted.
Posted by: liberty at Feb 3, 2009 9:25:59 PM
For anyone interested in a good read, I recommend Hazlett's "Time Will Run Back." It is the best exposition I have ever seen of the problems central planners face. It covers the three principle problems: 1.) Mises' calculation problem, 2.) the incentive problem and 3.) Hayek's knowledge problem. It does this in the form of a novel, which is quite readable. link here
Posted by: JP White at Feb 3, 2009 9:28:49 PM
Yes, communists have murdered millions, but [...] I seem to remember a capitalist system that enslaved millions, too.
Posted by: at Feb 3, 2009 10:15:48 PM
Allan, moral equivalence is a fallacy. And making up facts (capitalists murdered? I don't recall that; fascists are Marxist so that goes in the radical Leftist murder column) isn't helping either.
Wow. Aren't we supposed to have universal education?
Posted by: Vernunft at Feb 3, 2009 11:33:16 PM
Don't delude yourself. Yes, communists have murdered millions, but so have capitalists.
The difference is that you yourself have admitted communism is not compatible with human nature in the real world. What that means is that "communists" either wind up implementing at a bare minimum something like Lenin's NEP or Gorbachev's perestroika or wind up as totalitarian rulers. I say at a bare minimum because neither of these were stable with the former being vulnerable to the rise of Josef Stalin and the latter vulnerable to the push for capitalism. The more stable "communist" systems we've seen as of late that don't involve totalitarianism are the decidedly mixed economies of China and Vietnam.
On the other hand...
But don't worry - Brad Delong has shown (or linked to) that privatization does not work - ever!
No, Brad linked to an Aussie blogger who pointed to the example of Queensland privatizing government-run butcher shops as a successful case of privatization. Why oh why can't people read linked posts before criticizing them?
Posted by: Ricardo at Feb 4, 2009 12:23:00 AM
Vernunft,
Are you serious?
This whole post was about economics, not political systems. Capitalist economies have produced murderers, as have fascist, communist, monarchist ...
I do believe the free market, free trade, and capitalism are the best systems practically. However, as a purely economic system, in theory, there are other choices.
Posted by: allan at Feb 4, 2009 12:41:49 AM
Yes, communists have murdered millions, but so have capitalists.
Capitalism does not exist as a political ideology. Capitalism never existed as a political ideology. The term 'Capitalism' was coined by Karl Marx, and is a loaded term used as a pejorative by the left. There is no Capitalist manifesto, there was never any Capitalist party, and what people like you call 'Capitalism' is in fact a whole gamut of completely unrelated (and often contradictory) political ideologies and economic systems.
There is an ideology called 'Liberalism', which advocates free-markets, free-trade, civil liberties and democratic government... and some people might misuse the term 'Capitalism' when they really mean 'Liberalism'. Liberalism has never murdered millions, and in fact the modern 'Progressive' movement is simply Liberalism minus the free-market. The fact that you throw the same imaginary label on Liberalism as extreme anti-Liberal ideologies does not mean buying an iPod or lowering taxes is the moral equivalent of sending millions to the gulags.
Posted by: Rex Rhino at Feb 4, 2009 1:09:35 AM
Market in burnt out bulbs?!...
Bulbs rarely available to individual consumers?!...
Well, it's not surprising that Prof. Cowen would easily believe ridiculous stories about the country in which he never lived. But it is surprising that Prof. Treml would tell his students patently ridiculous stories (well, let me be fair: at least one ridiculous story) about the country he had lived in.
Well, of course, it's always possible that Prof. Treml and I lived in two different countries that somehow had the same name - USSR.
Posted by: Vlad at Feb 4, 2009 1:16:56 AM
