Could the USSR work well enought on its orthodox form to be a pleasant place in modern day?
- Thread starter Gukpard
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Two Nobel Prize laureates tried to use their formula for what prices should be for derivatives and founded Long Term Capital Management which did very well for two years and then collapsed because in reality even two Nobel Prize winners could not get the pricing right. Two Nobel Prize winning economists started a company that went under because they couldn't get the pricing right for a company that was very small compared to the economy of the USSR. This in a country that had free market prices that were relatively transparent. Now you are saying that the same people are getting it right for hundreds of thousands to millions of items in a very large country that had state controlled pricing that was often opaque.
You do realize that company actually defaulted on the Russian collapse post-USSR, right? They weren't trying to price derivatives on a regulated and established exchange, which is what they were famous for and what their formulas are still used for. I'm not entirely sure you understand all of the completely disparate events and concepts you are stringing together to try and desperately make a point, because essentially none of them have anything to do with whether or not the Soviets could have reformed their economy and maintained their spot as a developed country post-WW2.
Yes, I do. This is something Nobel Prize winning economists should have priced into their model. The fact that the Russian economy was shaky wasn't exactly hidden. Their formula (unless you think they just invested in Russian Bonds on a whim and didn't try plugging into a model) did not price Russian bonds correctly and thus they went under. If their pricing models were so good they would still be around. Pretending you can calculate market prices leads to disaster.
So Wall Street whiz kids getting wrecked in Russian bond markets 6+ years after the fall of communism is somehow a critique of the socialist calculation problem? I am seriously having a very hard time connecting the random intro to econ sidebars you are trying to draw a straight line between.
The cost was a minor proportion of the French defense budget, 7 billion francs in total over the six years it was, a relatively small percentage of overall French military spending in that time (the equivalent of somewhat over half the 1935 defense budget spread over six years). Even at some cost to mobile forces, having that belt would have been worth it. The Wehrmacht would have taken hideous casualties if they had been forced to attack it directly. It is true that mobile forces are needed to plug gaps in any line, but that doesn't negate the value of fixed fortifications in areas where strategy and terrain favor them.
I disagree with that. It wasn't anywhere close to done when the Winter War started, but it was there and made a big difference. Organization Todt put a ton of resources into the Gustav Line, and it was quite built up.
Yes, but that was mainly because the Allies were on the offensive later on and there were few opportunities for the Axis to counterattack, and that Hitler wouldn't allow the giving up of any ground when it would have been far more sensible to dig in at places like the Dneiper River Line (especially there). If you start from the very beginning, things would look far better if the Maginot Line had gone to the sea.
I mean you have to look beyond just that though. All of NATO's open and closed source doctrine and planning dealt with the threat of a Soviet invasion, and the USSR knew that. Their posture made total sense when you consider the politics with France and the fact that the Soviet troops getting to the Rhine meant nuclear war. When you take the whole picture into account, it's obvious who was planning defensively and who was planning offensively.
What I am saying there is a pricing problem. Even in a capitalist economy like the US it is near impossible to get the price right days or weeks in advance for complex finances. All these economic models are just that, models. Which is why the price models the economists at Long Term tried to use failed. If they could get their price models right Long Term would be the biggest investment company on Wall Street right now.
The USSR was nothing but complex. It had hundreds of thousands of products from raw materials, to industrial goods to services. Considering the shortages and quality problems that were rampant in the Soviet Union I have serious doubts they got the prices right or that people looking back decades later can get the prices right. Between the GIGO factor and data overload it is hard to see how they can.
Hedge funds (like Long Term Capital Management) are not claiming to have complete calculability on their investments, nor is that what the Black-Scholes Pricing Models claims to have for derivatives investments. You cannot credibly claim the failures of hedge funds taking too much risk in financial instruments as proof against a planned economy in which most of those financial instruments would be and were wholly banned.
Good luck trying for convergence arbitrage on Soviet era lottery bonds.
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If you can't have complete calculability on derivatives prices how can you have complete calculability of ALL prices on an entire economy? If you can't get it right on such a relatively small problem how can you get it right on a much, much bigger problem? How can I solve for A Sin(A^5)+Tan(B^3/C!)-ln(D+E^-5) = F if I can't even solve for A AB=C? The Soviet economy was much bigger and much more complex than an investment fund. A couple of the best economists in the world couldn't solve the relatively small problem of pricing Russian bonds right and yet the much, much more complex calculation of ALL prices of the entire Soviet economy can be?
Yes, the failures of Wall Street in risk management are clear evidence against a planned economy.
I'm honestly not sure what you even think you are arguing at this point.
Not risk management, pricing. The whole point is that they got the PRICES wrong. Is there some sort of magic that governments have that get the pricing right through the entire economy? Was the Soviet planning commission so wonderful that they could get every price right in an entire economy right when a couple Nobel Prize winners couldn't solve a much, much easier problem? The Soviet economy had massive shortages during its entire history, didn't prices have something to do with it? Such as setting the price so low for bread that the peasants were feeding it to their pigs? If you hadn't noticed my whole argument here is about pricing.
I'll be the first one to admit I'm no economist - I'll defer to the experts here on this one.
I don't really think this is true? "Under communism" also implies the USSR had reached communism, or considered itself communist - it did neither. The industrialization of the USSR was incredibly aggressive and it wouldn't have been as aggressive without the efforts under Stalin.
That's a commonly repeated myth, but it doesn't hold water. Russia was already having tremendous economic growth under the czars; their production of the main industrial products in 1913 was slightly lower than France's, and was growing at a torrid rate. All indications are that they would have way outpaced where they ended up if they just kept on that course. Studies of Stalin specifically against hypothetical counterfactuals that include the NEP continuing and contemporary Japan show that the Stalinist economy way underperformed where it should have been. Russia would have been much stronger in every possible way without Stalin's purges, mismanagement, and engineered famines.
When you throw in how badly his idiotic decisions screwed them over in WWII (just imagine how different things might have been if he hadn't invaded Finland or had fully committed once doing so, or if he hadn't ordered the Molotov Line dismantled before the Stalin Line was built, or if he had listened to the invasion warnings, or if he hadn't purged the military, or, or, or...), yeah, Stalin screwed them.
You do not know what you are talking about here. Long Term Capital Management did not believe prices were perfectly calculable- their primary strategy of fixed income arbitrage would not work if prices were perfectly calculable, because if prices were perfectly calculable there would and could exist no opportunities for arbitrage. (If price was perfectly calculable there could never be more than one price). Black and Scholes were not part of the day to day operation of the fund nor was their Nobel Prize winning work (which to be clear, does not promise or even attempt perfect price calculability but is still widely used today) a major part of the fund's strategies. What Long Term Capital Management suffered was not a failure to calculate price correctly, what they failed to measure accurately was risk. (They actually obfuscated their portfolio's risk, possibly intentionally, by spreading their risky positions and leverage across multiple firms, which is part of why their collapse was so unexpected and spread so widely. No single risk department could see the whole picture.)
You brought up a random hedge fund (perhaps the very pinnacle of financialized capitalism's achievements) to try and lambast Soviet central planners, whose goals, methods and outlook could not be more different. We can argue all day about the Socialist price calculation debate, but it has precisely nothing to do with Black, Scholes or the antics of financialized capitalism (which again, was an example you brought unprompted into the conversation).
