Learning From Russia
BROCKWAY, GEORGE P.
The Dismal Science LEARNING FROM RUSSIA By George ? Brockway This is our learning year. At least it is a year of learning opportunities. Whether we're capable of actually learning...
...What do we have to do now that we're free...
...That bothered his collaborator, Friedrich Engels...
...First, we led the way for NAFTA and GATT, both of which subordinate national sovereignty, human rights, and labor and environmental protection to commerce...
...If no one has to pay taxes, it's not of much use for other purposes...
...Money is a funny thing...
...A trip to the tax office enlightens you: The local bureaucrats have not been paid for months...
...Whether we're capable of actually learning remains to be seen...
...Almost everyone else takes care of taxes under the table—or simply disregards them altogether...
...They are still the wrong way around in Russia's brave new world of privatization, plunging rubles and other economic shock treatments...
...In the meantime, it turns out that you already have staggering taxes to pay...
...Finally, you send the contract to the Pinsk people, who naturally have to get a lawyer to read it...
...But you are confidentially told the taxes can be taken care of with a few dollars or marks (and cautious winks tell you where to get hold of some) in the proper hands, plus several samples of what you manufacture...
...Russia recently announced that it would print rubles to help meet the government's payroll and bills...
...Meanwhile, they say: "By the way, we went to some lectures on free enterprise, where we heard there are factories in Omsk and Tomsk, not to mention some in Krakow, Kinshasa, Kyoto, and Kalamazoo, that can make what we want...
...Its population was large and better educated than China's...
...Second, we extended most favored nation status to China on the fanciful ground that association with our business representatives would teach the Chinese not to torture or execute an untold number of political prisoners every year...
...There is no gold or anything else "behind" it, and it can hardly serve any practical purpose, even as wall decoration...
...The lesson of our story is as promised at the beginning: A sound government is the sine qua non of a sound economy...
...In January the debacle of Southeast Asia taught us, as I pointed out at the time in this space, that "In the special branch of ethics that is economics, any system built on the backs of the downtrodden will be forever unstable...
...We know that we will be able to use them to buy what we want as long as—but only as long as— taxes are as certain as death...
...Furthermore, our pioneers could maintain themselves by subsistence farming and small-scale mining...
...That means I can settle all debts I now owe by offering Federal Reserve notes to my creditors, including the government...
...Storekeepers could demand cigarettes or Confederate currency or a bag of barley seeds (the money of account in some prehistoric societies), or they might just say no...
...Marx would have been delighted with it...
...The form of government Lenin instituted, said to be a "dictatorship of the proletariat," was certainly some kind of dictatorship...
...And I don't have much trouble getting rid of whatever dollars I have left, since the country is full of people willing to sell me things because they need dollars to pay taxes, and there are plenty of bureaucrats ready to see that they do...
...Moreover, you find that your bank and the Pinsk bank have no satisfactory clearinghouse arrangements (they're working on them...
...Commentators in the American media have expressed horror at this use of the printing press...
...Without making oneself ridiculous," he wrote to Joseph Bloch, "it would be a difficult thing to explain in terms of economics the existence of every small state in Germany, past and present, or the origin of the High German consonant shifts...
...The same was true of the United States for decades, and our dollar remained embarrassingly strong, but let that pass...
...Our new slogan, greeted with cheers on both sides of the Congressional aisle, is "The era of big government is over...
...In a footnote in Capital, Karl Marx wrote, "The middle ages could not live on Catholicism, nor the ancient world on politics...
...You resist with all your patriotic heart...
...Recent slogans have included "Balance the budget by 2002," "It's the economy, stupid," "Read my lips...
...Third, we are preparing to use our long-sought budget surplus, not to repair our torn social fabric, but to cut taxes, mainly for the wellto-do...
...Its infrastructure was more highly developed...
...Please note that sound government comes before sound economy...
...As we review our own political campaigns of the past couple of decades, we must doubt whether we have learned the lesson...
...To the extent that the Soviet Union was Marxist, things were the other way around before Communism's collapse seven years ago...
...also exercise their influence...
...It takes some time, because the lawyer never did such a document before and has trouble literally digging up a watersoaked 1912 textbook...
...The state, you will remember, was supposed to wither away...
...It should be noticed that the high-powered "reform" economic advisers from Harvard and MIT and the International Monetary Fund were not dismayed by the lack of a free-market legal system...
...We're all happy to work to earn dollars...
...It does not mean that anyone has to sell me something I want because I offer to pay in dollars...
...Since the orders were large enough to keep the factory busy—that's one reason you went after the shares when it was privatized—you pursue them...
...They were all convinced that the vice of the Western world is excessive regulation, and that the former Soviet Union and its former Warsaw Pact allies would benefit from the shock treatment of being thrust to sink or swim in the turbulent waters of the new global economy...
...A couple of months ago I observed that Japan "is as successful a supply-side economy as the modern world has seen, and as such its difficulties should be a warning to the United States...
...Russia had gone about as far as it could go peacefully, but it has a long way to go before its legal system can support a free economy...
...Although this might cause some suffering and even some inefficiency (which in standard economics is evidently more blameworthy than suffering), they contended that it would be better to get rid of the bad old ways at one fell swoop than to creep along incrementally...
...Once the market was freed and assets were privatized, the reformers promised, everything would efficiently fall into place...
...Of course, that is not what happened...
...Suppose for a moment that you live in Minsk and have gotten your hands on a factory that produces something used in Pinsk...
...Assuming you get the order, your payment will be slow and uncertain...
...Nevertheless, Engels did not doubt that the "economic situation is the basis" of everything even though "the various elements of the superstructure...
...But if they have bills and taxes to pay—why else would anyone maintain a store?—they will need dollars...
...As the late Hyman Minsky pointed out, although we had three full-fledged depressions in the first third of this century(1907,1921 and 1929), we have had none in the last two thirds, mainly because of two institutions bequeathed to us by the New Deal and World War II: (1) The New Deal gave us bank regulations and deposit insurance that have forestalled bank runs, and (2) World War II gave us our "big government"—24 per cent of GDP as opposed to the prewar 3 per cent—that provides a solid foundation of demand on which the supply side of the private economy can build with confidence, regardless of what happens in the rest of the world...
...The Harvard and IMF economists are possessed of the notion that the ruble keeps falling in value because neither the national budget nor the foreign trade account is balanced...
...The Federal Reserve bills I have in my pocket say on their face in small capitals, "This note is legal tender for all debts, public and private...
...So Mikhail S. Gorbachev and Boris N. Yeltsin found no legal system in place to regulate the revolution to a market economy...
...Our "privatization" was better managed as a result of long experience with land settlement, and blatant corruption was at least reined in by posses of settlers eager and able to take the law in their own hands...
...We were told you should be competing with them for our business" Well, you can see this is going to be a drawn-out affair and you may get nothing for your trouble...
...The problem with the ruble is that only suckers now have much need of them...
...The economists' models convinced them that Russia required an austere tightening of the public belt that could be accomplished by downsizing the government, including the tax offices...
...As might have been expected, tax collections shrank further, just as they did in Nigeria and other emerging markets of the global village...
...On the contrary, it is the mode in which they gained a livelihood that explains why here politics, and there Catholicism, played the chief part...
...No new taxes," "It's your money," "Abolish the IRS...
...Ten years ago a commissar periodically instructed you to send ? amount of the stuff to Pinsk and gave good grades for fulfilling the quotas...
...But the question is not how rubles are manufactured, it is whether enough taxes are levied and collected to ensure that there is a great demand for rubles by both individuals and businesses...
...In some respects Russia may be the American West all over again, but there are significant differences...
...Will we ever learn...
...You explain that you will have a lawyer draw up a contract...
...Most important, our banking and taxation systems grew with the country, whereas in Russia they are struggling to be transmogrified from Soviet systems utterly unsuited for their present purposes...
...Fourth, it is not improbable that majorities in both houses of Congress could be whipped up in favor of abolishing or privatizing the Internal Revenue Service...
...We have recently shown our allegiance to this slogan in at least four major ways...
...Russia's troubles are not primarily economic...
...Sure," the Pinsk people say...
...For my part, I need a good many dollars to settle things with the various tax collectors (Federal, state and local...
...You go along...
...The people in Pinsk accepted whatever they received...
...Its natural resources were greater...
...Today the object lesson is Russia, and what it teaches is that a sound government is the sine qua non of a sound economy...
...Then you learn that the local big-time operators (known as "moguls"), whose Mercedes and dachas you have envied, have embraced this system (and it is, after all, not unlike what you were taught to expect of capitalism...
...in Russia there is little to fall back on when large-scale privatization misfires...
...It's a free country...
...Seven years ago its economic "fundamentals" were strong enough to scare us silly, as some of us are scared silly by China today...
...Big government has a special and indispensable role in a free market economy...
...Its civil law concerned orders and commands, but not customs and contracts...
...As I've remarked before, the notes issued during our Revolution were "not worth a Continental" because the Continental Congress had no power to collect taxes...
Vol. 81 • November 1998 • No. 12
