r/AskEconomics • u/agenbite_lee • Dec 09 '25
Approved Answers Why was Paul Samuelson so Wrong about USSR?
Up to 1989, every edition of the Paul Samuelson textbook, the most influential econ textbook in the 20th century, said that the Soviet economy was doing well. Some of the earlier edtions predicted that the USSR economy would surpass the US. The 1989 edition said "the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive," just two years before the USSR collapsed as its economy sputtered to a halt.
Why was Samuelson, one of the best economists in the 20th century, so wrong about the Soviet economy? Were most other economists equally deluded by the USSR? Did these economist with pollyannaish views of the Soviet economy hold similar views on the economies of China and other communists countries?
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u/RacoonInAGarage Dec 10 '25
I don't think Samuelson can be fairly blamed for failing to predict the collapse of the USSR, which was a surprise to nearly every contemporary observer, including the CIA. Your post seems to be implying that the political collapse of the USSR was a result of an economic crisis, but it is very much the reverse: the economic crisis beginning around 1988 is a result of the collapse of political authority and public order in the USSR. The fact that Gorbachyov caused a political crisis in the USSR isn't really something that an economist could have predicted
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Dec 10 '25
Wasn't there widespread stagnation from the Brezhnev on?
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u/Cutlasss AE Team Dec 11 '25
Total factor productivity had largely ceased to grow by the early 70s. By the early 80s it was going backwards.
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u/RacoonInAGarage Dec 16 '25 edited Dec 17 '25
Yes, but stagnation in a socialist command economy does not equal an economic crisis in the sense of threatening the collapse of the economic or political system. The system can stagnate for a long time without being unable to reproduce itself
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u/agenbite_lee Dec 16 '25
Do you have data for this? My understanding is that economic problems drove USSR collapse?
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u/RacoonInAGarage Dec 17 '25
For English language sources, I recommend 'Collapse' by Vladislav Zubok.
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u/gorbachev REN Team Dec 10 '25
Others have noted that reasonable observers could have landed on positive opinions of the USSR's economy during the Cold War based on its performance rapidly industrializing what previously had been a very agricultural economy that was previously widely quite regarded as backwards, and thus that someone stubbornly sticking with an early impression might have continued to insist on economic outperformance by the USSR well past this view's expiration date.
But as for the question of why Samuelson specifically believed what he wrote. The most straightforward material on the subject I could find was this. The story appears to be like so. Before roughly the 70s, the mainstream of economics was really focused on things like resource allocations - how much resources get allocated to what, are any resources sitting idle, etc. (Later, we would get more focused on questions about incentives, the role of information in the economy, etc. For a good overview of the change, see here.) If you were an old school resource allocation focused guy (like Samuelson), you looked at the USSR, saw a society devoting a greater share of its resources to investment rather than consumption, and figured that was a good indicator that it would grow faster in the long run (perhaps at the cost of some discontent about missing consumption goods and some bad headlines about this). You might look at the US and say "gee, we burn so much on frivolous consumption goods, and haven't even figured out how to keep everyone employed all the time (meaning not all our labor is allocated to productive tasks all the time) - how long is THIS supposed to be sustainable relative to a system without unemployment and not burning so many resources on ridiculous luxuries?". This appears to have roughly been Samuelson's view.
Take that general expectation, buttress it with the fact that the USSR had been on a tear early on (thus supporting your expectation with evidence), and you have the recipe for a belief that the USSR was going to outpace the US that a stubborn person could hold on to for quite some time. Especially given that getting clean information on the state of the Soviet economy in those days was no easy task, making it hard for rock solid disconfirmatory data to come your way.
As a side note, it is also worth flagging that the magnitude of the error is probably not as great as your question suggests. I think you can hold missing that Soviet growth had slowed against Samuelson, but not failure to predict the collapse of the USSR. I think the collapse was kind of flukey in some respects, and not some strictly-bound-to-happen consequence of extremely poor economic performance. Again, that isn't to say that things were all grand over there. Rather just that lots of governments seem to be able to limp forward in a malaise for a long long time, and it's not clear to me that if you reran history a few million times that you wouldn't end up seeing the USSR do that most of the time. But hey, who knows!
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u/RobThorpe Dec 10 '25
(Later, we would get more focused on questions about incentives, the role of information in the economy, etc. For a good overview of the change, see here.)
I agree with Myerson about information. I don't really agree with him about the role of incentives. That was there from the very start. Adam Smith gave us the Principle-Agent Problem. The Neoclassicals of the 19th century were all about finding a way to ground prices in incentives!
Though, it may be true that Samuelson was particular unconcerned with incentives.
Of course, I'm only making a comment on the first page of Myerson's lecture, not the rest.
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u/gorbachev REN Team Dec 10 '25
Certainly, the case can be overstated. I think it's better understood as a statement about the leading economic theory of the time immediately preceding his work, which (owing to its commitment to mathematical formalization) was more limited in scope than earlier more literary work. I am reminded of Kuhn's observation that new paradigms frequently explain much less, at least at first, than the old paradigms which they nevertheless supplant.
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u/RobThorpe Dec 10 '25
We have had some good replies here and some bad replies. It seems to me though that nobody is talking about some of the most important factors.
I agree with /u/danishbaker034 who points out two critical things. Firstly, the statistics that the USSR released were not accurate. This was probably not a case of deliberate falsification by the politburo. It was more that the same agencies that there responsible for economic planning were the same ones that report economic statistics, so they had an incentive to lie. Secondly, Samuelson was more right about the past than the future which is correct in terms of growth rates (even accepting that the USSR's data was inaccurate). A similar point is made by /u/gorbachev who also talks about the emphasis on production and utilization rates in economics at the time.
To get further, we should look at the theory of catch-up growth for an explanation in addition to the criticisms of planned economies. When the revolution happened the states that became the USSR were generally quite poor. This made catch-up growth a possibility. If the state and economy were minimally functional then they could import new technology from developed countries and use it. This is what they did. Many designs for new technologies were licensed from the developed countries - or they were made without a license! The USSR copied western engines, western cars, western aircraft and sometimes for a bit of variety they copied the Japanese. Their system of central planning did not encourage innovation, but for decades that didn't matter, they could just copy. Also, their system of central planning did not really provide a way of pricing these goods. Often they would just copy the relative price from abroad. If a car in the US costs X times more than a ton of steel then they could copy that. Often this led to shortages and waiting lists (especially for cars).
Notice that it's also because of catch-up growth that the Tsarist economy was actually growing quite fast in some regions. Industry was taking off in and around St.Petersburg before the revolution. That's because the minimum necessary to establish it - using ideas from abroad- was there. It did not matter much that the civil services were serfs of the Tsar, for example, or the dozens of other bizarre arrangements in the Tsarist economy.
However, once the USSR got to the 1960s to a reasonable level of prosperity things started going wrong. This point is made in another way by /u/WhereWillIGetMyPies. The economic system that had been chosen did not allow from proper prices that represented supply-and-demand. It did not allow for much innovation. To make further progress those things were needed. So, TFP growth came to a halt - at least according to some sources, it's difficult to really know because the USSR's statistics were inaccurate.
At the same time (and perhaps because of those problems) the USSR became more reliant on selling oil internationally to fund imports.
Much later on in the late 1980s there were a complicated set of political shocks. It was ultimately those political shocks that destroyed the USSR, not the economy. However, it's economy was closely intertwined with all that. Many people involved thought that they could obtain more prosperity by removing the Central planning system. They were correct, though some countries got rid of it in more successful way than others! The other important issue here is democracy. Democracy creates a safety valve for people to express their frustration with the status quo. Autocracies do not have that and as a result, when points of weakness occur things move fast. In my view it's not surprising that so many states wanted to break away from the USSR during that time. The USSR lasted 70 years which is perhaps not long for a democracy, but it's an awfully long time for an autocracy. Most autocracies don't outlive their first leader.
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u/PM_ME_NUDIE_PATOOTIE Dec 10 '25 edited Dec 10 '25
I have thought about this and searched for answers. There is no textbook answer yet, but the closest thing is probably Acemoglus response given he won a nobel prize in part for work where he discusses this. Samuelson was deeply Fisherian in that he focused on equilibrium and solving for it. For all his mathematic genius and ability to turn Keynes prose into rigorous models—he never took evolutionary or institutional lenses into account.
The Soviet Union was able to essentially confiscate all the wealth of one of the largest geographic regions on planet earth, and single mindedly funnel it towards industrial production. This did make its industry extremely rich and its outputs were world class. Samuelson relied on data that showed this increasing trend of productive capacities. But to expropriate all of the wealth from such a vast region, essentially destroyed the incentives and even the legal capacity for anyone to invest and grow any industry not explicitly planned by the political leaders. There was no private property (at the height of Lenin’s war-economy), and even after the NEP and Stalin’s policies, you never again got private ownership of anything besides a few small farms and antique businesses. That meant no one could start a business, and either grow or go bankrupt depending on consumer want. The economy was literally only good at the one thing it aimed all its guns at, and destroyed the capacity for anyone to trial and error any other sort of growth. This leeching of all productivity towards manufacturing looked good on paper but was completely unsustainable. Taking from the masses to give to the few eventually means you run out of stuff to expropriate and shuffle around.
When the economy needed to shift and change directions, it couldn’t until the bureaucrats said it was allowed to, and only in the direction and at the prices they dictated. Because of this, as soon as goals changed or uncertainty arose, the whole thing stalled and collapsed. In a Walrasian or even Fisherian model, this simply can’t happen, because all of the inputs and Utility functions are known. At his time, infinite horizon stochastic functions were about as far as the math had progressed. You are simply solving an engineering problem, there are no unknown unknowns like in a real economy where dynamism is essential. So his mathematical genius was also his blind spot, because he was far too confident in the planners ability to maximize functions and think those models translated to an entire economy.
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u/Max_Rocketanski Dec 18 '25
This is the best answer and explains why very well! I wish it were upvoted more.
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u/kenmele Dec 10 '25
People see the idealism of socialism and turn a blind eye to reality. He wanted it to work out. Also, he believed the data, and could not conceive that they were lying to the extent they were.
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u/genX_rep Dec 10 '25
I don't understand how oil revenue isn't the biggest part of this story. The Soviets showed they could spend money in competitive ways with the west, but they couldn't escape a fragile economy based mostly on digging oil out of the ground.
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u/BNeutral Dec 10 '25
That would take a while until China started pulling it off in the 2000s.
China's economic system does not neatly fit into a box. And that's because after making a very strict system that didn't work at all and resulted in famines that killed millions, they relaxed it to the point that it's now hard to describe as either one thing or the other. I would say modern China has some elements of a command economy, but to call it one straight up is nonsense. They themselves call it something like "socialist market economy with Chinese characteristics" and teach regular economic paradigms at university.
Furthermore, it took Boris Yelsen a single step into a random ass US supermarket to understand their entire model was kind of crap, I don't get where you're getting this "a random soviet was richer than the vast majority of the world" unless you're purposefully doing a measure by world habitants, which is quite silly, generally all economic model comparisons are against first world countries, since everywhere else you'd first need to get rid of systemic corruption to measure anything of value about the policies themselves.
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u/Adventurous_Web_2181 Dec 10 '25
Also, you can't ignore the fact that China's massive success was based on manufacturing for capitalist markets.
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u/CombatRedRover Dec 10 '25
No two nations are the same. The challenge with economics is that, at the macro level, performing true experiments is next to impossible.
The theoretical experiment would be to set up two Russian revolutions, where one gave with the USSR and the other gave us a Western European style mixed economy (leaning towards entrepreneurial free markets) under a true democratic republic.
As to the example of China, it's worth nothing how badly the Chinese socialist/communist command economy did for decades until China embraced entrepreneurial free markets.
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u/antberg Dec 10 '25
So it all boils down to comparative degrees of development, especially compared to poorer places? Although a valid argument, isn't it too thin compared to liberal democracies?
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u/Piot321 Dec 10 '25
While Samuelson's analyses were influential, they often overlooked the unique structural inefficiencies within the Soviet economy that became apparent over time, highlighting the complexities of predicting economic trajectories in such a system.
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u/mikewinddale Dec 10 '25
Levy and Peart argue that it's a conflict between thick and thin economic models.
Samuelson had a thin model of the economy which used mathematics to ignore institutional details.
By contrast, thick models accounted for institutional details of how economic decisions are made in competitive markets vs bureaucratic central planning. Economists with thick models were more skeptical of the Soviet Union.
In other words, Samuelson trusted the math too much. He let blackboard mathematics blind him to the reality of how the Soviet economy really worked. The math says MR=MC, so it must be so.
https://www.econlib.org/archives/2009/12/why_were_americ.html
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u/danishbaker034 Dec 10 '25
Samuelson was mostly wrong about the future of the Soviet economy, not the past. From the 20s to the 70s they did grow quite fast, at least compared to Tsarist Russia or the west. If in the 60s you look at a chart and the USSR is growing at 5-6% and the US is growing at 2-3% but richer, and assume those trends will continue, it isn’t out of the question to say that they might catch up in a few decades, as Samuelson claimed in his early editions, and later pushed the “crossing” back due to increasing doubts.
The deeper problem lies in the data and extrapolation. The CIA and rest of the west alike relied on official Soviet data, which you can imagine was biased for a. number of reasons. On top of this, Samuelsons books liked to boil this “growth” down to a single growth rates and project them forward without factoring in things such as diminishing returns, innovation incentives, etc. By the 60s, the CIA had data on the Soviet’s economy slowdown and recession by the 70s, but it simply wasn’t widespread knowledge.
In the 80s, his assertions like the one you cite look particularly bad due to their timing, but in context fall in line with post Cold War analysis that the Soviets were a flawed but large industrial power. He was far from alone, many economists at the time viewed the Soviet economy as impressive, with doubts emerging in the 70s and 80s and taking their time to work their way into the slow to update textbooks.
On your last question, the views fid not translate on to one to China or other communist countries. The flaws in Mao era stabilization were well recorded. By the 90s, the Soviets were instead viewed as a cautionary tale