"There is always a philosophy for lack of courage."—Albert Camus

Wednesday, May 23, 2007

The Demise of the USSR

Yegor Gaidar, lately an advisor to the late President Yeltsin in Russia, gave a very interesting talk recently at the American Enterprise Institute on the collapse of the USSR. Short version: the Soviet economic system was fundamentally screwed up and by the 1980s was unable to feed the country. When oil prices dropped in the mid-1980s, it was a hit the system couldn't handle. Now, I'm not all that convinced by the economic determinism of the piece, but I'm more than ready to think not being able to feed your people has a negative impact on political legitimacy.

But here's what interested me: according to Gaidar, when Saudi Arabia began producing more oil in 1985, the USSR lost $20 billion in oil revenues from the resulting drop in oil prices. And that's what started the whole ball rolling. Get that? $20 billion. If I've done the calculations right, that's $38 billion in today's prices. Can you imagine our whole system folding on account of a $38 billion hit? With a federal budget somewhere north of $2 trillion, that's chump-change. A rounding error, right?

The USSR was done in by a rounding error. Talk about ignonimous endings...

1 comment:

Matt Huisman said...

What's amazing, when you think about it, is that none of the economic geniuses of the fifties, sixties and seventies could have even imagined such a scenario.

No exports, huge infrastructure/defense expenses, sizable imports, no credit. Of course, scientists only follow the facts?