Island Science

For some reason economists love to use metaphors taking place on an island to explore their theories. I have one. It explains why I think economics is tricky, and how people often get it wrong.

Imagine there are two islands with bear populations, and an ecologist observer is watching the bear populations, seeing which island does better. There is a team ready to help the island that does worse, based on what is learnt from the one that does better. However the observer has only one tool with which to analyze the islands - it can estimate the bear population on each island and detect any difference between the islands which is transferable, i.e., which can be copied and applied to the island which has a lower population.

One of the islands (island A) is lush, covered in trees, bushes, lakes; there is lots of wildlife- insects, squirrels, snakes - and the bear populations is growing. There is also a disease that is passed along by the insects, which kills off some of the bears every so often, and makes many of them suffer. The other island (Island B) is dry, barren, there is little wildlife, and the bear population is falling. It has no disease.

The observer's tool detects that island A has a higher bear population, and it detects one difference which is transferable: island A has a transmittable disease. So, the observer tells the team and they capture some insects with the disease and release them on island B. This, they decide, will surely help island B increase its bear population - after all, it's the only difference which the tool picked up. Sure, there might have been other differences, but this is the only transferable one so the other differences are irrelevant. And it is clearly better to try something than nothing at all.

Executive Takeover of the Supreme Court

Many people were concerned about politics affecting the Bush V. Gore case, however it would have been much different had it ruled to keep an incumbent president in. Although Republicans had a legislative majority, the executive in power when it decided was Democrat not Republican, so it is not obvious that the court was being bullied by the other branches of government, even if the makeup of the court (the justices having been appointed over many years by different presidents) might have affected their leanings in the case. Imagine though, if the president in power at the time had applied pressure for them to come down one way or the other - this would surely affect the state of democracy in the country, would it not?

As this overview on the subject explains:

In order for America to be a democracy the judiciary, i.e. the Supreme Court, needs to be independent and a-political. If not then what is good for the people and for America may be ignored in favour of judgements that favour a particular political Party or viewpoint. 

Few would argue that the U.S. Supreme Court is uninfluenced by politics. However, it generally is considered to be part of a branch of government (the judicial) which is not subordinated to one of the other two branches (legislative or executive). This might be starting to change though.

Obama has been pushing the Supreme Court to uphold his health care plan for "nonlegal" reasons. In other words, he has been asking them to vote based on politics, and not be the independent law-interpreting judicial branch that they must be in order to retain the democratic nature of the country's political system. I fear that if the Supreme Court bows to this pressure, all semblance of an independent judiciary and a democratic political system will begin to crumble.

I wonder if Obama realizes this. An earlier Democratic president, who also favored expansion of social insurance programs for those in need and stimulus projects, also argued that the Supreme Court should put legal reasoning aside and uphold the projects and programs that he introduced. FDR, in addition to "packing the courts" with enough justices who would vote his way, also wanted to privately discuss cases and legislation with the justices in order to ensure they would not be struck down. Had Roosevelt gotten his way, there would be no division between the branches, and no checks and balances.


There will also be no separation if the justices begin to base their rulings on political pressure from the president or Congress - is there ever a time when pressure on the Supreme Court is right? It is easy to say yes when you want to see them rule differently, but if they cave to pressure they lose their independence. Sometimes it seems like this is the direction many politicians - not just Obama - would like to go. They would like all branches to agree with their vision, and simply "get things done" rather than squabbling about precedent and getting bogged down with “partisan bickering,” “obstructionism,” and “gridlock”. If everyone could just get on with things, it would be a progressive vision of cooperation, right? Or perhaps not. In The Gulag Archipelago, Alexandr Solzhenitsyn described this "seamless" cooperation in the judiciary - court trials where everyone must abide by the party line:

On the threshold of the classless society, we were at last capable of realizing the conflictless trial—a reflection of the absence of inner conflict in our social structure—in which not only the judge and the prosecutor but also the defense lawyers and the defendants themselves would strive collectively to achieve their common purpose. 

I fear that bullying the Supreme Court to uphold his policies, Obama is helping to move us in that direction. If the Supreme Court must rule as the president wants when he pressures them, we will soon have a judiciary that simply rules according to the party line.

Protectionism in Trade With Foreign State-Businesses

At Econlog there is a really fascinating history podcast, a discussion between Russ Roberts and William Bernstein. There is much to be said and discussed in it, but I want to focus on just one bit of Bernstein's historical revisionism (called such by Bernstein).

There is a strange omission during his telling of the Boston Tea Party, which he says was not about "no taxation without representation" but about protectionism. Bernstein argues that the tea manufacturers in America wanted to keep out the East India Company, and the Boston Tea Party was just an old-fashioned protectionist protest.  Only Bernstein forgot to mention the indisputable state-subsidy, monopoly, and even empirical activities in India, of the East India Company. This little detail was somehow omitted.

Here is Bernstein's history, from the summarized transcript:

25:18 Boston Tea Party. Revisionist history by the victors is common. Columbus was ridiculed not because he thought the world was round but because he got the size very wrong. Very lucky that he bumped into the New World. Story of Tea Party is that they were patriots; taxation without representation. In 1773, Britain trying to help the East India Company by opening up the colonies. Previously they weren't allowed to sell in the colonies, which meant smuggling and high taxes. When Britain in 1773 allowed them to sell directly to the colonies, the middlemen were up in arms because it drove the price of tea down to half of what it had been. Middlemen and smugglers got together and painted themselves and started throwing the tea into the harbor. First anti-globalization riot. Protectionist in spirit. Opposite of their being against the tax. Story originally broken by Arthur M. Schlesinger, Sr. early 20th century article.

But is it really the 'opposite of being against a tax'? That depends on what kind of a company the East India Company was. Bernstein's account leaves out a critical 'detail'.

This lengthy passage describes some of the context of the East India Company and its relationship to the British government, which the colonists would have in mind when rioting and throwing tea in the water to keep them out of the American colonies - which would shortly be independent in order to be rid of said government:

The prosperity that the officers of the company enjoyed allowed them to return to Britain and establish sprawling estates and businesses, and to obtain political power. The Company developed a lobby in the English parliament. ...By an act that was passed in 1698, a new "parallel" East India Company (officially titled the English Company Trading to the East Indies) was floated under a state-backed indemnity of £2 million. The powerful stockholders of the old company quickly subscribed a sum of £315,000 in the new concern, and dominated the new body. The two companies wrestled with each other for some time, both in England and in India, for a dominant share of the trade.
It quickly became evident that, in practice, the original Company faced scarcely any measurable competition. The companies merged in 1708, by a tripartite indenture involving both companies and the state. ...By 1720, 15% of British imports were from India, almost all passing through the Company, which reasserted the influence of the Company lobby. The license was prolonged until 1766 by yet another act in 1730.
At this time, Britain and France became bitter rivals. Frequent skirmishes between them took place for control of colonial possessions. In 1742, fearing the monetary consequences of a war, the British government agreed to extend the deadline for the licensed exclusive trade by the Company in India until 1783, in return for a further loan of £1 million. Between 1756 and 1763, the Seven Years' War diverted the state's attention towards consolidation and defence of its territorial possessions in Europe and its colonies in North America. 

The East India Company had been 'benefiting from the imperial patronage', and 'the rights to autonomous territorial acquisitions, to mint money, to command fortresses and troops and form alliances, to make war and peace, and to exercise both civil and criminal jurisdiction over the acquired areas' in India.  They had monopoly power wherever they sold their goods, as evidenced in India. They were lending money to the British government, which was waging war and trying to 'consolidate' it's territories, including little old America. The colonists had every right to fear its entry into America. They also were  being taxed by the company's money-minting activities and state-private Imperialist partnership and would be further taxed by the state-granted monopoly entering their market. They would also be vulnerable to the British Crown.

So, from the perspective of the tea traders and colonists, political leaders, and revolutionaries in America,  allowing the East India Company into America was not a better deal than privately running their own companies. They were protesting against nationalization of their tea industry, by a 'foreign' nationalized company (its headquarters overseas) which was run by the state they paid taxes to, and which was imperially expanding around the world using companies like the East India Company as their bank*. How was it 'protectionist' to protest against this?

The company would fund war - including the war which would soon start against them.This kind of bullying was precisely why many in America were ready to start a revolution - which they did just following the Boston Tea Party. 

* The state and the company imperially expanding, really. Minting money, lending the government money to fund imperialist wars, and running a militia itself? Sounds a bit like the Federal Reserve, Halliburton and big multinational banks today, all rolled in one.

Civilized Conversation

In American politics, and elsewhere, there is a direction that discourse commonly takes, when it goes from rational conversation to hyperbole and name-calling. One person often accuses the other of being a hypocrite. This is so common, I have no fear that I need provide links for evidence of this phenomenon.

But hypocrisy is not a crime, it is a mistake or logical error. In fact, when one makes a hypocritical statement, it is often because he or she has been recently opened up to a new point of view: the treatment of a new situation has called for a change in reaction to an old problem. It may be unintentional. Even if it isn't, we can give a person the benefit of the doubt, just to better advance a discussion (and not end up with hypocracy).

Conversation would take a much more productive course if instead of calling the person a hypocrite, he or she was asked why the new situation warrants a different course of action.

Let's be civilized, people.

Basic Economics: Markets and Love

Romantic love is selfish in a fundamental way. It is not love if you are romantically involved with someone out of pity (or altruism). It is out of a deep and genuine, greedy selfishness that we love someone romantically - that we make our love choice, create our destiny together with the one we love - this is a good kind of selfishness: it is doing what is in our true self-interest, giving ourselves what we all deserve, which is to be with someone we love. It is not the selfishness or greediness of vanity, a feeling of superiority, or power, or of otherwise choosing someone able to give us something else; that is not love; love is when the person we love is the something we want.

However, romantic love cannot flourish if we are selfish (or greedy), in the crude sense, in our interactions. It does not serve love, nor express love, if we dump the household chores on our romantic partners. In the day-to-day, love flourishes when we keep both our own and our partner's interests in mind. Love makes it rather easy to do things for each other, to be generous, kind, helpful, but sometimes doing the dishes is still doing the dishes, and we have to be willing to make an effort. Love also cannot flourish without honesty and openness (transparency) - lies, and lack of communication, destroy love relationships. Trust is critical for love. Succeeding in long-term love relationships can take work in the day-to-day sometimes, but it should be fun work! We just have to make our love life choices with integrity and with a fundamental, but good, kind of selfishness.

Markets are selfish in a fundamental way. Markets cannot function (because most businesses cannot make profit) if they are selling or buying goods at a price chosen out of altruism. It is out of a deep and genuine self-interest that we make our market choices, because it could cost us our livelihoods or create our dream life - this is a good kind of selfishness: it is doing what is in our true self-interest, giving ourselves what we all deserve, which is to make a decent living. It is not the selfishness or greediness of making market choices out of vanity, a feeling of superiority, or power, or of otherwise making market choices in order that others will give us something else; that is not the way to good market choices; good market choices are made when the market choice itself is the something we want.

However, markets cannot flourish if we are selfish (or greedy), in the crude sense, in our interactions. It does not serve markets, nor express market prices, if we dump the costs on other market participants. In the day-to-day, markets flourishes when we keep both our own and our customers' and workers' interests in mind. Markets makes it rather easy to do things for each other, to be generous, kind, helpful, but costs are still costs, and we have to be willing to bear them honestly. Markets also cannot flourish without honesty and openness (transparency) - fraud, and lack of communication, destroy market relationships. Trust is critical for markets. Succeeding in long-term market relationships can take work in the day-to-day sometimes, but it should be fun work! We just have to make our market life choices with integrity and with a fundamental, but good, kind of selfishness.

A Third Way

I haven't posted in a long time - I've had thoughts for posts, but lacked the motivation to flesh them out. I can only be brief, but I have a little French man in my gut* saying that Gary Johnson should and maybe even possibly could have a chance, simply because the political frontrunners in the Democrat (Obama) and Republican (Romney, Gingrich, Santorum) are so utterly cookie-cutter identical political drones, and because Paul's support could be channeled into a viable candidate, in a third party. As far as I can see, that offers the one and only opportunity for an actual step in the right direction.


Starting on an obvious public-opinion, or political, rather than strictly policy (emotional, more than rational, perhaps) point, it should be obvious that everybody hates Newt Gingrich. This is true today - those who once loved him for his reforms in the early 1990s are wised up to him by now - his positive numbers are fleeting at best. He is a pork-filled lobbyist not a radical reformer. The radical reformers are distinguishable from the Newt, today. This is the kind of thing that makes this season so interesting; it is driven by the internet, where, right now - but not for long if we don't get this real change, information has made us all much more aware of who the candidates are, and what they've been up to.

All this gives me some very innocent ideas about the possibility of a third-party win. Sure, perhaps it sounds far-fetched, but clearly it is not impossible, it is simply the kind of the thing that requires change; it is a social event, the kind you create on the internet. So, incredibly I have a possibly rational optimism about the actual possibility of a third party win: i.e., Gary Johnson. This is founded, first of all, in my optimism that most Obama supporters can see that he has not only failed to come through on his promises, but actively worked for the opposite policies in most critical areas.

But, why Johnson? Well, because the Republicans are as bad as Obama, and Johnson is actually different. Nobody likes Newt but he's a contender because nobody likes Romney either. Romney is a robot, with a 'liberal' record in Massachusetts that makes conservatives hate him, both the social-cons that like Santorum and the libertarians who like Ron Paul. Of course, the probability of a majority of any party liking Ron Paul once they read his newsletters is slim to none at best. Now, here's the catch: Nobody likes Rick Santorum either. It is clear that he is so big government, and a bit scary even for conservatives socially, that he would shrink and split the Republican party vote too, giving a third party libertarian like Gary Johnson more than just the core Ron Paul supporters - he'd get any sane Republican, who wants more than rhetoric on the economy, and less bible-thumping and preaching - though certainly all of them too.

Any of the pathetic and bizarre group of contenders would split the party, though Santorum perhaps especially, giving Gary Johnson a real chance. And he should appeal to a good many Democrats who care about civil rights and liberties: from free speech, to Empire, corporate power (corporatism) and bailouts of banks and politically connected or funded corporations, corporate subsidies and tax breaks, the federal reserve, copyright, lobbying, campaign finance, guantanamo bay, executive power, the drug war, military-industrial-prison complex, gay rights, and other liberties... basically, anyone who can see that Obama has failed them on all that, and wants actual substantive change - and from a nice guy who doesn't seem at all like the usual sleazy politician, but who was also a successful two-term governor in a blue state who was fiscally conservative (balancing the budget) and socially liberal.

So, I have a strange hope. Let's turn these sausages we're making into something edible, for a change. We the people are the chefs, and we can do better than the bought-and-paid-for circus we've been letting entertain us for so long.

* Somewhere I learned that when your socks go missing it is because they are stolen by a little French man who lives in your washing machine (or visits) and I am pretty sure they sometimes also visit your gut to stand there, hands on hips, and have unnerving but sometimes interesting insights.

Call For Papers

Reminder: I am putting together a collection of papers on the policy of a basic income guarantee, with the aim of bringing together Austrian economists and market socialists (and other libertarians, and others on the left). Here is the CFP.

The Aging of Power

It has been said that the responsibilities of the US Presidency tends to rapidly age those who hold office. What about other leaders? Lenin not only became ill after taking office due to health problems; he aged very fast, and it has been pointed out that in his case it was likely due to the stresses of his office:

The pace of work was taking its toll. Lenin continued to fall ill when under pressure and the cycle continued. He complained more and more frequently ... Clara Zetkin painted a grim picture of him: 'his face before me was all shrivelled up. Countless wrinkles, great and small, furrowed deep in it. And every wrinkle spoke of a heavy sorrow or a gnawing pain. A picture of inexpressible suffering was visible on Lenin's face.' ... According to Gorky, the methods of rule he was forced into caused him great anguish.

It occurred to me that the responsibilities of the head of state in a planned economy would tend to be far greater than those of the US President. This may have aged Lenin faster than any US President. However, Stalin signed thousands of decrees per year during his long reign, taking on an even more stressful role, and with even harsher methods of rule than Lenin, yet Stalin seemed not to age as fast or become sick as quickly as Lenin. (And what about Kim Jong Il?) Why this discrepancy?

Two possible answers come to mind: (1) Lenin's stress and suffering were due to his humanity - he did not like to use harsh methods and see the suffering of the people caused by his policies. Perhaps Stalin had no such qualms (he didn't seem to!) (2) Stalin used body-doubles, and he doctored photographs. Perhaps Stalin aged much faster than is known.

Thoughts on the 2011 London (UK) Riots

Although relatively few observers admit to fully condoning the riots and looting that took place (or are still perhaps taking place) in England, many have argued that (in addition to protest against the police shooting of Mark Duggan and others like it, and those doing it for fun or due to crowd psychology) they are a result of economic disadvantage in the affected communities. (See, for example commentary like these: The Guardian, The Telegraph, Euronews). I have even heard some say that although they may not condone them they also do not condemn them or blame the perpetrators. One striking fact about the riots, looting, and destruction (including the burning of vehicles and shops, which frequently also took nearby homes), is that they took place in the poorest neighborhoods, generally the same neighborhoods where the perpetrators reside. Why would they their own neighborhood?

Imagine the following conversation:

Observer, to looter: "What do you think is the cause of these riots? Is there any justification for the looting?"

Looter: "It's obvious. It's because we don’t have opportunity. We have no opportunity or ability to open a business; we can’t find work; the rich have millions but we can’t even afford a car or home, or any of the nice stuff sold in the stores we looted..."

Observer: "So you hit the businesses, cars and homes of those who have succeeded in your neighborhood? You’re thieving from the ones who have succeeded in your own area..."

Looter: "Come on - we've mainly targeted big multinational chain stores - the super-rich! They can afford it, and they're the ones making millions off the backs of the poor and working class!"

Observer: "But, by hitting big companies aren't you also making it harder for those who don't have work to find any work at all? At least they offer some kind of job..."

Is there any sense to the looter's rationale? They complain they have no jobs, opportunity to open a business, or property of their own - cars, or homes. Perhaps, rather than just opportunistically thieving from the rich, there is a political point: perhaps what they are trying to say is that they are willing to sacrifice the successful from their neighborhood, and the opportunities that do exist, to declare that it’s not enough. It's like saying "look, you can keep your petty offering, it’s an insult."

Of course, if what kids today have still is not enough, with all the social programs and opportunities of England in 2011, the high living standard of even the poorest, then what will ever be enough? It seems more likely to have emanated from a cultural or political (but non-economic) issue - parental, council-estate (public housing, drug wars etc), a bad entitlement/consumerism mix, a sense of being in a police-state, crowd-psychology of course, a problem of too much leniency, or a sense of having no voice. Most likely some mixture, I'd guess. Here is an interesting discussion of some.

There are also important lessons from Tsars in Russia, and other imperialist rulers: responding with more police, cracking down on protesters as a policy solution, often only makes it worse, even when combined with some concessions. This is a major reason for the collapse of the last Russian Tsar.

For much the same reason, CCTV might help find the perpetrators this time, but that would likely be the first thing to go next time - rioters would be sure to take the cameras out at the very start - and the public would likely be made more terrified when they are taken out, seeing it as a portend of doom, while the rioters might be further energized, infused with violent or chaotic energy, responding to the police-state atmosphere.

The experience of the Russian Tsars teaches us that you can’t quell riots by cracking down, increasing police response and reducing freedom and privacy - unless you take it to terrible extremes. You have to change the conditions that caused the riots somehow. However, it seems you cannot just buy people off with concessions of social programs. They will have to continually expand, because the people become accustomed to every new level. Then any reduction, no matter how high the baseline rises to, is a travesty. Social programs create a sense of entitlement, and when they are no longer entitled to something, no matter how small a thing it is, and no matter how well off they remain, they may becomes incited to riot.

Final thought: I was genuinely surprised and interested in the idea of banning gangs from public housing - can government actually help reduce such violence through their provision of public housing? Could it offer an opportunity unavailable if housing is only private (whether subsidized or not)?

Judging the Effects of Policy

Can we know if a policy has succeeded? Some have argued that we never can, but most economists and policymakers at least act as if we can - whether through economic or statistical analysis, through simple observation, or in some other way. However, confirmation bias and ideology may also blind us. The US stimulus package is a case in point. Those who advocated for it contend that it succeeded, at least to ward off a worse crisis - and say that it should have been bigger, but at least it was something. Those who argued against it contend that it failed. How can we know?

Many who contend that it failed observe that the advocates of the policy cited a report by the administration's Council of Economic Advisers which predicted 9% unemployment without the proposed stimulus, and not more than 8% with it; whereas with the stimulus package in place unemployment actually exceeded 9%. Defenders of the stimulus program have replied that without the stimulus it would have been even worse. How can we know?

It is not possible (nor likely to be morally justifiable) to perform laboratory tests on social systems. Some economists argue that one can only use logical theory and deduction to make broad observations and predictions about economic behavior - that we cannot use models or statistics to predict precise outcomes or prove or disprove theory. However, it makes logical sense that if there is a situation in which a choice is to be made about whether to enact a policy, especially one introduced to avert a major crisis and which is expected to have a dramatic effect curtailing that crisis, and most else remains the same (something approximating "ceteris paribus"), observers should have some idea whether the policy was successful. If a prediction is made about the differing outcomes with and without that policy, we should look closely at the actual outcome and conclude whether or not the policy in fact achieved its intended results.

In 2009 many economists and policymakers argued that a massive "stimulus" package, a ramping up of government spending, was needed to avert economic crisis and turn the economy around. In 1917 before taking power Lenin made a similar prediction about his policy. The policy of swift nationalization of banks and major industry was argued by its supporters to be critical for avoiding crisis.

Lenin described what he saw as "the chief and principal measure of combating, of averting, catastrophe and famine." He said that it was well known, but "these measures are not being adopted only because, exclusively because, their realisation would affect the fabulous profits of a handful of landowners and capitalists." Lenin argued that the answer was state control of the economy:

This measure is control, supervision, accounting, regulation by the state, introduction of a proper distribution of labour-power in the production and distribution of goods, husbanding of the people’s forces, the elimination of all wasteful effort, economy of effort. Control, supervision and accounting are the prime requisites for combating catastrophe and famine.

Did it work? It is clear that it did not. Hardly anyone disagrees with this analysis. The economy slid into severe famine and ruin. Markets disappeared, as indeed Lenin intended, but nothing of use replaced them. The state found it near-impossible to even feed the people of the cities, let alone construct a production and distribution system that would alleviate the hardship the people already faced.

Of course, civil war replaced the war with Germany, and this did not help the government in its tasks. Other factors ensured there was nothing like a true "ceteris paribus" situation. Yet even Lenin understood that he had made a mistake. His belief in Marx's economic and social framework convinced him that the problem was that the policies were introduced too soon and too rapidly, but he did concede that his policies were to blame for the failure to avoid crisis, and that in fact his policies had exacerbated the crisis Russia had been facing when he took power.

Why? Because our previous economic policy, if we cannot say counted on (in the situation then prevailing we did little counting in general), then to a certain degree assumed—we may say uncalculatingly assumed—that there would be a direct transition from the old Russian economy to state production and distribution on communist lines.
...
Our Mistake

...we made the mistake of deciding to go over directly to communist production and distribution. We thought that under the surplus-food appropriation system the peasants would provide us with the required quantity of grain, which we could distribute among the factories and thus achieve communist production and distribution.

I cannot say that we pictured this plan as definitely and as clearly as that; but we acted approximately on those lines. That, unfortunately, is a fact. I say unfortunately, because brief experience convinced us that that line was wrong

What did Lenin do when he realized his mistake? He "retreated." He reversed the bulk of the policies which he saw had produced the negative results. "In substance, our New Economic Policy signifies that, having sustained severe defeat on this point, we have started a strategical retreat."

When restrictions on trade were lifted, there was an immediate blossoming of market activity, which resulted in an end to shortages and an improvement in living standards of all the people. Writer Mikhail Bulgakov described the change that NEP brought. "On Kuznetskii Most [a main street in Moscow], the painted faces of toy figures made by artel [co-operative] craftsmen smile. In the former Shanks store, ladies’ hats, stockings, boots, and furs gaze out at the clouds..... There is a confectioners shop at every step." Most importantly, the food shortages and famine were left in the past. "The luxurious displays at the gastronomes are startling. Mounds of crates with canned goods, black caviar, salmon, smoked fish, oranges." They were affordable enough that even the poorest Russians were made far better off.

This was obvious to all, regardless of ideology, and is not debated today by historians. It was clear that it was the wrong policy - whether it was because it was the wrong time to enact the policy or whether the policy would always produce these results*, at least all agree that Lenin's assertion that only his polices of nationalization and a swift advance toward a fully socialized economy could avert crisis was wrong and worsened, rather than alleviating, the hardships facing Russia when at that time.

I contend that the same method can be used to judge any major policy enacted to avert crisis. If the policymaker asserts that it will fend off a crisis, and the potential crisis is predicted to be of a certain magnitude, and the alternative path is anticipated and described, the policy should be judged accordingly. If the outcome is equal or greater than the expected level of the crisis path, the policy should be assumed to have failed unless a very good explanation is given to explain this discrepancy; this is simple common sense, and use of plain observation. Few citizens subjected to policy would disagree, and even given the complexities of society and economy, the ordinary citizen is right in this case.

--

* Trotsky, although not at first, also conceded the policies of that period were a failure, and although like Lenin he contended that they were simply enacted too soon, his descriptions of why they failed suggest otherwise. In 1924, Trotsky defended a return to use of markets, and economic independence of enterprises, explaining that, "With the liquidation of the market and of the credit system each factory resembled a telephone whose wires had been cut." In other words, there was no information being channeled from or to each factory or enterprise. Information that normally travels via the market through the medium of prices and profit and loss calculations had vanished, and the factories did not know how to produce efficiently, leading to chaos in production, shortages, and massive waste.