Monday, May 26, 2025

Why central economic planning worked so well for America in WWII but so badly almost everywhere else—most notably in the Soviet Union

From Bastiat's Window: The answer is right out of Chapter 1, "incentive alignment."
...the key to that success (versus the Soviets’ 75-year failure) was that in WWII, America had a single, clear, time-limited, objectively verifiable goal—survival. Everything else was secondary. There was essentially universal agreement among Americans of all political groupings with that urgent and temporary goal. Given the extreme threat posed by the Axis Powers, Americans were willing to endure great sacrifices they would not ordinarily tolerate. And they were willing to put aside much of the self-interested behavior that characterizes more normal times.
In normal times, if a producer tries to take advantage of consumers by reducing quality or raising price, consumers can turn to substitutes, or choose not to purchase. In other words, competition aligns producers' incentives with the goals of consumers. 

But in WWII, there was no need for such markets and competition to play its usual role because everyone's incentives were already aligned by the existential threat posed by the Axis powers.

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