SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
User avatar
Herd
Posts: 562
Joined: October 2nd, 2003, 12:48 pm

Soviet economics and why it failed

January 12th, 2010, 9:45 am

- one big reason for the collapse of the Soviet Union is nationalities (!)- At the beginning of the century Russia was in the Middle Ages.- They suffered more than anybody else from WW2.
 
User avatar
farmer
Posts: 13477
Joined: December 16th, 2002, 7:09 am

Soviet economics and why it failed

January 12th, 2010, 12:05 pm

In planned economies, all they plan is missile silos and election results.
 
User avatar
Fermion
Posts: 4486
Joined: November 14th, 2002, 8:50 pm

Soviet economics and why it failed

January 12th, 2010, 5:20 pm

QuoteOriginally posted by: farmerIn planned economies, all they plan is missile silos and election results.Whereas in capitalism, besides missile silos and election results, they also plan war and extortion.
Last edited by Fermion on January 11th, 2010, 11:00 pm, edited 1 time in total.
 
User avatar
Polter
Posts: 2526
Joined: April 29th, 2008, 4:55 pm

Soviet economics and why it failed

January 24th, 2010, 7:09 am

Traden4Alpha,Interesting and good points on the information effects. Pretty much agree on the politicians from both sides being on the housing bandwagon (and/or pushing it hard) -- though there were certain exceptions (Ron Paul with his money privatization acts has to be mentioned; interestingly, even Bush administration wanted to go after FNM & FRE, and he wasn't exactly fiscally conservative /to say the least/), it was too little/too late.Regarding the low interest rates leading to a limited outcome space -- see feasible outcome space, first paragraph :-) Though, yeah, it really is summing up an interesting research topic in a sentence, so perhaps I should expand on that... Saying a bit more -- for example, when a company undertakes an investment and expected discounted profitability is concerned, low interest rates will put a higher weight on short-term rather than long-term investments -- with everything (risk, herd behavior, etc.) that goes with it.It can also have bubble-inducing effects on the economy. John Taylor also touched upon the topic, e.g.: http://www.bloomberg.com/apps/news?pid= ... jWWY&pos=4
 
User avatar
Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

Soviet economics and why it failed

January 25th, 2010, 1:16 am

Polter,Regarding the low interest rates leading to a limited outcome space, I'm not understanding what you mean.Isn't a low interest-rate environment empirically correlated with increased investment in long-term assets? If I have a proposed investment that involves multiple years of certain negative cash flow followed by probable years of positive cash flow (e.g. R&D, new product development, factory construction, international expansion), then wouldn't I be more likely to borrow money when it is cheap? In contrast, in a high-rate environment, such investments have negative NPVs due to high accumulated interest. And if I have two projects with the same high IRR > i, then wouldn't I prefer the investment that generates IRR - i profits for the longer term?Now, I certainly do agree that low interest rates also encourages speculation -- when money is cheap, it can (and will) be borrowed for leverage for speculative buying and selling. As the interest rate decreases, a speculator will use increasing borrowed money for an increasing range of trades. Moreover, low rates do encourage return-seeking, risk-taking behaviors, but those occur across the duration spectrum.Perhaps a bit more about this research topic would help me understand.P.S. I agree with Taylor on the role of low rates in the current crisis. Low mortgage rates meant low monthly payments on homes which meant people could afford much higher asset prices. This, in turn, created much higher capital gains on existing houses which were then rolled into even more and more expensive homes. Finally, declining interest rates in the context of more efficient financial services enabled cash-out refinancing. Cash out meant the person could have the same monthly payment, but be instantly richer in cash which they would pump into the economy. There were other exacerbating factors, such as the end of the tax deductibility of all but mortgage interest and the decline in required downpayments/LTV (which is a massive source of systemic risk to this day).
 
User avatar
exneratunrisk
Posts: 3559
Joined: April 20th, 2004, 12:25 pm

Soviet economics and why it failed

January 26th, 2010, 7:06 am

Sorry late. At one hand, since Putin came to power, Russia has amassed foreign exchange reserves and lowered its debt, some would say by rescuing capitalism (but probably more monocausal with the help of crude oil and gas prices?), at the other hand there are rumors that Putin quietly became the richest .... and therefore act as the "old" nomenklatura, with a big appetite for centralization?IMO, it's not capitalism versus socialism. Russia had never the chance to learn and live democracy.
 
User avatar
hamster
Posts: 216
Joined: October 12th, 2008, 3:51 pm

Soviet economics and why it failed

February 6th, 2010, 11:45 am

Kantorovich => optimal resource allocation (OR) => field test with all "Warsaw Pact" countries => efficient production => drawback: having the right goods at the right time at the right place (neglected assumption)=> a) and b)a) => increase of inventory levels=> barter economics gain importance=> money become useless=> deteriation of fx-rates=> Warsaw Pact countries cannot serve foreign debtb) => people are struggling to get desired products (high transaction costs!)=> people are noticing convenient consumption opportunities in non Warsaw Pact countries=> people are jealous, pissed, and start revolution against Warsaw Pact governments
Last edited by hamster on February 5th, 2010, 11:00 pm, edited 1 time in total.
ABOUT WILMOTT

PW by JB

Wilmott.com has been "Serving the Quantitative Finance Community" since 2001. Continued...


Twitter LinkedIn Instagram

JOBS BOARD

JOBS BOARD

Looking for a quant job, risk, algo trading,...? Browse jobs here...


GZIP: On