Cargo Cult Economics

I thought this article interesting - the hypothesis that communist countries pursued a sort of cargo cult economic policy.  Since they did not really understand economics (and as communist countries have banned many of the most important processes for economic growth), communist leaders tried to emulate successful western nations by copying high-profile bits of their economy.  For example, since Western nations were prosperous and had early on built big steel industries, communist leaders decided that building big steel industries would make them prosperous.

It falls somewhat short as a framework for explaining communist economies, but I do think that this cargo cult mentality was an important part of their thinking and even is a part of progressive thinking today.  After all, if you willfully deny classical economic theory as well as the power of individual action and private initiative, you have to fill in the blanks somehow.

High speed rail and mass transit strike me as classic modern examples -- great cities of the world have large mass transit systems so therefore if our city builds a rail system we will become great.


  1. Don:

    "High speed rail and mass transit strike me as classic modern examples — great cities of the world have large mass transit systems so therefore if our city builds a rail system we will become great."

    Yes, the Planners have cause and effect exactly backward. It amazes me how many otherwise sensible people with a good education and an IQ frequently 2 sigma above mean can get this basic piece of information so totally wrong.

  2. ElamBend:

    Lots of commentators like to talk about China's high speed rail, but not their huge traffic jams. They are related. Those traffic jams are mainly due to freight haulage by trucks. China has neglected expanding its freight rail network for high-profile trains to nowhere (er, Tibet).

  3. Dan:

    I think it's just a symptom of a larger problem - the technocratic conceit that an economy can be successfully planned. With steel production, there is the idea that the industrial output of an entire economy can be reduced to a single or at most very few numbers. With light rail, it's the idea that the expressed preferences of the majority are simply wrong, and that if they are presented with a working light rail system, all of their concerns about convenience, routes, and scheduling will simply go away.

    The strangest part of this type of thinking to me is that many of the same people who reject the idea of "Intelligent Design" in the biological wold believe it to be not only desireable, but necessary in an economic context.

  4. MJ:

    I really like this post. It formalizes some of the ideas I have held regarding urban rail and high-speed intercity rail for some time. The notion of "cargo cult" logic captures it perfectly. I previously had referred to it as "faith-based" economic policy, but it is actually more crude than even that.

    I don't know how many times the local elites in my area have repeated platitudes about how urban rail is necessary in order to be a "world-class" (what is that?) city, or how HSR was needed because it was "a matter of competitiveness". This is nothing other than the suspension of disbelief on the part of central economic planners and the less thoughtful people who blindly follow their prescriptions.

  5. Capn Rusty:

    The Community Reinvestment Act ("CRA") was pure cargo cult. Congress noticed that communities in which most people owned their homes had lower crime rates and higher average incomes. Ordinary folks understood that people who could manage to save up the 20% for the down payment had to be hard-working and law-abiding, and when they put so much into the house, they would keep it up. That obviouls truth escaped Congress, which figured that the ownership of a house, in and of itself, was responsible for superior socio-economic statistics. Thus, if they could force banks to loan money at low interest rates to people with no job, no assets and no income, the resulting ownership of the home would transform deadbeats into model citizens.