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Peak oil and the Fall of the Soviet Union

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Peak oil and the Fall of the Soviet Union: Lessons on the 20th Anniversary of the Collapse

 

This is a guest post by Douglas B. Reynolds, Professor of Energy Economics at the University of Alaska, Fairbanks, Department of Economics, SOM

 

Synopsis: The causes of the fall of the Soviet Union are thought to be inefficiency and the Soviet response to the Reagan Administration’s military buildup of the early 1980s. However, a more plausible explanation is the decline in Soviet oil production caused by peak oil. This gives the world an example of a modern economy confronted by peak oil and what lessons we can learn from it.

 

Neo-Classical Economics

 

In the West, we have great economic Nobel Laureates such as Hayek, Solow, Freidman, and Samuelson, who extol the virtues of markets for organizing an economy. Yet their theories for how great markets organize an economy contrast sharply with the planned economies of the Union of Socialist Soviet Republics (USSR) and the Soviet East. The odd thing is, the Soviet Union, even with a planned communist economy, managed to become a super-power with a military prowess that scared the West. Remember the Cuban missile crisis, or Khrushchev pounding the table at the United Nations with his shoe saying, “We will bury the West,” or the Sputnik panic? Well, Kennedy (1987) shows quite profoundly that you can’t have that degree of military prowess and be a world super-power unless you also have a strong and vibrant economy to back it up which, against all doctrines of conventional neo-classical economics, the Soviet Union had. It produced over 2 million motor vehicles a year, over 100 million tons of steel a year, and hundreds of advanced MIG jet fighters every year. So either the Nobel Laureates are wrong about their emphasis on markets or we don’t have a correct picture of the Soviet Union and its economy at all. 

 

Full article:

 

http://www.theoildrum.com/node/7878

 

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