Thursday , 17 August 2017


How the Ongoing U.S. Economic Collapse Compares to the U.S.S.R. Experience (Dmitry Orlov)

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Dmitry Orlov’s repeated travels to Russia throughout the early 1990s allowed him to observe the aftermath of the Soviet collapse first-hand. Being both a Russian and an American, Dmitry was able to appreciate both the differences and the similarities between the two superpowers. Eventually he came to the conclusion that the United States is going the way of the Soviet Union and has concluded that when the U.S. economy collapses, it is bound to be much worse – and permanent – because the factors that allowed Russia and the other former Soviet republics to recover are not present here. Words: 3730; Slides: 28

The following is a presentation* made by Dmitry Orlov (http://cluborlov.blogspot.ca) that was first posted on Energy Bulletin under the title Closing the ‘Collapse Gap’: the USSR was better prepared for collapse than the US.
 This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

My talk tonight is about the lack of collapse-preparedness here in the United States. I will compare it with the situation in the Soviet Union, prior to its collapse.

Slide 2:…From what I’ve seen and read, it seems that there is a fair chance that the U.S. economy will collapse sometime within the foreseeable future. It also would seem that we won’t be particularly well-prepared for it.

As things stand, the U.S. economy is poised to perform something like a disappearing act and so I am eager to put my observations of the Soviet collapse to good use.

Slide 3: I anticipate that some people will react rather badly to having their country compared to the USSR. I would like to assure you that the Soviet people would have reacted similarly, had the United States collapsed first.

Feelings aside, here are two 20th century superpowers, who wanted more or less the same things – things like technological progress, economic growth, full employment, and world domination – but they disagreed about the methods. They obtained similar results – each had a good run, intimidated the whole planet, and kept the other scared.

Each eventually went bankrupt.

Slide 4: The USA and the USSR were evenly matched in many categories, but let me just mention four.

  1. The Soviet manned space program is alive and well under Russian management, and now offers first-ever space charters. The Americans have been hitching rides on the Soyuz while their remaining spaceships sit in the shop.
  2. The arms race has not produced a clear winner, and that is excellent news, because Mutual Assured Destruction remains in effect. Russia still has more nuclear warheads than the US, and has supersonic cruise missile technology that can penetrate any missile shield, especially a nonexistent one.
  3. The Jails Race once showed the Soviets with a decisive lead, thanks to their innovative GULAG program, but they gradually fell behind, and in the end the Jails Race has been won by the Americans, with the highest percentage of people in jail ever.
  4. The Hated Evil Empire Race is also finally being won by the Americans. It’s easy now that they don’t have anyone to compete against.

Slide 5: Continuing with our list of superpower similarities, many of the problems that sunk the Soviet Union are now endangering the United States as well such as:

  1. a huge, well-equipped, very expensive military, with no clear mission, bogged down in fighting Muslim insurgents,
  2. energy shortfalls linked to peaking oil production,
  3. a persistently unfavorable trade balance, resulting in runaway foreign debt and
  4. a delusional self-image, an inflexible ideology, and an unresponsive political system.

Slide 6: An economic collapse is amazing to observe, and very interesting if described accurately and in detail. A general description tends to fall short of the mark, but let me try.

An economic arrangement can continue for quite some time after it becomes untenable, through sheer inertia but at some point a tide of broken promises and invalidated assumptions sweeps it all out to sea.

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One such untenable arrangement rests on the notion that it is possible to perpetually borrow more and more money from abroad, to pay for more and more energy imports, while the price of these imports continues to double every few years.

Free money with which to buy energy equals free energy, and free energy does not occur in nature. This must therefore be a transient condition. When the flow of energy snaps back toward equilibrium, much of the US economy will be forced to shut down.

Slide 7: I’ve described what happened to Russia in some detail in one of my previous articles…[and] I don’t see why what happens to the United States should be entirely dissimilar, at least in general terms.

We should certainly expect:

  1. shortages of fuel, food, medicine, and countless consumer items,
  2. outages of electricity, gas, and water,
  3. breakdowns in transportation systems and other infrastructure,
  4. hyperinflation,
  5. widespread shutdowns and mass layoffs,
  6. along with a lot of despair, confusion, violence, and lawlessness.

We definitely should not expect any grand rescue plans, innovative technology programs, or miracles of social cohesion.

Slide 8: When faced with such developments, some people are quick to realize what it is they have to do to survive, and start doing these things, generally without anyone’s permission.

A sort of economy emerges, completely informal, and often semi-criminal. It revolves around liquidating, and recycling, the remains of the old economy. It is based on direct access to resources, and the threat of force, rather than ownership or legal authority.

People who have a problem with this way of doing things, quickly find themselves out of the game. These are the generalities. Now let’s look at some specifics.

Slide 9: One important element of collapse-preparedness is making sure that you don’t need a functioning economy to keep a roof over your head.

In the Soviet Union, all housing belonged to the government, which made it available directly to the people. Since all housing was also built by the government, it was only built in places that the government could service using public transportation. After the collapse, almost everyone managed to keep their place.

In the United States, very few people own their place of residence free and clear, and even they need an income to pay real estate taxes. People without an income face homelessness.

When the economy collapses, very few people will continue to have an income, so homelessness will become rampant. Add to that the car-dependent nature of most suburbs, and what you will get is mass migrations of homeless people toward city centers.

Slide 10: Soviet public transportation was more or less all there was, but there was plenty of it. There were also a few private cars, but so few that gasoline rationing and shortages were mostly inconsequential. All of this public infrastructure was designed to be almost infinitely maintainable, and continued to run even as the rest of the economy collapsed.

The population of the United States is almost entirely car-dependent, and relies on markets that control oil import, refining, and distribution. They also rely on continuous public investment in road construction and repair. The cars themselves require a steady stream of imported parts, and are not designed to last very long. When these intricately interconnected systems stop functioning, much of the population will find itself stranded.

Slide 11: Economic collapse affects public sector employment almost as much as private sector employment, eventually. Because government bureaucracies tend to be slow to act, they collapse more slowly. Also, because state-owned enterprises tend to be inefficient, and stockpile inventory, there is plenty of it left over, for the employees to take home, and use in barter.

Most Soviet employment was in the public sector, and this gave people some time to think of what to do next. Private enterprises tend to be much more efficient at many things. Such laying off their people, shutting their doors, and liquidating their assets.

Since most employment in the United States is in the private sector, we should expect the transition to permanent unemployment to be quite abrupt for most people.

Slide 12: When confronting hardship, people usually fall back on their families for support. The Soviet Union experienced chronic housing shortages, which often resulted in three generations living together under one roof. This didn’t make them happy, but at least they were used to each other. The usual expectation was that they would stick it out together, come what may.

In the United States, families tend to be atomized, spread out over several states. They sometimes have trouble tolerating each other when they come together for Thanksgiving, or Christmas, even during the best of times. They might find it difficult to get along, in bad times.

There is already too much loneliness in this country, and I doubt that economic collapse will cure it.

Slide 13: To keep evil at bay, Americans require money. In an economic collapse, there is usually hyperinflation, which wipes out savings. There is also rampant unemployment, which wipes out incomes. The result is a population that is largely penniless.

In the Soviet Union, very little could be obtained for money. It was treated as tokens rather than as wealth, and was shared among friends. Many things – housing and transportation among them – were either free or almost free.

Slide 14: Soviet consumer products were always an object of derision…You’d be lucky if you got one at all, and it would be up to you to make it work once you got it home. Once you got it to work, however, it would become a priceless family heirloom, handed down from generation to generation, sturdy, and almost infinitely maintainable.

In the United States, you often hear that something “is not worth fixing”…. Economic collapse tends to shut down both local production and imports, and so it is vitally important that anything you own wears out slowly, and that you can fix it yourself if it breaks….

Slide 15: The Soviet agricultural sector was notoriously inefficient. Many people grew and gathered their own food even in relatively prosperous times. There were food warehouses in every city, stocked according to a government allocation scheme. There were very few restaurants, and most families cooked and ate at home. Shopping was rather labor-intensive, and involved carrying heavy loads. Sometimes it resembled hunting – stalking that elusive piece of meat lurking behind some store counter. So the people were well-prepared for what came next.

In the United States, most people get their food from a supermarket, which is supplied from far away using refrigerated diesel trucks. Many people don’t even bother to shop and just eat fast food. When people do cook, they rarely cook from scratch. This is all very unhealthy, and the effect on the nation’s girth, is visible, clear across the parking lot. A lot of the people, who just waddle to and from their cars, seem unprepared for what comes next. If they suddenly had to start living like the Russians, they would blow out their knees.

Slide 16: The Soviet government threw resources at immunization programs, infectious disease control, and basic care. It directly operated a system of state-owned clinics, hospitals, and sanatoriums. People with fatal ailments or chronic conditions often had reason to complain, and had to pay for private care – if they had the money.

In the United States, medicine is for profit. People seem to think nothing of this fact. There are really very few fields of endeavor to which Americans would deny the profit motive. The problem is, once the economy is removed, so is the profit, along with the health services it once helped to motivate.

Slide 17: The Soviet education system was generally quite excellent. It produced an overwhelmingly literate population and many great specialists. The education was free at all levels, but higher education sometimes paid a stipend, and often provided room and board. The educational system held together quite well after the economy collapsed. The problem was that the graduates had no jobs to look forward to upon graduation. Many of them lost their way.

The higher education system in the United States is good at many things – government and industrial research, team sports, vocational training. Primary and secondary education fails to achieve in 12 years what Soviet schools generally achieved in 8.

The massive scale and expense of maintaining these institutions is likely to prove too much for the post-collapse environment. Illiteracy is already a problem in the United States, and we should expect it to get a lot worse.

Slide 18: The Soviet Union did not need to import energy. The production and distribution system faltered, but never collapsed. Price controls kept the lights on even as hyperinflation raged.

During World War II, the United States government understood this, and successfully rationed many things, from gasoline to bicycle parts but that was a long time ago. Since then, the inviolability of free markets has become an article of faith.

The term “market failure” seems to fit the energy situation in the United States. Free markets develop some pernicious characteristics when there are shortages of key commodities.

Slide 19: My conclusion is that the Soviet Union was much better-prepared for economic collapse than the United States is.

I have left out two important superpower asymmetries, because they don’t have anything to do with collapse-preparedness. Some countries are simply luckier than others. But I will mention them, for the sake of completeness.

  1. In terms of racial and ethnic composition, the United States resembles Yugoslavia more than it resembles Russia, so we shouldn’t expect it to be as peaceful as Russia was, following the collapse. Ethnically mixed societies are fragile and have a tendency to explode.
  2. In terms of religion, the Soviet Union was relatively free of apocalyptic doomsday cults. Very few people there wished for a planet-sized atomic fireball to herald the second coming of their savior. This was indeed a blessing.

Slide 20: One area in which I cannot discern any Collapse Gap is national politics. The ideologies may be different, but the blind adherence to them couldn’t be more similar.

It is certainly more fun to watch two Capitalist parties go at each other than just having the one Communist party to vote for. The things they fight over in public are generally symbolic little tokens of social policy, chosen for ease of public posturing. The Communist party offered just one bitter pill. The two Capitalist parties offer a choice of two placebos. The latest innovation is the photo finish election, where each party buys 50% of the vote, and the result is pulled out of statistical noise, like a rabbit out of a hat.

The American way of dealing with dissent and with protest is certainly more advanced: why imprison dissidents when you can just let them shout into the wind to their heart’s content?

The American approach to bookkeeping is more subtle and nuanced than the Soviet. Why make a state secret of some statistic, when you can just distort it, in obscure ways? Here’s a simple example: inflation is “controlled” by substituting hamburger for steak, in order to minimize increases to Social Security payments.

Slide 21: Many people expend a lot of energy protesting against their irresponsible, unresponsive government. It seems like a terrible waste of time, considering how ineffectual their protests are. Is it enough of a consolation for them to be able to read about their efforts in the foreign press? I think that they would feel better if they tuned out the politicians, the way the politicians tune them out. It’s as easy as turning off the television set. If they try it, they will probably observe that nothing about their lives has changed, nothing at all, except maybe their mood has improved. They might also find that they have more time and energy to devote to more important things.

Slide 22: I will now sketch out some approaches, realistic and otherwise, to closing the Collapse Gap. My little list of approaches might seem a bit glib, but keep in mind that this is a very difficult problem. In fact, it’s important to keep in mind that not all problems have solutions. I can promise you that we will not solve this problem tonight. What I will try to do is to shed some light on it from several angles.

Slide [23] Many people rail against the unresponsiveness and irresponsibility of the government. They often say things like “What is needed is…” plus the name of some big, successful government project from the glorious past – the Marshall Plan, the Manhattan Project, the Apollo program but [the fact is that] there is nothing in the history books about a government preparing for collapse. Gorbachev’s “Perestroika” is an example of a government trying to avert or delay collapse. It probably helped speed it along.

Slide 24: There are some things that I would like the government to take care of in preparation for collapse.

  1. I am particularly concerned about all the radioactive and toxic installations, stockpiles, and dumps. Future generations are unlikely to [be]able to control them, especially if global warming puts them underwater. There is enough of this muck sitting around to kill off most of us.
  2. I am also worried about soldiers getting stranded overseas – abandoning one’s soldiers is among the most shameful things a country can do. Overseas military bases should be dismantled, and the troops repatriated.
  3. I’d like to see the huge prison population whittled away in a controlled manner, ahead of time, instead of in a chaotic general amnesty.
  4. Lastly, I think that this farce with debts that will never be repaid, has gone on long enough. Wiping the slate clean will give society time to readjust.

As you see from the above, I am not asking for any miracles. Although, if any of these things do get done, I would consider it a miracle.

Slide 25: A private sector solution is not impossible; just very, very unlikely.

Certain Soviet state enterprises were basically states within states. They controlled what amounted to an entire economic system, and could go on even without the larger economy. They kept to this arrangement even after they were privatized. They drove Western management consultants mad, with their endless kindergartens, retirement homes, laundries, and free clinics. These weren’t part of their core competency, you see. They needed to divest and to streamline their operations. The Western management gurus overlooked the most important thing: the core competency of these enterprises lay in their ability to survive economic collapse.

Maybe the young geniuses at Google can wrap their heads around this one, but I doubt that their stockholders will.

Slide 26: It’s important to understand that the Soviet Union achieved collapse-preparedness inadvertently, and not because of the success of some crash program.

Economic collapse has a way of turning economic negatives into positives. The last thing we want is a perfectly functioning, growing, prosperous economy that suddenly collapses one day, and leaves everybody in the lurch.

It is not necessary for us to embrace the tenets of command economy and central planning to match the Soviet lackluster performance in this area. We have our own methods, that are working almost as well. I call them “boondoggles.” They are solutions to problems that cause more problems than they solve. Just look around you, and you will see boondoggles sprouting up everywhere, in every field of endeavor:

  • we have military boondoggles like Iraq [now Afghanistan],
  • financial boondoggles like the doomed retirement system,
  • medical boondoggles like private health insurance,
  • legal boondoggles like the intellectual property system.

The combined weight of all these boondoggles is slowly but surely pushing us all down. If it pushes us down far enough, then economic collapse, when it arrives, will be like falling out of a ground floor window. We just have to help this process along, or at least not interfere with it, so if somebody comes to you and says “I want to make a boondoggle that runs on hydrogen” – by all means encourage him! It’s not as good as a boondoggle that burns money directly, but it’s a step in the right direction.

Slide 27: Certain types of mainstream economic behavior are not prudent on a personal level, and are also counterproductive to bridging the Collapse Gap.

Any behavior that might result in continued economic growth and prosperity is counterproductive: the higher you jump, the harder you land.

  • It is traumatic to go from having a big retirement fund to having no retirement fund because of a market crash.
  • It is also traumatic to go from a high income to little or no income.
  • If, on top of that, you have kept yourself incredibly busy, and suddenly have nothing to do, then you will really be in rough shape.

Economic collapse is about the worst possible time for someone to suffer a nervous breakdown, yet this is what often happens. The people who are most at risk psychologically are successful middle-aged men. When their career is suddenly over, their savings are gone, and their property worthless, much of their sense of self-worth is gone as well. They tend to drink themselves to death and commit suicide in disproportionate numbers. Since they tend to be the most experienced and capable people, this is a staggering loss to society.

If the economy, and your place within it, is really important to you, you will be really hurt when it goes away. You can cultivate an attitude of studied indifference, but it has to be more than just a conceit. You have to develop the lifestyle and the habits and the physical stamina to back it up. It takes a lot of creativity and effort to put together a fulfilling existence on the margins of society. After the collapse, these margins may turn out to be some of the best places to live.

Slide 28: I hope that I didn’t make it sound as if the Soviet collapse was a walk in the park, because it was really quite awful in many ways. The points that I do want to stress are that:

1. when the U.S. economy collapses, it is bound to be much worse.

2. The collapse of the U.S. economy is likely to be permanent. The factors that allowed Russia and the other former Soviet republics to recover are not present here.

In spite of all the above, I believe that in every age and circumstance, people can sometimes find not just a means and a reason to survive, but enlightenment, fulfillment, and freedom. If we can find them even after the economy collapses, then why not start looking for them now?

Thank you.

If you want Dmitry’s analysis in detail, get his latest book  Reinventing Collapse: The Soviet Example and American Prospects

Videos: Are We Headed for a Soviet-Style Collapse? – Dmitry Orlov: Dmitry Orlov’s Economic Worst-Case Scenario

Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://www.resilience.org/stories/2006-12-04/closing-collapse-gap-ussr-was-better-prepared-collapse-us

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One comment

  1. One of the best article to date – Well Done.

    Everyone in Congress should be required to read this article and then submit a paper describing what they will be doing to make sure it does not happen “on their watch”.