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Risk and Reagan

June 8th, 2004

Since the obituaries and eulogies for Ronald Reagan have now been read, I think it’s reasonable to take a critical look at his historical contribution. It’s often argued that Reagan accelerated the end of the Cold War by raising US military expenditure, thereby forcing the Soviet Union to increase its own military expenditure and crippling its economy. I think this argument has some plausibility in relation to the dissolution of the Soviet Union itself, though not in relation to the fall of the Berlin Wall and the collapse of the Communist governments in Eastern Europe[1].

So granting that this analysis is correct, should Reagan be praised. For the argument to work at all, the buildup must have raised the probability of nuclear war, unless you suppose (improbably) that the Russians were absolutely convinced of the peaceful intentions of the West and responded to Reagan purely to build up their own offensive capability[2]. Let’s suppose that the annual risk of war was raised by one percentage point. Then over the eight years Reagan was in office, there was a cumulative 8 per cent chance of a war that would certainly have produced tens of millions of deaths, probably billions and possibly the extinction of the human race. Against this, the early collapse of the Soviet Union produced benefits (mixed, but still positive on balance) for people in the Soviet Union, and perhaps also a reduction in the likelihood of an accidental nuclear war in the period since 1990. These benefits are small in relation to the potential cost.

As I’ve argued previously, if you think that a good policy is one which, in expectation, has good consequences, Reagan’s policy fails this test. On the other hand, standard accounts of consequentialism say that a good policy is one that has good actual consequences. If you accept this, and the assessment of the facts given above, Reagan’s historical record looks pretty good.

fn1. It had been obvious for many years that these governments were sustained only by the threat of Soviet military intervention. Gorbachev still had the military capacity to intervene in 1989 (in fact, on the argument presented above, the Russians had a bigger military than they would have had if Reagan had not been elected), but he chose not to do so. As soon as this became evident, the Communist bloc governments collapsed.

fn2. As an aside, in debate at the time, it was widely asserted that the Soviet government was actively planning an attack on the West, to be undertaken if Western defences could be weakened sufficiently. Has the collapse of Communism produced any archival or similar evidence on this? I would have thought that the Warsaw Pact countries would have had to have had a fair degree of involvement, and, since they are now in NATO, there would be no reason to keep any secrets.

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  1. Jason Soon
    June 8th, 2004 at 13:04 | #1

    I would dispute that it has had good consequences. Quite aside from the repercussions on funding for Islamic terrorists due to the Afghan misadventure (we should have let the Soviets take the goddamned country and so many other problems would be avoided today) I’d reconsider the general case that forcing the USSR to collapse by exacerbating the problems of its already crippled economy even further was a good thing. Look at all the Communist countries that have adopted capitalism of its own accord without Cold War pressures hastening the collapse – China, Vietnam – they’re all doing pretty good. And consider the Soviet Union and its satellites and the ethnic and other bloodshed unleashed. I think this strategy had a lot to answer for.

  2. June 8th, 2004 at 14:41 | #2

    I think you could frame this a little better John, as you’ve conflated the end of the Cold War with the collapse of the Soviet Union. Sure, the two events are obviously related, but they’re not the same, and nor are their causes (a little more at my place, if your interested).

  3. June 8th, 2004 at 15:24 | #3

    The argument that Reagan accelerated the end of the Cold War is largely without substance.
    Communism was heading for the Dustbin of History before Reagan took power, as evinced by in the nearest control case, the PRC, which began the de-communisation of its economy in 1978.
    The main thing that kept the existing communist system together was the gerontocacies of surviving revolutionaries. As they died off, the criminal elements that actually ran the system, at a middle managerial level, took the opprotunity to take control of the whole system.
    These “nomenklatura” abandoned the communist system as they found that they could utilise more economic resources, and retain some political power, by “buying” assets that they previously managed. Hence privatisation was started by ex-communists.
    The proof that USSR’s economic collapse predated Reagan lies in the stagnation of the USSR’s economy throughout the sixties and seventies, owing to its inability to move to a service-digial industrial structure. This predated the alleged bankrupting of the Soviet economy started by Reagans arms race.
    The only thing that kept the USSR’s economy afloat was the rise in oil prices. As oil prices fell in the eighties, so did the growth prospects of the USSR.
    The USSR’s military slipped behind the USA in military technology, a process which started in the sixties with the digitalisation of weapons, so did the one remaining rationale for the Communist party’s dominance fall. The process of US strategic predominance started under Kennedy, had a lapse during the Vietnam war, and re-started under Carter. Reagan merely continued the Democrat military build-up.
    The USSR’s military failed the test of competition. It failed to win the space race in the sixties, sued for Arms Control in the seventies and suffered the devastation of Migs and T-**s in various MIddle Easter conflicts during the eighties.
    The only thing that kept the USSR’s polity unified was the predominance of the Red Army as a gurantor of Russian security. The RA’s legitimacy as protector of the Motherland was established during the Great Patriotic War. As the veterans of the GPW died off, (Brzhenev) so did the vestiges of political power that the Communist party had via its connection to the Red Army.
    If anyone accelerated the end of hostilities between the USA and USSR it was Gorbachev. He took the big risks and had the crucial power of decision on the key issues of whether to:
    intervene in the collapse of the Warsaw pact and
    continue with the Communist party’s monopoly on political power.
    In both cases Gorby went the liberal way.

  4. June 8th, 2004 at 15:52 | #4

    Obviously Pr Q’s argument fails if his asessment of the heightened risk of Reagan-arms build up provoked nuclear war (1%) was incorrect at the time.
    It appears that financial markets did not take the risk of nuclear war seriously, given the massive growth in security prices during the eighties.
    During that time, Reagan appeared to have a pretty good idea of the relative stengths and weaknesses of the USSR, certainly better than Pr Q, going by published remarks.
    Reagan was an Owl, not a Hawk.
    Pr Q also neglects to included the deterrent effect of arms build-up, which can perversely reduce the risk of conflict. The US arms build up during the eighties actually caused other powers to disarm, thereby reducing the risk of war.

    The runaway advantage has been called by some excessive, yet it yields a positive benefit. Annual global military spending, stated in current dollars, peaked in 1985, at $1.3 trillion, and has been declining since, to $840 billion in 2002. That’s a drop of almost half a trillion dollars in the amount the world spent each year on arms. Other nations accept that the arms race is over.

    Reagan’s Arms Race ended the Conventional Arms Race!
    Moreover, it was Reagan who suggested a freeze on, and then end to, nuclear weapons, a move that was hotly rejected by recalcitrant Hawks.
    Just as disarmament can increase the risk of conflict (eg the 1922 London Naval Agreement).
    I conclude that the expected cost of Reagan’s upping the arms race was actually quite small, owing to the relatively small risk involved. Pr Q’s argument that Reagan risked global anihilation is likely false.

  5. John Quiggin
    June 8th, 2004 at 16:00 | #5

    The financial market argument doesn’t work at all. In the event of a nuclear war all bets are off, so there is no effect on relative asset prices. The only impact you might expect from a heightened risk of war is a reduction in saving. This did in fact take place, but since it continued after the end of the Cold War I wouldn’t put much weight on it.

  6. Fyodor
    June 8th, 2004 at 16:32 | #6

    JQ,

    As one would expect, your calculation of probabilities suffers from the usual flaw encountered with economic models: unproven assumptions. If you accept that you start off with a zero chance of nuclear holocaust, increasing it by 8% looks pretty dumb. However, if you start off with a 10% chance of nuclear war, and removing the Soviet Union as a belligerent opponent increases short-term risk by, say, 2%, with the tradeoff that the long-term probability of nuclear war falls to 1%, then that looks like a good trade. It all has to do with probabilities, i.e. your assumptions.

    It is highly debateable that Reagan’s arms buildup increased the chances of nuclear war. The arms buildup on the US side during the 1980s was mostly in conventional weapons, not nuclear weapons. The view of Reagan’s government was that the USA had to be able to confront Soviet aggression with commensurate conventional force, as there would be many situations (e.g. Vietnam, Afghanistan, Latin America) where the threat of nuclear attack was not a credible deterrent to perceived Soviet adventurism.

    What the arms race did do is place a considerable strain on the Soviet economy which led to the effective surrender of the USSR in the Cold War and its dissolution. I think Jack Strocchi misrepresents the intentions of Gorbachev and other reformers. Gorbachev’s intention was to reform (“perestroika” means reconstruction) the Soviet economy, not abandon communism. As a committed socialist, Gorbachev had great faith in the ability of the communist party to improve economic efficiency. While the Soviet economy had stalled in the 1970s, the resumption of the arms race in the early 1980s by the US set Gorbachev and his economic planners an impossible task: how to buy more guns when the USSR could not even produce enough butter? Soviet economic data is very dodgy, but I’ve seen estimates that as much as 25-30% of the USSR’s GDP was spent on the military in the early 1980s. The economic strain was intolerable, and Gorbachev believed that ending or easing the arms race would buy the USSR time to restructure its economy. What he fatally under-estimated was the power of economic and political reforms to undermine the authority of the communist party and Russian hegemony in the USSR and Warsaw pact. Fortunately, he didn’t do what the Chinese did at Tiananmen Square, and allowed liberalism to take its course. The arms race was a massive causal factor in the economic decline of the USSR and the ending of the Cold War.

    As an aside on Soviet military technology, I think Jack Strocchi’s comments are way off base. Latest generation Soviet military technology (particularly for aircraft) is of a very high level and a damn sight cheaper than the US equivalent. The failure of Arab armies in the Middle-East, armed with Soviet weaponry, to defeat US and Israeli armies is not a conclusive result. You might just as well argue that the victory of Vietnamese forces, armed with Soviet weaponry, over the French and US armies demonstrates the superiority of Soviet technology. It’s also worth pointing out that the Russians are still producing better rockets than the Americans, despite the “victory” of the USA in the space race.

  7. June 8th, 2004 at 16:32 | #7

    The non-appearing “financial market” discount I referred to relates to the absolute level of asset prices, not their relative structure.
    Clearly stocks of canned baked-beans would have been higher if nuclear war was perceived as a real threat by traders. [Were they?]
    Just as clearly, if investors had perceived nuclear war as a real threat they would have put their money into collectibles,or cash rather than stocks.
    In fact theDowrose about three fold over the eighties,indicatingthattheinvestorcommunitywasnot alarmedbyReagan.

  8. John Quiggin
    June 8th, 2004 at 16:44 | #8

    Jack, you must have a very rosy view of nuclear war if you think investing in collectibles would be a good hedge against such an event. Most people who thought about it at all came to the conclusion that there was no point in trying to prepare any response, though the tough-minded might have invested in cyanide capsules.

    Fyodor, cruise missiles, Star Wars and work on the neutron bomb are all counterexamples to your claim. Reagan’s buildup clearly raised the threat perceived by the Soviet Union – Star Wars in particular was seen as an attempt to undermine Mutually Assured Destruction and make US nuclear weapons usable.

  9. Harry Clarke
    June 8th, 2004 at 18:05 | #9

    John, The expected value analysis is cost-benefit analysis on the value of a person’s life without data.

    In fact we could change your numbers somewhat and reach the same conclusion. With a 0.00000001 increase in the probability of a nuclear disaster that might wipe out the world, Ronald’s life was a mistake in the sense that whatever finite benefits accrued from it are outweighed by possible larger costs.

    In fact no act that increases the risk of nuclear annihilation by even a negligible amount can ever be justified. This is your claim.

    Reagan’s moves in assisting the disintegration of communism were valuable. But the moment you raise even the remotest prospect of the catastrophic nuclear event this value is irrelevant.

  10. June 8th, 2004 at 18:06 | #10

    Pr Q’s antipathy towards Reagan’s peace-through-superior-fire-power military policies is only outdone by his morosyness towards the rationality of finance markets.
    Reagan’s most noted public intellectual quality was his “Good Morning in America” timism, just as Pr Q’s most noted public intellectual quality is his “dismal scientific” pessimism.
    It may be a rosy view of nuclear war to invest in collectibles on its perceived eve, but surely it is a little condesending towards the markets to believe that they were completely ignorant of the risks of nuclear war (why invest in a potential bunch of cinders?).
    The Dow index rose twofold under Reagan, from 932.92 in 1981 to 20169.9 in 1989. This was far in excess of the nominal growth rate in GDP.
    The markets plunged on the eve of GWI. Why didn’t they plunge during the Reagan arms build-up?
    If the markets thought that nuclear war was in the offing they would have been buying real estateb in Tasmania. Which they were conspcuous in avoiding.
    Either the markets are grossly irrational about the real risk of war or they knew something about the real risk of nuclear war then that Pr Q does not know now. ie they expected growth then and their expectations have been vindicated.
    Obviously the markets felt more optimistic about the future than the Palm Sunday crowds. It is reasonable to suppose that the markets believed that Reagan knew what he was doing.
    The objective records of billions of people making trillions of transaction tending in a growth direction trump speculative subjective guesses about nuclear war risks. This record shows that human capital, property and equity markets at that time were right to place their confidences in Reagan’s good offices.
    Given that history vindicated Reagan’s policies, the presumption should be that Reagan and the markets were “in the know”, and Pr Johhny-come-lately Quiggin still isn’t.
    [I fully expect a rap accross the knuckles for this bit of cheek, but it is worth it to see how this conundrum is resolved]
    PS Isn’t it a trifle contrarian to argue that the man who, with Gorby, did most to reduce the risk of nuclear war (Reyjavanik) is actually the man who maximised the risk of nuclear war?

  11. June 8th, 2004 at 18:41 | #11

    Pr Q’s argument that Reagan threatened to destroy the whole human race suffers from a further hidden ideological bias, amplified by the arbitrary formalism pf Pr Q’s subjective expected-value method of risk asessment.
    It is in fact perfectly reasonable to argue that the Reagan arms race reduced the risk of nuclear war, by encouraging militiary capitulation by the Soviet authorities.
    Since this is in fact what happened, Pr Q should be, on his own assumptions, a rock-ribbed Reaganite Republican.
    Or are the Reagan arms race heightened-nuclear war risk prognostications of Caldicott etal apriori truths which are beyond question?

  12. khr
    June 8th, 2004 at 18:47 | #12

    The arms buildup on the US side during the 1980s was mostly in conventional weapons, not nuclear weapons.

    This hardly was perceived that way over here in Germany. The main issue here was nuclear weapons, especially MRBM medium range ballistic missiles, which were seen as an attempt by the US to make war on the USSR without risking damage to the US themselves – never mind the collateral damage in Europe.

    The failure of Arab armies in the Middle-East, armed with Soviet weaponry, to defeat US and Israeli armies is not a conclusive result.

    True as far as it goes. However, at least in some instances, data for direct comparison are available. Analysis of 1909 Gulf war combat results showed that the tanks used by Iraq were no match technically for modern western tanks. Their armour was easily penetrated by western guns, the Iraqi guns could not penetrate western armour. When the Bundeswehr took over East Germany’s equipment, they quite quickly got rid of most of the stuff, as they found it inferior to their own – though logistics considerations also played a role. The major exception was the Mig-29 fighter. Flown by competent pilots, it proved a formidable opponent in many exercises.

    The proof that USSR’s economic collapse predated Reagan lies in the stagnation of the USSR’s economy throughout the sixties and seventies, owing to its inability to move to a service-digial industrial structure. This predated the alleged bankrupting of the Soviet economy started by Reagans arms race.

    Indeed, though few realized it at the time. The stagnant economy was visible to anybody visiting the Soviet Union and the Warsaw Pact countries at the time, but most people thought the system could be sustained indefinitely. One of the few people to see things clearly was French demographer Emmanuel Todd. In the mid-1970′s he wrote some very clear-sighted books and articles about Eastern Europe and the Soviet Union, concluding that it was not sustainable. His predictions about events in Eastern Europe were remarkably accurate.

    Recently he has also written After the Empire: The Breakdown of the American Order ISBN: 023113102X . I find his arguments about the US less convincing than his old ones about the USSR, but I think the book is well worth reading for its insights about other regions, especially Muslim countries.

    BTW, I find the arguments about financial markets not fearing nuclear war pretty unconvincing. If you are a financier living in, say New York, what good would owning terrain in Tasmania do you if New York is nuked while you are working in Manhattan ? Most people just ignored the threat ostrich-fashion, rather than make “rational” economic decisions taking into account the risk of nuclear war.

  13. khr
    June 8th, 2004 at 19:05 | #13

    As an aside, in debate at the time, it was widely asserted that the Soviet government was actively planning an attack on the West, to be undertaken if Western defences could be weakened sufficiently. Has the collapse of Communism produced any archival or similar evidence on this?

    Archival evidence is fragmentary, as critical documents have been destroyed, and Russian and some other archives on these issues have not been opened. Available evidence certainly shows that the Warsaw Pact aimed to wage any future conventional war with deep thrusts into Western territory, rather than adopting a defensive posture. Plans were also in place for widespread sabotage campaigns in the West. Though most documents claim these war plans as “Response to Western Aggression”. This only changed to a more defensive planning under Gorbachev.

    See:
    http://www.isn.ethz.ch/php/
    especially:
    http://www.isn.ethz.ch/php/collections/coll_overview.htm

    Another interesting point is that apparently, the Warsaw Pact leadership widely believed its own propaganda about the aggressive intent of NATO. Also, their intelligence services had quite accurate information about NATO forces. But this was restricted to a small circle. For public consumption and even for military planning, NATO forces were said to be up to 3 times stronger than they actually were.

  14. khr
    June 8th, 2004 at 20:26 | #14

    Directly relevant to the topic of Reagan is this document:
    http://www.cia.gov/csi/monograph/coldwar/source.htm
    which describes what we know of Soviet thoughts in the early 1980′s

    Note the lines:
    Dobrynin has noted that post-Stalin leaders believed the “existing political and social structure of the United States was the best guarantee against an unprovoked first strike against us.” He claims, however, that in the early 1980s some Soviet leaders, including Andropov, changed their minds. Why? Dobrynin’s reply, quoting Andropov, was that President Reagan was “unpredictable.”

    The PHP site has articles with different views on the situation, too, e.g.
    http://www.isn.ethz.ch/php/documents/collection_17/texts/ermath.htm

  15. Fyodor
    June 9th, 2004 at 09:47 | #15

    JQ, for the record I don’t think you’re anything like Juni Morosi. Your morosyness is purely imagined by Jack Strocchi.
    ;-)

    khr,

    I’m pretty sure the 1909 gulf war didn’t involve tanks…But seriously, the bulk of the Iraqi inventory of tanks comprised T-64 and T-72 models from the 1960s and 1970s, not the T-80. It wasn’t a great tank either, but the Iraqis weren’t fighting with the best the Russians could produce. I think the Bundeswehr’s decision to abandon much of the East German army’s kit had a lot to do with downsizing the German army overall and the need to standardise – their own Leopard 2 was a better tank, so they wisely kept it as their standard Panzerkampfwagen. It’s also worth noting that the Iraqis resistance forces are currently using Russian-built anti-tank missiles against the US army M1A1 Abrams and successfulling disabling them.

  16. June 10th, 2004 at 00:01 | #16

    i agree with fyodor, that the example of east german tanks is completely ridiculous.

    they have to standardise on one tank, and the west germans weren’t going to go with the soviet technology over their own, irrespective of their relative merits. how would they get supplies, spare parts, or integrate into existing west german systems, not to mention integrating with NATO (which has standards for ammunition etcetera)

    even if the soviet tanks had some marvellous technology that was far in excess of the west german equivalent, they would not use those tanks, merely reverse engineer the technology and incorporate it into the next west german tank. (or upgrade the current one if possible)

    these types of “everyday” comparisons are meaningless.

  17. Tom Davies
    June 10th, 2004 at 12:46 | #17

    John,

    Here’s a link to a Slate article discussing the end of the cold war. It sounds as though tensions were reduced after Reykjavik in 1986. Too bad that didn’t happen sooner.

    http://www.slate.com/id/2102081/

    Fyodor,

    The Iraqi resistance has had very little success disabling Abrahms, although they did penetrate one with what was probably a late model RPG, they didn’t immobilize it, or significantly injure the crew. You may have more recent info though.

  18. khr
    June 10th, 2004 at 23:50 | #18

    More on the issue of East German equipment. The Bundeswehr thoroughly examined what they laid their hands on and were generally not impressed.

    In a correction to waht I said earlier, they kept other useful stuff, notably trucks and similar. They also kept a number of BMP-1 personnel carriers for some years, because not enough West German type vehicles were available. In spite of the expected short service life of the vehicles, not only was equipment (radios, lights) replaced to make it compatible with Western standards, but substantial work was done make it conform to Western safety standards (asbestos lining, toxic fumes from ammunition, dangerous autoloader).

    A more pronounced example that the Bundeswehr was willing to live with the problems of Russian equipment if it is superior enough is the already mentioned Mig 29.

    C8TO: For most of its existence, the Bundeswehr has been using two different types of tanks. M48/Leopard 1 , Leopard 1 / Leopard 2.

  19. June 11th, 2004 at 12:23 | #19

    Domestic revolution in the West ceased to be a viable opton for Bolsheviks after the growth of Social Democratic states during the late 19 th C. Communist strategy thereafter relied on makeing power advances against the West in the aftermath of war-induced economic crises and political disunity. THis was how the Bolsheviks came to power in Russia/E Europe in the aftermath of WW I and China/N Asia in the aftermath of WW II.
    Thus the Soviets hoped to prise W Europe from the Atlantic alliance with the US in the aftermath of the 1960s culural revolution and 1970s economic recession. Once seperated from US military umbrella, the WE’s would have been easier to subordinate or neutralise as threats to Soviet hegemony in E Europe.
    A comparable strategy was followed by Chinese communists in Asia. THe Maoists hoped to exploit Asian anti-colonialism of the various wars ofo national liberation pursued by radical movement in the aftermath of WW II. They wanted to turn it into an anti-capitalist movement to push the US out of Asia.
    Neither the USSR or the PRC banked on the fact that Euro or Asian nationalism could back fire on them as much as the US.

  20. June 23rd, 2004 at 12:46 | #20

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