Hayekian Prediction Markets?

I think you need to think in more categories than just capitalist and communist.

I have made your point about econ growth not being so low under Soviet system, if one even believes in economic growth as it's usually reported. I'm fantastically skeptical of Soviet life expectancy data from Stalin's life, especially when they are one year short of current (57 Year later!!!) figures. What was the population of the USSR in 1953 and in 1917? What birth rates were reported? Are the data even consistent?

Describing Mexico under the PRI (Institutional Revolutionary Party), which was a member of the Socialist International, and nationalized large chunks of the economy, as "captialist" is something of a stretch.

My point is not that East Germany and North Korea are typical communist countries, but that they can be easily compared to a neighboring capitalist country sharing much of the same culture and history: a "natural experiment" in the effect of policy differences.

Also, I think life expectancy is very different from GDP. Death rates appear to go up during economic booms and down during recessions.

South Korea and West Germany are atypically good performers for Capitalist world, which has its growth failure stories like India, Indonesia, Peru, Chile, Argentina, UK, and New Zealand (going from extreme poor to extreme rich).

Most of those countries were not capitalist, but rather socialist mixed economies. New Zealand is actually rather capitalistic, and has respectable growth for an advanced economy and persistent low unemployment, so I'm not sure what you're getting at there. Here's Wikipedia on India:

Indian economic policy after independence was influenced by the colonial experience (which was seen by Indian leaders as exploitative in nature) and by those leaders' exposure to Fabian socialism. Policy tended towards protectionism, with a strong emphasis on import substitution, industrialization, state intervention in labor and financial markets, a large public sector, business regulation, and central planning.[8] Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s.[9] Elaborate licences, regulations and the accompanying red tape, commonly referred to as Licence Raj, were required to set up business in India between 1947 and 1990.

India liberalized starting in the 1980s but mostly since 1991. Growth accelerated rapidly after the state declared bankruptcy (basically) in 1990 and liberalization began. When Chile liberalized its economy, it went from one of the poorest to the wealthiest country in Latin America, which strongly refutes your hypothesis.

Dividing countries into two categories, as TGGP says, is not the best option. Most countries aren't fully capitalist or communist but rather a mix. On the one extreme you have countries like Singapore, Switzerland and Hong Kong, on the other you have North Korea.

I suppose I should qualify that, as it's a bit unfair to Buffett.

Yes, Buffett is a professional investor and more expert than me at it, which counts for quite a bit. But he's also human, and humans don't do a very good job of anticipating economic activity beyond a horizon of a few years. Importantly, most humans have a laughably brief idea of what constitutes a "long term".

I'd estimate that Buffett's bet constitutes quite a few bits of evidence toward the profitability of Wal-mart over, say, a 2 year time horizon. But I was already leaning in that direction, so it doesn't move my posterior probability by very much. In contrast, I'd estimate that it provides a much smaller number of bits over a 10-year horizon: if I had to name a number, I'd say 2 bits. That's a nudge in Buffett's direction, but not a very big one.

Now, Wal-mart is not so foolish as to have played the derivatives shell games that exploded in the financial industry, nor do they have any substantial debt exposure. But I think a big source of risk, unconsidered in the standard analysis and probably unconsidered by Buffett, is their interdependence on China.

Sidebar:

Inflation triggers human biases: it causes people to miscalculate and believe they have more utilons merely because they have more money. (This is the essence of Keynesian stimulus: trick people into diverting their money from savings into spending. Regardless of whether you hold this is good or bad, it is what stimulus does.) Spending within an inflated economy is a complicated matter that I won't delve into, but international trade is where it gets interesting.

Imagine two countries, A and B, which are trade partners. A injects a stimulus. People in A start buying more goods, including imported goods from B, with their freshly-printed money. This creates a trade imbalance between A and B. When this happens the buyer (implicitly or explicitly) exchanges A's currency for B's. On the currency exchange markets, B's currency goes up (demanded) while A's goes down (supplied). Thus, in the absence of further intervention, the exchange rate will cause the price of B's goods to rise in A's currency until A can no longer afford them, putting the brakes on the trade imbalance.

However, the end of the trade imbalance can cause adjustment problems: when people made plans, they baked in assumptions that simply weren't true. People in A used to cheap $GOOD are suddenly faced with rising prices. Manufacturers in B were used to steady output but now face a significant slowdown, perhaps turning that new factory from a brilliant investment into a frustrating white elephant.

Magic wand: more stimulus! Now B gets in on the act: B injects stimulus, tricking the people of B into spending instead of saving and filling the factories with busywork. Thanks to imports and foreign investments, money starts to flow out of their country, causing their currency to come back down from the stratosphere. And the cheap currency exchange rates make A look like a good investment now...

But in the end, what has this circle accomplished: both A and B have severely devalued their currencies in relation to any third-party country C, both have depleted their citizen's savings accounts, and both have huge government debts due to their respective stimuli. Oh, and each has lots of manufacturing capacity that goes to waste unless the other is actively digging a money pit.

End sidebar.

Note that what the U.S. and China have is not quite what I described above. China is inflating, but the U.S. is inflating faster, and the dollar-yuan currency peg means the exchange rate isn't closing the trade valve. Therefore the trade balance persists, with China the continuous exporter. This creates a huge pileup of U.S. dollars that no one is sure what to do with, and it also means there's little incentive for people in China to import from U.S. manufacturers. (The Chinese government owns most of the dollars: it printed yuan to buy them and thus fix the price. Therefore the dollars are not in private hands, therefore there is little investment flowing into the U.S. from China.)

China is painfully exposed: the situation is clearly unsustainable, it took herculean effort to keep it from exploding this time around, and it's going to explode in the not-so-distant future. In desperation to keep the Keynesian pump primed, the Chinese government has plowed enormous amounts of stimulus into their domestic economy: the government funded the construction of an entire city, Ordos, merely to boost GDP. (Spoiler: no one lives there, but prices are sky-high: real estate "always goes up" in China.) The next major economic crisis will probably (0.80) start with China, and will almost certainly (0.98+) bring about a crisis severe enough that it puts China into a recession.

From Wal-mart's perspective, stimulus in China is a mixed blessing: it provides a tiny relief valve through which piled up U.S. dollars can leave the country, and it also subsidizes Chinese manufacturers to lower prices, but it also creates inflationary pressure within China and thus causes labor and manufacturing prices (measured in yuan, not utilons) to rise dramatically. The whole thing a chaotic powder keg, and the blast is not directionally pointed away from Wal-mart.

In short, expect China starting today to follow a similar 30-year trajectory as the one laid out by Japan starting in 1980, complete with one or more "lost decades". (The situation is not exactly analogous, but strongly suggestive.)

Russians are much much poorer than Americans and Western Europeans because they were much much poorer than Americans and Western Europeans in 1913 before Communism ever started.

What explains the greater amount of wealth in America and Western Europe prior to 1913? Could capitalism be a partial explanation? Hong Kong and Singapore were much poorer than America and Western Europe prior to 1913, but now have equal or greater levels of wealth in addition to being more capitalist. Could capitalism also be a partial explanation in this case? If not, what is a more plausible explanation?

I'm happy to see that the paper you link acknowledges in its opening sentence that "the human costs of communism in Eastern Europe were incalculably large". Ignoring the 20 million murdered by the communist regime in Russia in statistics on economic performance that include per capita income measures seems questionable to me however.

Funny. I totally knew all that in the back of my head. I'm puzzled about why I didn't return any of that myself.

Scary.

For me, the problem regarding roads is not "who will build them?" or "who will pay for them?" That part's easy: 1) construction workers, and 2) those use use the roads, or, in cases of low-density roads where it's infeasible to collect or calculate tolls, the local HOA/merchant association.

The hard part is: what happens to the rights of people today? It's extremely unfair to say, "hey, you have to start paying for this road now, which you previously had the unlimited right to use". So, the issue of weighing historical rights vs. egress/passthrough rights vs. road owners' rights is where the real difficulty lies.

It would only be a subsidy if WM got access to it on preferential terms to the rest of us.

That doesn't pass the laugh test.

You calculation holds for anyone that uses large trucks, not just Wal-mart.

It's not a subsidy specific to WM, no, but a structural subsidy to certain ways of doing business. Your argument is like saying corn subsidies don't subsidize corn farmers because anyone can choose to farm corn.

I've never understood the "IHS subsidizes Wal-Mart" argument. It would only be a subsidy if WM got access to it on preferential terms to the rest of us. But they don't. Whatever use of the IHS they make, everyone else had the same opportunity. It's not like WM stupidly built up their whole infrastructure and then one day said, "Oh crap! This will be an utter failure unless there's a free interstate highway system! Quick! Government! Build it with other people's money!"

Of course. The subsidy is implicit in the system, rather than explicit. It'd be quite the rare Wal-mart executive who could even have the conscious thought even flit across his mind. But a subsidy doesn't cease to become a subsidy merely because no one is lobbying (either for it or against it). While lobbying and subsidy correlate, neither is the exclusive cause of the other.

But the fact remains that Wal-mart's business model relies on the fact that it can consume the highway system as a good, and do so in vast disproportion to the actual price paid for that good. If they had to pay in proportion to their actual consumption, they would not be profitable under their current model. (There may well be another model where they would be profitable, in a counterfactual world where highway use were metered. But, if counterfactual bets made coherent sense, I would bet money that Wal-mart's model in that world would include much greater use of rail.)

It is immaterial whether or not Wal-mart's executives consciously recognize the premises underlying their model: namely, that shipping via truck excludes the cost of the highway. It is immaterial whether or not Congressional representatives consciously recognized that funding the Interstate system without metering would invent the trucking industry. The fact is, Congress did fund the Interstate system, they did invent the trucking industry, and Wal-mart does rely on the trucking industry axiomatically.

This is one of those situations where evolutionary interdependencies and stare decisis (rather, the legislative counterpart thereof) conspire to create a lose-lose situation. Horn one: start charging for the highway system and thus destroy one industry, harm a bunch of others, and cause prices to spike for a decade or more. But maybe, twenty years from now, the infrastructure will be in place such that the economy is more efficient than it would have been otherwise. Horn two: continue paying for the highway system with federal taxes and thus penalize individuals for the benefit of a handful of large corporations, encourage people to own cars and avoid public transit, and destroy the viability of long-distance passenger rail even though it's far more cost- and energy-efficient in the long run. But at least nobody loses their job in the meantime.