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Disequilibrium Estimates For Consumption Goods Markets In Centrally Planned Economies

R. Portes, D. Winter
Published 1980 · Economics

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The centrally planned economies (CPEs) are said to suffer from sustained, significant repressed inflation (Grossman (1966); Bush (1973)). With stable official prices, visitors observe queues, shortages, and black market activity, and the East European press reports these phenomena in circumstantial detail. Scholars cite such anecdotal evidence and generalize from it (Katsenelinboigen (1977)). The literature stresses "overfull employment" or "taut" planning (Holzman (1956); Hunter (1961)), "planners' tension ", "pressure" (Levine (1966)) or "suction" (Kornai (1971)); use of the consumer sector as a buffer to absorb unforeseen shocks; overfulfilment of the wage fund plan and underfulfilment of the real wage plan; "excessive" household savings; the rising subsidies required to maintain fixed prices (Garvy (1975)); quality deterioration, and "hidden" price increases. This is a fundamental proposition in the conventional wisdom about CPEs. We view it, however, as a hypothesis about macroeconomic relationships in CPEs drawn originally from unsystematic observation, which we are now able to test systematically against aggregate time-series data. This is our objective here. We do not doubt that there is excess real demand within the state production sector in CPEs, in part imposed consciously by the planners to elicit more output. Nor do we question that this could generate excess demand in the markets linking the state production sector to the household sector: the markets for consumer goods and services and for labour (Kornai (1978) so argues, although he focuses on the state production sector). But for these markets the planners have always stressed the importance of macroeconomic equilibrium because the effects of excess demand here are so clearly dysfunctional (disincentives to labour supply, black markets, weakening of "labour discipline", etc.). The "balance of money incomes and expenditures of the population" (BMIEP) is a key element in the planning process, and the planners dispose of powerful policy instruments to achieve its targets (Portes (1977); Rudcenko (1978)). Again, we do not question that there are numerous chronic and substantial microlevel disequilibria: excess demands for certain goods (housing, meat, automobiles, and many varieties-especially those of higher quality-of other goods at a more disaggregated level), but also well-publicized excess supplies of others (e.g. low-quality clothing often accumulates in "immobile ", "unsaleable" stocks). That relative prices are distorted is hardly surprising or controversial, however, when all consumer prices, at the finest level of
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