Using the Lessons from Socialism

As part of something I recently wrote, I made the following argument about the potential uses for studying comparative economic systems. I wonder how many readers will agree:

I am particularly drawn to the study of more extreme and pure systems. I believe these offer the best chance to draw out universal laws. Careful study of systems which avoid mixing of different incentive structures may present the best opportunity to view a single behavioral or systemic result, as if isolating it in a laboratory. Some of the results of this kind of analysis confirm basic economic laws and theory, such as the importance of the profit motive for keeping costs low and quality high. Even analysis illuminating such well known theory can be an effective learning tool, highlighting economic insights important for theoretical models.

Often economists begin with the simplest form of a model, and then begin to add to the model the complexities of reality. Similarly, the model which is the pure economic structure may be such an extreme example as to simplify the lesson. Yet, the economist can then adjust the simple lesson with the modifications seen in less extreme examples of the policy. The advantage of the pure economic system is that its implementation of the policy is the pure form and may represent the noise-free truth underlying other implementations.

One example is the socialist policy of eliminating unemployment which parallels less extreme policies undertaken in market economies. The lessons from the Soviet attempt to eliminate unemployment are interesting. Planning labor entirely was too difficult; for most periods most labor was free. Working was mandatory and extreme measures were taken to keep all workers employed, including forcing the manager to personally find a new job for each worker laid off. Yet, unemployment remained at about the “natural rate” for the duration of the Soviet socialist experiment. The negative effects of the labor policy included incredible labor inefficiency, underemployment, and a rigidity across the whole economy as firms could not adjust to changes introduced because they could not attract the necessary specialized skilled labor.

Similar lessons can be found with regard to investment and interest rates, monetary policy, and the need for marketing and middlemen among other areas. In the pure socialist economy, the extreme results can be seen across the whole economy, and are easy to study. The lessons can then help to inform or confirm theoretical models, or be combined with them in order to better describe potential policy consequences.

My original argument was going to make a slightly different case, which I ended up not feeling able to defend well. I originally argued not just that a lesson could be extracted, but that a pure isolated truth could be extracted and put into a model, which then could be modified to reflect the differences seen in less extreme policy manifestations. I believe that, but I am not sure I can defend it as of yet. Then again, it isn't really much different than what I say above - it is just that I reduced the claim to "lesson" instead of "model". I am curious what others think about this: are we not learning enough from economic systems such as socialism, which in many cases offer the most pure version of policies which we also pass in market countries?