Sarah Paine – Why Russia Lost the Cold War

Summary

In this final episode of the Sarah Paine lecture series on the Dwarkesh Podcast, historian Sarah Paine delivers a comprehensive “tour of the arguments” explaining why Russia lost the Cold War. Rather than offering a single explanation, Paine systematically presents and evaluates over a dozen competing theories — from Reagan’s military buildup and SDI, to Nixon’s China card, the US Navy’s submarine advantage, the Helsinki Accords’ human rights framework, the democratic contagion that swept Eastern Europe, the oil price collapse, ethnic revolts within the Soviet Union, and the fundamental dysfunction of central planning. She quotes extensively from Russian officials and insiders who lived through the collapse, giving the analysis unusual depth and credibility.

The lecture transitions into a rich Q&A between Paine and Dwarkesh that covers why central planning survived as long as it did (the USSR had a surprisingly long run despite enormous inefficiencies), the role of Siberian oil in propping up the system, and Paine’s vivid first-person account of living in the Soviet Union in 1988-89 — including shopping in Moscow supermarkets with only 74 items, buying sour cream from a filthy ladle, and watching Tiananmen Square on Soviet television. She explains how Gorbachev’s false assumptions about history being irreversible led to catastrophic miscalculations, and how Bush Sr. and Helmut Kohl executed one of history’s great diplomatic feats in reunifying Germany within NATO.

Paine concludes with pointed lessons for today’s “second Cold War,” arguing that the West won not through any single stroke but through a confluence of factors, leaders, and institutions — and warning that America’s current advantages (technological edge, alliances, institutional strength) could be squandered through short-term thinking, abandoning allies, or failing to invest in the long game.

Highlights

”The most dangerous moment is when a bad government begins to reform”

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“Alexis de Tocqueville wrote about the last days of the French monarchy: ‘The most dangerous moment for a bad government is when it begins to reform.’ All of these counter-arguments agree on at least one thing: Gorbachev’s role in how the Cold War turned out was pivotal.” — Sarah Paine, 30:38

”It was like a donut empire”

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“People in Eastern Europe as a group were more prosperous than Russians. It was like a donut empire. Russians could no longer siphon off the wealth, which explains why they wanted to leave.” — Sarah Paine, 32:00

”The economy was aggregating all the lies”

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“Everyone’s lying to each other. If you’re working for a subunit of an enterprise, you’re saying you have less than you do and saying you need more than you do. The plan is aggregating all the lies. The higher up the food chain, the worse the data is, so that the Soviet government has no idea what’s actually going on.” — Sarah Paine, 27:45

”The Soviets spent up to 70% of GDP on military”

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“After the Cold War ended, it turns out it was at least 40 or 50%. Economy-busting 70%, if you take into account associated military things. The United States was spending less than 8%, and Nazi Germany, which is no piker, 55%.” — Sarah Paine, 3:31

”74 items in a Moscow supermarket”

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“There were 74 items total in this supermarket. Think of that compared to a candy rack as you leave a 7-Eleven. The smell just about knocked you out, rotten produce everywhere. Russians are good at making borscht.” — Sarah Paine, 1:13:10

”We are putting a plastic bag on our own head”

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“If we’re going to dump all our allies, if they organize without us… if we’re going to just blow through our good hand of cards without thinking very carefully about what we’re doing… we become like the Soviets, putting a plastic bag on our own head.” — Sarah Paine, 1:49:20

Key Points

• Reagan didn’t win the Cold War alone (0:38) - While Reagan’s military buildup, SDI, and rhetoric pressured the Soviets, multiple counter-arguments show he was one factor among many
• Soviet military spending was 40-70% of GDP (3:31) - Post-Cold War analysis revealed the Soviets spent far more on defense than anyone realized, versus 8% for the US
• Helsinki Accords backfired on the Soviets (6:30) - Human rights provisions in the 1975 accords created a framework that activists used to hold communist governments accountable
• Nixon’s China card fatally overextended the USSR (10:10) - The Sino-Soviet split forced Russia to garrison two enormous borders simultaneously, which was bankrupting
• US Navy submarines were the decisive weapon (13:10) - Soviet officials themselves identified the US submarine fleet as the weapon that made war termination the only option
• Democratic contagion swept Eastern Europe (16:48) - Once Poland held elections in 1989, the democratic wave spread unstoppably through East Germany, Czechoslovakia, and beyond
• The Berlin Wall fell by accident (21:30) - A confused spokesman at a press conference said travel restrictions were lifted “immediately,” triggering crowds at the wall
• Oil price collapse devastated Soviet finances (24:30) - Oil accounted for up to 55% of the Soviet budget; when prices crashed, the empire couldn’t sustain itself
• 76 ethnic revolts simultaneously (25:30) - Internal nationalist movements across Soviet republics created too many fronts for the regime to manage
• Central planning was aggregating lies (27:45) - Every level of the Soviet system lied about production figures, making the government blind to actual economic conditions
• Gorbachev’s fatal false assumptions (31:06) - Gorbachev believed history was irreversible and that ending the Warsaw Pact would also end NATO — both catastrophically wrong
• Kohl bought German unification with cash (42:30) - West Germany paid hundreds of millions, then billions of Deutschmarks to the Soviets, Hungarians, and East Germans
• Bush Sr. had the best resume of any president (39:58) - War hero, congressman, CIA director, ambassador to China, VP — uniquely prepared for Cold War diplomacy
• The Gulf War was subordinate to Cold War endgame (48:31) - Bush limited the ground war in Iraq to avoid jeopardizing Soviet cooperation on German reunification
• Central planning survived via oil and heavy industry (56:10) - Soviet economy was propped up by Siberian oil discoveries and the relative simplicity of heavy industrial production
• Soviets missed the plastics and computing revolutions (1:01:20) - Central planning failed to adapt to new materials and information technology, locking the economy into obsolete production
• Moscow 1988: sour cream from a filthy ladle (1:14:46) - Paine’s firsthand account of Soviet consumer deprivation reveals the gap between official statistics and reality
• Lessons for the second Cold War (1:49:00) - Paine warns that America could squander its advantages through short-term thinking and abandoning allies

Mentions

Companies

• EMC (12:55) - Referenced in context of data storage market transitions

Products & Technologies

• Strategic Defense Initiative (SDI) (3:08) - Reagan’s “Star Wars” missile defense program that terrified Soviet leadership
• US Navy submarine fleet (13:10) - Nuclear-powered ballistic missile submarines that guaranteed second-strike capability
• VCR players (1:17:00) - Most coveted consumer item in the Soviet Union, only available at diplomatic stores

People

• Ronald Reagan (0:38) - US President whose military buildup pressured the Soviet Union
• Mikhail Gorbachev (1:06) - Soviet leader whose reforms and miscalculations accelerated the collapse
• George Bush Sr. (34:40) - US President who managed German reunification and Cold War endgame
• Helmut Kohl (37:27) - German Chancellor who engineered reunification through cash diplomacy
• Richard Nixon (9:55) - Played the “China card” that fatally overextended the Soviet Union
• Jimmy Carter (7:56) - Began human rights emphasis and submarine modernization
• Deng Xiaoping (35:13) - Chinese leader contrasted with Gorbachev for maintaining party control during reforms
• Boris Yeltsin (9:33) - Gorbachev’s successor who formally dissolved the Soviet Union
• Margaret Thatcher (51:30) - Opposed German unification, comparing it to Japan’s rise
• Francois Mitterrand (51:20) - French president who eventually accepted unification through European integration
• Alexis de Tocqueville (30:38) - French thinker who wrote that reform is the most dangerous moment for a bad government
• Carl von Clausewitz (15:42) - Military theorist cited for emphasizing interaction between both sides
• Arnold Toynbee (16:03) - Historian who argued civilizations die by murder and suicide
• Paul Samuelson (58:30) - Prominent economist who was wrong about Soviet growth projections
• Murray Feshbach (1:03:00) - Analyst who studied Soviet demographic and economic data

Surprising Quotes

“The Soviet Union spent economy-busting 70% of GDP on military things, while the United States was spending less than 8%. Nazi Germany, which is no piker, spent 55%.” — Sarah Paine, 3:44

“The box on the ballot called ‘none of the above’ — the Catholic Church didn’t have to instruct people that that’s the box you want. The Communist Party’s legitimacy to rule had just been wrecked in a free election.” — Sarah Paine, 20:14

“Vladimir Lukin said: ‘Gorbachev was no Deng Xiaoping. The stupidity of our leaders caused this. It was not suicide on purpose — it was by mistake.’” — Sarah Paine (quoting Vladimir Lukin), 35:13

“You shoot a lot of people in their countries, you siphon off a lot of their wealth, and you wonder why they don’t like you. Think about the United States going around the world in other people’s troubles. When we leave, people don’t like us. And we think they’re so special.” — Sarah Paine, 33:21

“In order to educate someone, it takes years per person and then you get them educated. It takes seconds to assassinate them. Dictatorships are really good at destruction. It’s a sad part of the human condition.” — Sarah Paine, 56:50

Transcript

0:02 Thank you for coming. It’s a treat. Since we seem to be in a second Cold War, I thought it would be useful to look at the last one to see why it turned out the way it did. So tonight’s question: why did Russia lose the Cold War? I’m going to give you a series of answers to that question, and for each one I’ll give you a series of counter-arguments.

0:33 The first is an answer that many Americans have: “Reagan single-handedly defeated the Soviet Union.” I’m going to give you all kinds of counter-arguments to that. Some are external explanations of what others did to the Soviet Union. Others are internal ones of cards that it didn’t play particularly well. So that’s my plan for this evening.

1:05 Here’s a picture at the Reagan Library. You see the Gorbachevs and you see the Reagans, which suggests there’s something more going on. But anyway, the way the “Ronald Reagan won the Cold War” argument goes is that he did a massive military buildup and some other things. He was a man of words and deeds. Here’s one before Parliament where he says that no regime that has had more than 30 years to establish itself has yet been able to risk free elections.

1:49 And then here he is in Berlin, long a symbol of German greatness. Here’s Ronald Reagan: “General Secretary Gorbachev, if you seek prosperity for the Soviet Union, come to this gate. Mr. Gorbachev, open this gate.” Then there’s the “Evil Empire” speech, which he gave to the National Association of Evangelicals in Florida, and they skipped Disneyland to hear it.

2:31 Reagan continued a military buildup that actually had started under Carter. He deployed Pershing missiles in Europe — a big mistake as we discovered. He supported anti-communist insurgencies and also others who He started doing more covert operations. By the time he’s out of office, he was building up the navy or whatever it is he was planning to make. And then there was his Strategic Defense Initiative. The Soviets tried to match him on this.

3:18 Now if you combine the United States, NATO allies, and Japan, well, that’s a lot of economic power. You’ve got to be aware of asymmetric strategy. Perhaps Russia was spending up to 25% of GDP on military. After the Cold War ended, when you actually got access to data, it turns out it was at least 40 or 50%. Economy-busting 70%, if you take into account all the things associated with military things. The United States was spending less than 8%, and Nazi Germany, which is no piker, 55%.

4:05 So I am going to be quoting lots of Russians who reflected on the fate of their country, how life changed with the Soviet Union gone, the empire gone. Here is a former Soviet ambassador. Here’s his take: “Following the American strategy of an arms race plunged us into neglecting public health and all the things that have to do with civilian life.” Then if you add to the arms race of the United States the confrontation with China on that border, the arms race plunged the Soviet economy into crisis.

4:52 Here you have Georgy Arbatov, who was the most famous Soviet expert on the United States, or at least the most famous one. He said, “It is quite clear that the Afghan war was our Vietnam, we got our Vietnam.” Because the United States had been bogged down in Vietnam. Gorbachev is looking at this, as he’s telling people. He said, “Look, the Americans are betting the Soviet leadership is scared of this SDI, the Strategic Defense Initiative. That’s why they’re putting pressure on us.”

5:43 So some would argue that the US victory in the Cold War was all about Ronnie. That’s one explanation. But I’m going to give you other explanations, starting with Presidents Nixon through Bush.

6:03 After World War II, the Soviets had wanted a big conference to confirm its expanded World War II borders. The Western Europeans are sick of all the drama, but we go along with our allies, and our allies want this. We think this is crazy because we know the Soviets will violate it. But you get the Helsinki Accords. Well, lo and behold, unbeknownst to anybody, human rights activists across the West start holding the Soviet bloc to the agreements they have signed and start contrasting what the Helsinki Accords promised versus what the dictatorship actually delivered. This movement, in the Soviet bloc and abroad, took on a life of its own.

7:16 A former head of the Department of Defense said the Soviets wanted this big conference and it laid the groundwork. “We resisted it for years only to discover years later that the results were beyond our wildest imagination.” Go figure. It was Gorbachev’s English language advisors who put the emphasis on precisely the human rights provisions that made people think they wanted a better system.

7:55 Here’s Carter giving a speech. He said, “We have reaffirmed America’s most fundamental tenet of our foreign policy, which is a belief in human freedom. Our nation stands for more than just financial prosperity.” And here is Eduard Shevardnadze, Gorbachev’s foreign minister. He said, “Look, the belief that we are a great power — but great in what? Territory? Population? The individual’s lack of rights? One of the highest infant mortality rates in the world, take pride in that? Who do you wish to be? A country that is feared or a country which is respected?”

9:17 Others agreed that communism was an essential ideology but it’s an undemocratic ideology that can’t endure forever. Ignatenko, who’s a Russian journalist, is saying, “Look, communist ideology is exhausted. Its rejection created a vacuum.” Boris Yeltsin, who is Gorbachev’s successor, agreed.

9:44 So some would argue, this counter-argument, that the Helsinki Accords and Carter’s subsequent human rights campaign undermined Soviet legitimacy. Okay. Another president, another argument. Fans of Richard Nixon would say, “No, no, no, no, no. Nixon opened up relations with China so the United States and China could gang up on the Soviet Union to wreck it militarily.”

10:08 Others beg to differ and say, “No, no, no, no.” Because what’s going on in 1969 is a border war between China and the Soviet Union. China no longer has to defer to the Soviet Union on their border disagreements. The Soviets come to the United States and ask us whether it would be okay to nuke those people — they think Americans don’t like the Chinese. The one that wants to nuke you is not the one you want to be friends with.

10:50 Up until then, think about it, for China, the United States was the primary adversary. The Sino-Soviet split changed that, freeing up the United States to decide who the real threat was. And the United States decides it’s the Soviets. Well, Chinese belligerency forces the Soviets to garrison not just the border with Europe but now they’re going to garrison the border with China too. These are nuclear-armed borders. Imagine if this country had to have full garrisons on both borders. It would be bankrupting, and we are far richer than the Soviet Union ever was. It was bankrupting. So some would argue that the China card fatally overextended the Soviet Union.

11:44 Starting with President Nixon all the way through Bush, each president opened up opportunities that the next one built upon. So Nixon plays the China card. Ford comes in and begins dabbling in human rights. Carter takes up human rights and starts doing a military buildup. So that by the time you get to Reagan, he is building on increasing military strength vis-a-vis the Soviet Union. While the US approach was not consistent during the Cold War, there were certain different strategies pursued, but both parties agreed the goals were free markets and democratic government. Those were staples of US foreign policy.

12:45 So some would argue that Presidents Nixon through Bush accumulated presidential effects to defeat the Soviet Union. Now if you don’t like the great man theory of history business, that’s really passe. There’s the argument that what really won the Cold War was this military platform — a nuclear-powered ballistic missile submarine. They say that this is the item. The most important thing during the Cold War, and I believe now as well, is to have a reliable second-strike capability. If the other side attacks you first, they would be guaranteed that you would annihilate them back. Therefore, they’re never going to attack.

13:39 When Jimmy Carter became president, he was a nuclear submariner. The United States began a much more aggressive submarine posture, and that’s continued even more so under Reagan. We’re taking our submarines and we’re targeting Soviet submarine bases. So the Soviets are thinking that we are threatening their second-strike capability on our first strike.

14:06 So here you have Valery Boldin, a longtime Gorbachev aide, saying the most powerful strength of the United States is the submarine force. And then you have Marshal Yazov saying “the most threatening means of atomic attack is the fleet.” And there’s Admiral Gorshkov, who’s visiting the United States in 1987, telling Americans “You know where our submarines are, but we don’t know where yours are. You, the United States Navy, are the problem.”

14:52 And then there’s another analyst who’s going, “Yeah, the inability of the Soviet Navy to counter the US submarine fleet led to the demise of the Soviet Union and to the end of the Cold War.” So you can make a perfectly good argument that the Soviets could not match technologically or financially the US submarine fleet, so war termination was the only thing it could do.

15:25 Now all those are external explanations — they’re all about what the United States did. So let’s get beyond the American-centric view. You need to look at the other side of the net. As the great military theorist Carl von Clausewitz said, war is about the interaction of both sides. You can’t just consider what one side is doing — you have to consider what the other side is doing.

16:00 Now I’m going to do the internal explanations. Arnold Toynbee, one of the finest historians of the 20th century, argued that civilizations die by both murder and suicide. So I discussed the murder, what the United States did. Now I’m going to talk about the suicide, what the Soviets did to themselves.

16:26 And here is counter-argument number one. When the Soviet empire in Eastern Europe collapsed, that meant they lost the Cold War. During the Vietnam War, there was much fear of the domino theory. The idea is one country falls to communism, the next one would fall to communism. Well, the domino theory did not apply to capitalism. But once the democratic contagion hit one country, it spread to the others until it was a cascade.

17:05 So in 1988-89, there were all kinds of demonstrations across the Soviet Union. They’re for political freedoms. They’re for freedom from the Soviet Union. They’re all about not only political liberation but also they’re about crumbling economies and better living standards. Very uncharacteristically, the Soviets did not crack down. In fact, Gorbachev welcomed and encouraged reforms in Eastern Europe, just as he was doing in the Soviet Union. His glasnost, openness, and perestroika, rebuilding, resonated at home and abroad.

17:58 Poland had been a scene of much worker unrest many times. In 1981, this is when Solidarity, the workers’ movement, gets a national and an international reputation. By the late 1980s, because in the preceding several years, the economy had deteriorated further. The government was out of cash and wanted to raise prices. The government was in a panic, because Solidarity was back. So the government cut a deal with Solidarity: we’ll let you into political power-sharing.

18:50 There was a complicating factor on all of this, which is an institution of enormous credibility — the Catholic Church. It was a huge supporter for Solidarity and it had a Polish pope. So there were these political talks in February 1989, and the Soviets encouraged them. They told the Poles: “Look, you’ve got to find some quick solutions.” You’re an itty-bitty country, so when you make changes they’ll be small. But if we make them, they’ll be big. They thought they had this one covered by the way they structured the elections.

19:40 The day they held elections is exactly the day of the Tiananmen Square massacre — China rolls the tanks on demonstrators in Beijing and you have free elections in Poland. The problem is the elections didn’t go as planned. Solidarity won every single seat for which it could compete but one. Not one of the communist-designated seats actually won on its own merits. The box on the ballot called “none of the above” — the Catholic Church didn’t have to instruct people that that’s the box you want. The Communist Party’s legitimacy to rule had just been wrecked in a free election.

20:34 This democratic contagion then spread to East Germany. This is about the 40th anniversary of East Germany. 70,000 people demonstrated in Leipzig. Soon people are demonstrating in over 200 demonstrations. The Stasi would have cracked down in the past. But Honecker was already out of a job. The economic policies he had pursued since he came to power in 1971 had just about wrecked the economy. A few weeks later, the Council of Ministers resigns.

21:19 Then on November 9th, whatever is left of that government announces new travel regulations. You might wonder what travel has to do with it. In response to a question at a news conference, a spokesman — one of the remaining communists helping run the show — gets asked when these new travel regulations take effect. He doesn’t know. So he wings it. The question is, “When do these rules take effect?” and he says “Immediately.” Well, crowds immediately started heading for the Berlin Wall checkpoints. At one of them, the border guards decided not to shoot, and they opened the gate and East Germans poured through.

22:05 Within the first week alone, over half of East Germans had visited the West. Within the month, 1% of the population had emigrated permanently. Like the Polish elections, this opening of the wall was a pivotal decision — meaning you can never go back. Here’s good old Gunter Schabowski going, “Gosh, we didn’t realize it would be the beginning of the end of East Germany.” The communists were shocked by how unpopular they were.

22:46 People credit Gorbachev for Eastern Europe’s liberation rather than any Western leader. Here you have Yuri Ryzhov, a scientist and diplomat, saying the former satellites cast off Soviet control by compulsion. And Anatoly Kovalev, who is a deputy foreign minister, noted that they had no reliable information whatsoever concerning whom the East German army would obey. And the same thing for the Polish and other armies. With allies like this, who needs enemies?

23:26 So this argument says unrest in the empire forced the Cold War to end. But I got another counter-argument. The problem was that the satellites were unhealthy, and so were the Third World clients. Look at a map from 1960 — you see all those tempting green places in Africa and Asia. Former colonies that were really sick of their Western European colonizers. The Soviet Union was cultivating them to drive the West out of business.

24:00 But by the 1980s, the Soviet Union is on a roll until there was a big recession that continued into an oil bust. For some of the newfound pals like Angola, the oil price collapse halved their export earnings because they’re exporting oil. In many cases, it halved them. Russia itself was hugely dependent on oil exports, still is. Oil accounted for up to 55% of the Soviet budget. All these Third World clients became non-performing piles at a time when the Soviets could least afford it.

24:49 Worse yet from the Soviet point of view, not only are the Third World friends deteriorating, but meanwhile, it’s got its own internal nationalities who want out of the empire. They revolt at exactly the same time. The first rule of empire is “no two-front wars.” At this point, the Soviet Union can’t even keep count. Nationalist demonstrations started as soon as Gorbachev got in, from the Baltics to Yakutia, opposite ends of the empire. There are like 76 seething ethnic groups. There was too much going on for the system to handle.

25:48 So you could argue that the Soviet Union, by ignoring its own internal Third World and ethnic revolts, brought down the Soviet Union. If you don’t like all of those, I got another one. It’s the economy, stupid, right? That line. One could argue the planned economy was the fundamental problem.

27:07 If you look at growth statistics for the Soviet Union, they look impressive post-World War II when they’re rebuilding, but they decline steadily. For the decade preceding Gorbachev’s coming to power, Soviet growth rates were about two percent lower than those of the United States. What’s going on? Everyone’s lying to each other. If you’re working for a subunit of an enterprise, you’re understating what you have and overstating what you need. It’s not a market system with price signals. This is all about the plan.

28:18 And then you get whatever inputs you get from the plan, and the plan is aggregating all the lies. The higher up the food chain, the worse the data is, so that the Soviet government has no idea what actual production is. It has no idea what actual productivity is, and it can’t figure it out. You’re not using markets and prices. Massive misallocation of labor goes unnoticed until it is catastrophic.

28:53 To give you a sense of these misallocations, the Soviet Union was the world’s largest importer of grain. It’s using scarce hard currency for agricultural imports. You can look at what happens to GDP — we’re into a spiraling mess, so that from Gorbachev’s reforms to when GDP hits a trough in Russia in 1998, you see this enormous decline. If you look at Soviet statistics on deficits, they suddenly explode, and then GNP growth goes double-digit negative.

29:41 Marshal Yazov, here’s his take: “We simply could not sustain the arms race any longer. We had to find an alternative to the arms race.” Anatoly Adamishin said: “The real reasons for perestroika were internal, not external reasons — this monstrous arms race, militarism, enemies everywhere.” Gorbachev told the Central Committee, “Look, we’re encircled not because of enemies but because of our own policies.” He often told people, “Living this way is unsustainable.”

30:31 So you can make a powerful argument that it’s the economy that did the Soviet Union in. This gentleman, Alexis de Tocqueville, is relevant here. He wrote about the last days of the French monarchy before the French Revolution. He also wrote Democracy in America. But this one’s from the one about France, where he observed: “The most dangerous moment for a bad government is when it begins to reform.”

31:05 All of these counter-arguments agree on at least one thing: Gorbachev’s role in how the Cold War turned out was pivotal. Gorbachev made his decisions based on several false assumptions. One of them was the irreversible march of history. Gorbachev thought of history going always forward toward socialism. Of course, Eastern Europe took a U-turn, going back to capitalism. Here is Leonid Shebarshin, who is a senior KGB official. He said, “The thought never occurred to anyone that countries would choose to withdraw from socialism.”

31:48 If you look at how imperialism works in practice, the metropole is usually richer than whatever all the colonies are, right? But people in Eastern Europe as a group were more prosperous than Russians. It was like a donut empire. The center was poorer than the edges. So when Russians could no longer siphon off the wealth of the periphery, it was the periphery that wanted to leave, which explains why they wanted to leave.

32:26 Another false assumption has to do with blame. Gorbachev was convinced he was going to get credit rather than blame as a Russian for liberating Eastern Europe. For Gorbachev, the clock began on his watch. Lenin’s problems started when he started shooting a lot of people. A foreign policy adviser to Gorbachev said that giving freedom to our Eastern European satellites would earn us gratitude. “He made an enormous mistake because these countries hated us.” Really, if you shoot people and siphon off their wealth, they don’t like you? And then it gets better: “The politics in Eastern Europe were totally unexpected to us.” Really? You shoot a lot of people in their countries, you siphon off a lot of their wealth, and you wonder why they don’t like you.

33:47 Gorbachev believed that if the Warsaw Pact, which was the Soviet alliance system, disappeared, then NATO would disappear. And if the Comecon, which is their trading organization, went away, then the European Economic Community would disappear. He failed to distinguish between institutions that are coercive versus those that are voluntary. And then Gorbachev also assumed that the United States would never want a strong unified Germany, let alone a strong unified Germany in NATO.

34:34 Gorbachev is off taking a vacation. Meanwhile, President George Bush Sr. and Chancellor Kohl are working out unification of a fully sovereign, NATO-member Germany. So many of Gorbachev’s closest supporters turned on him. They said, “Look, his foreign policy mistakes were catastrophic. They destroyed the Soviet Union.” Vladimir Lukin said: “Gorbachev was no Deng Xiaoping.” And: “The stupidity of our leaders caused this.” So the big bozo was playing with plastic explosives. It was not suicide on purpose — it was by mistake.

35:40 Lukin continued: “If people in the West realized that everything took place so easily and cheaply, they would not have paid what they did. In retrospect, it was expensive.” But you could argue the time to negotiate was running out.

35:57 Here’s a completely different analytical framework. I’ve been giving you sins of commission, and now I’ll give you sins of omission. It’s useful for other things. Some would argue that the Red Army refused to do what Deng Xiaoping ordered his army to do — roll tanks over civilian demonstrators. In China, the Communist Party is still in power. So there are some people who believe that if the Red Army had cracked down — my contribution to military acronyms — it would have preserved the system.

36:44 Others would blame the great men. And they wouldn’t be picking on Gorbachev. They’d blame Yeltsin. There are two big pieces of evidence. First, Yeltsin pushed through the removal of Article 6 from the Soviet constitution, which guaranteed that the Communist Party had a monopoly on power. And then in addition, he gets together with the heads of Ukraine and Belarus and dissolves the Soviet Union. So it’s his fault — suicide on purpose.

37:35 So I’ve given you internal explanations. Now I’m going to give you some umbrella explanations. They come to opposite conclusions. One says any of the above made it inevitable. The other says that no, it took all of the above — the West barely squeaked by. You could argue with this many serious problems, it was just a matter of time before the Soviet Union collapsed. The Soviet system contained the seeds of its own destruction precisely for the reasons the West didn’t like it.

38:26 By this way of looking at it, you have people like one Russian official saying, “Look, the main reason for the collapse of the Soviet Union was the system itself.” Then here’s a journalist, Teimuraz Stepanov, who said “the seeds of disintegration were contained in the genetics of the system.” The opposing view says, “No, it took every single one of these factors.”

39:12 Back to Anatoly Kovalev, the deputy foreign minister: “All these factors merge — internal, ideological, economic, military, external. You remove any one of them and the outcome changes. Maybe the Cold War ends, but it ends differently.” So by this line of reasoning, the West barely made it.

39:40 One can take this last argument further. It also took the confluence in time of three exceptional leaders: Helmut Kohl of Germany and George Bush Sr. of the United States — not the son who got into those forever wars, but the dad who didn’t. Bush Sr. had one of the most impressive resumes of any person ever to become president. Really young, he’s a war hero in World War II. He did it. Then he comes back and he gets a degree from Yale. Then he becomes a representative for his district in Texas. He’s a millionaire in the oil business that he started. Then he’s ambassador to the United Nations, followed by US representative to the PRC, then CIA director. So he’s the guy who’s setting up the China card. Then he is Ronald Reagan’s understudy for eight years as vice president. He is incredibly fit for the job.

41:07 Helmut Kohl is the longest-serving chancellor in German history since his predecessor Otto von Bismarck. He studied history and political science, then worked his way up through state government. He becomes chairman of his political party for a quarter of a century. And he’s going to buy up East Germany one piece at a time.

41:23 Germans, it turns out, really like to travel. People in East Germany could travel to other parts of Eastern Europe, but could not easily travel to West Germany. Why? Because they wouldn’t come back. But all of a sudden, East Germany needs cash. You might ask why, and the answer would be money. East Germany was an economic mess of their own making. Honecker, who got the boot at the very end, his strategy from 1971 is that he’s going to live off debt. He kept the standard of living available and consumer benefits available by doing a lot of borrowing, particularly from West Germany. Long-term, by the time you get to the end, even to even out the accounts, it would be a 30% cut in living standards.

42:34 So he really needs the pocket money from West Germany. So what Kohl does is a brisk series of financial transactions. What he does in return for allowing East Germans travel rights, he pays East Germany several hundred million Deutschmarks extra. He gets the Hungarians to open up their Austrian border, and he gives them a half a billion Deutschmarks.

43:16 When Kohl introduces his 10-point unification plan to get both Germanys together — this is when he has leverage because Gorbachev’s economy is unraveling and he’s desperate for cash. Kohl provides food shipments, especially in meat, for the Soviet Union. Nevertheless, the unrest just keeps on going.

43:50 And then you wind up with a West German takeover, because the situation in Russia itself is unraveling. Bush and Kohl get together and they decide they want to really push this forward — they’ve got to get it done before this unraveling goes further.

44:13 So they have got a game going. You need to understand the obstacles. Gorbachev was dead-set against German unification. He’s not really keen about a united Germany in NATO. The US State Department experts advised to go slow on this unification business. There are people Bush cannot fire. One of them is his foreign minister, who is cautious about Germany being part of NATO. Even Britain and France, who had talked a good piece during the Cold War, didn’t actually want German unification. Why? Because that unified Germany beat them in two world wars. They didn’t want that to happen.

45:09 Kohl is going to reassure the Soviet Union that a unified Germany will not be belligerent. He pushes for rapid unification because the Soviets are desperate for cash — their economic leverage depends on national power, precisely because their military power is declining. Whereas the West Germans can put Germany on the West German Deutschmark, which means they have the money and they will control decisions.

45:43 Meanwhile, Bush is supposed to work the alliances and manage the international diplomacy. There are all sorts of conferences. Bush’s job is to delay those meetings so that the momentum for unification can proceed as far as possible. Meanwhile, Gorbachev can’t resist the diplomacy because his economy has got these double-digit shrinkage rates. Each day that passes, the amount of money you pay Gorbachev gets bigger.

46:24 Then it’s to get a unified Germany into NATO. So here’s how the money goes. Gorbachev agrees to various steps in exchange for hundreds of millions of Deutschmarks. Five billion Deutschmarks for permission for Germany to choose its own alliances, i.e. whether or not to join NATO. Plus a trade agreement that Gorbachev really wants.

46:56 So we’ve now done the financial side. There’s a London Declaration to coordinate more closely with NATO. There’s a G7 summit meeting that’s going to provide aid. And then Gorbachev agrees to final terms.

47:16 At this point, even bigger things are happening. Germany has to deal with the Polish border issue. At the end of World War II, Poland was shifted to the west, and it winds up taking a third of what had been Germany. So the Germans don’t really like the Polish borders. In addition, there were 12 million Germans expelled from these territories. German-Polish borders are set as part of the deal. Done.

48:11 Complicating everything, just as the unification treaty is being signed, Saddam Hussein decides he’s going to invade Kuwait. He’s had a long war with Iran, huge debts, many of them owed to Kuwait. So if you invade them, that solves that problem. Plus Kuwait has massive oil fields, and together that would make Iraq the dominant oil power. The Russians are more than willing to cooperate with the US on this, because Gorbachev really needs more money. Russia supported a UN resolution on Kuwait, but not with regime change in Iraq. Iraq was a huge debtor state to the Soviet Union.

49:50 Shevardnadze’s aide said they worked out a division of roles. The Americans provided the military power. “When the Americans wanted support at the UN, we told the Chinese, ‘Think about it. Doesn’t it suit your interest to funnel everything through the UN?’” And the Chinese came around.

50:20 Here’s Anatoly Kovalev again on the red line: American troops stay out of Iraq proper. Don’t tank the termination of the Cold War. If you wonder why the ground war stopped so quickly, that’s why — the big thing is war termination of the Cold War, and Kuwait was a minor event. Sorry, but it was.

50:50 For the reunification of Germany, France and Britain were against it. Francois Mitterrand eventually found solace in deeper European integration. He plays a really important role in concluding the Maastricht Treaty. But Margaret Thatcher just plain lost. She said, “Germany will be the Japan of Europe” — I guess she hadn’t been to Japan lately — and “Kohl will achieve through money what Hitler couldn’t get in war.”

51:38 But Bush and Kohl worked around all of them. They were very careful never to humiliate Gorbachev. Why? Because they knew that if they did that, he’d be overthrown. Also, they were afraid that if they did that, the hardliners would intervene more aggressively than they actually did. Those extra 20 years before Putin started consolidating his power — Europe needed those 20 years to integrate the former Eastern European countries into the West so that the cement could set. So they bought them 20 years to do this.

52:33 Bush never got credit for his essential role. He lost reelection because the economy tanked. So on who won and why the Cold War ended, Anatoly Adamishin said, “Look, it’s difficult to deny the Soviet Union lost the Cold War.” And Edwin Meese, who was a counselor to Reagan, summed it up: “The Cold War began because of Soviet policies and it ended because of American policies.” The Nobel Prize Committee agreed. They gave Gorbachev the Peace Prize for his role in liberating Eastern Europe.

53:30 So there are many, many explanations of why Russia lost the Cold War. I hope I’ve shown you it’s a much more complicated answer than, “Well, Ronnie did it.” Anyway, thank you for your attention. Sarah, thank you so much for doing these.

53:55 [Dwarkesh] I feel like the more important question might be the more important thing — the question of why the Soviet Union collapsed when it did. Why a system that was so centrally planned, so brutal, a colonial land empire, how such a country lasted for 74 years. I feel like that’s the thing to explain. How did this regime last for 74 years?

54:22 [Paine] There are plenty of countries on the planet that have been dysfunctional forever. To me, the answer to that one in a nutshell is: of all countries that should fall, a place like Argentina should fall. It was one of the richest countries on earth and used to be the richest in South America. These authoritarian regimes are really good at destruction. In order to educate someone, it takes years per person and then you get them educated and then they’re productive. It takes seconds to assassinate them. Dictatorships are about coercion and destruction. Destruction is so easy. It’s a sad part of the human condition.

55:10 In the case of the Soviet Union, they had the Gulag system. That’s what Stalin was using — forced labor. So you want to monopolize information so that people don’t know the alternatives. And then they have a whole bunch of people who are benefiting from the system. You make sure you pay all of them off. Masters and slaves, serfs — we humans have been doing this for millennia. So dictatorships can certainly persist.

55:55 But the Soviet Union was special in that by the late 1950s, it was approaching half of America’s GDP — this incredibly dynamic economy. Growth rates were impressive, so much so that prominent economists like Paul Samuelson were predicting, based on what they were seeing at the time, that the Soviet economy would surpass America’s. This is just quite surprising.

56:35 If you just think about how central planning works — the government decides how much steel you can make and which company gets how much of that steel. You have hundreds of millions of decisions to make. It’s actually quite shocking that central planning worked as well as it did after World War II for decades on end. Essentially, it’s a wartime economy. You put all your money into having a big military and the heavy industry to support it — as being a big power. Most countries in wartime use rationing and price controls. The Soviet Union just kept the wartime economy forever.

57:30 [Dwarkesh] I wonder if one thing that’s going on is that you have economies which are much simpler to plan when you’re just doing heavy industry. If you just have heavy industry — steel, concrete, fabrics, coal — that’s simpler than centrally commanding what SaaS products to make.

57:55 [Paine] Oh, yeah. It’s interesting. The communists have insisted on heavy industry over the consumer goods. If you look at other countries that developed successfully, like Japan and the Meiji Restoration, they start with light industry — textiles. Then they move into heavy, but they’ve already got the light industry up and running. The Soviets skipped straight to heavy. They do, by all means, get heavy industry. But the starter program of basic standard of living never happened. If you just look at who’s rich and who’s poor, the consumer goods tell you a lot.

58:50 There’s also the fact that the centralized regime locked into heavy industry for a bygone era. Americans talk about the rust belt collapse of manufacturing, the hollowed-out manufacturing base. But at least the US economy as a whole shifted to services and technology. The Soviet Union’s entire economy became a rust belt. And it gets more exciting than that. They missed the plastics revolution. Now we’re finding we have too many plastics, but they were missing that critical material entirely.

59:35 Then they totally missed the semiconductor revolution. This plays into Ronald Reagan and SDI. We’re putting these chips and things into smart weapons, and they can’t do that. And that’s a problem.

1:00:00 Before preparing for this lecture, the overwhelming impression I got from the scholarship was that the Soviet Union was able to sustain itself largely through its Siberian oil wealth. By the late 50s, Soviet growth rates were already declining from the postwar boom. Then they discovered massive oil fields in Siberia. I think 80% of the Soviet Union’s hard currency came from oil and gas exports. They use this because central planning can’t produce consumer goods efficiently. They use this to import a bunch of stuff to feed their population, to subsidize Eastern Europe.

1:00:50 [Dwarkesh] Do you think that if the Siberian reserves weren’t discovered, the Soviet Union would have collapsed 30 years prior?

1:01:00 [Paine] Certainly it would have been a reduced thing. They couldn’t do all the Africa program and things. The gas that gets pumped to Europe was a big deal. They made those big investments and that was a big deal because they needed help from Western companies for the pipelines, compressors, whatever it is you need. But anyway, they had built a lot of it and when they got all the revenue, whatever the oil wealth was, they spent up to the hilt. When you have money, you spend it. Forget about rainy days.

1:02:00 There was a period when Putin was popular because oil prices boomed. So if you look at why Russia’s economy recovers from 2000 to 2008, oil goes from $25 to $140 a barrel. This goes to the point about how we give credit to leaders for what are often just long-run macro trends. When the Soviet Union collapses, Soviet living standards — Russian living standards — decline for almost 20 years. It is just unbelievably difficult because of the way communist central management works: in order to maintain control over manufacturing, you distribute it all over the place — you build some plane parts here, some plane parts there. So when the empire goes, great, I’ve got a wing, but where do I get the other parts?

1:03:00 When Putin suddenly has a lot of money from oil, people’s lives improve because initially there’s plenty of money. So of course they like him. But then that runs its course. And then he’s got this mindset of wanting to get the empire back.

1:03:30 Speaking of the empire, Russia’s former satellite states seem to recover in this gangbusters way after the collapse. Even Poland today is such a big success story. How did these other countries recover so fast? Well, they had always been much more developed. Czechoslovakia before the war was a full-up highly industrialized economy. Poland, I believe, is where Copernicus is from. It’s a center of the Enlightenment. It’s fascinating.

1:04:30 When the Soviet Union is imploding in ‘89, Eastern European, particularly Polish, leaders come to the West and say: “Our banking system, we know it’s a mess. We need expertise to help us figure out what to do.” And Bush is all over that. He connects them to the private sector who would also be all over it. So as a result, you do have them really getting help.

1:05:00 At the same time, when Bush would have loved to do the same for Russia, the Russians didn’t ask for help in the same way. There were people like Jeffrey Sachs and others who tried, but it was not remotely the same thing as Poland requesting this advice. Basically, the Russians thought they knew everything. This is all the unknown unknowns, the things they didn’t know they didn’t know. Truly, economics is a blind spot for the Soviets. Russia doesn’t have this commercial tradition, being tied to land routes and away from all the sea routes for trade.

1:06:00 Think about the Eastern Europeans. You see them on the streets already buying and selling, already learning about commerce. We just take this knowledge for granted. That commercial instinct was not as much absent in Eastern Europe as it was in Russia.

1:06:30 [Dwarkesh] Before we get to the period of Russian collapse, Gorbachev starts instituting these economic reforms. But what I find mysterious is that those economic reforms, rather than improving the situation, seem to make things dramatically worse. You would think that reform, even if it’s handled badly, might at least stabilize things. But here it just causes this huge collapse. So why did reform have this backwards impact?

1:07:10 [Paine] Part of it, I think, is because Gorbachev wanted to liberalize the political system at the same time as the economy. As a human being, that would be the thing that you’d want to do. But he’s an A-list member of the Communist Party — astute at political maneuvering. He’s giving away political power before he’s delivered economic results. China’s conclusion is there is no way they are giving up political control. They’re going to hang onto that and then deal with the economy separately.

1:08:00 [Dwarkesh] If you do inherit a brutal regime, what should you actually do? You know this dynamic that de Tocqueville pointed out — that when you start to reform, what actually tends to happen is that you lose control.

1:08:30 [Paine] This is so far above my pay grade. I have trouble justifying a B+ on a paper. But I would say do it incrementally. For the Soviet Union, that would mean working through their Duma slowly and do it that way. Of course, Russia has many, many experts that would say they need fundamental reforms, that Russia would cease doing their number on Ukraine, and should pay reparations for the horrors they’ve inflicted. There’s no nice ending for Russians.

1:09:30 Europe itself is improving its institutions rapidly. If you think about what forces you to improve — competition does. This is forcing European countries, if they survive all this, to get better at governance. But we don’t see a similar process in Russia.

1:10:00 I do think these are interesting lessons here. In the United States, we have this thing of “Well, just reform the whole system.” Whenever we understand the complexity of our own systems — for instance, in the United States, healthcare is 20% of GDP. Nobody could just come in and say “we’ll fix it.” We recognize that this is a wildly complicated system. But then we have this expectation that in Russia, where everything is broken, they should just fix it. It’s American hubris in action.

1:11:00 Think about our tax code, which should be the real thing we reform. Every single line of the tax code is there because someone negotiated that wording exactly. So much of the economy is taken up by the overhead of all the complexity. There was years ago when there was talk of doing a flat tax. You can imagine what accountants thought about that.

1:12:00 [Dwarkesh] There’s a very interesting argument about North Korea where the author points out that North Korea can never do Chinese-style reforms today because as soon as there was some opening — which North Koreans could see across the border — they would realize everything the government has told them is false.

1:12:30 [Paine] That’s the Eastern Europeans’ experience exactly. A country that was bisected in half — East and West Germany — had that exact dynamic. In those situations, the leadership has to maintain total control to the extent that they want to keep power. There’s a belief in parts of Asia that dynasties last for three generations and then they lose the mandate of heaven. Whether this is true or not doesn’t matter — it’s a self-fulfilling prophecy. I’ll be interested to see what happens to the Kim family.

1:13:10 [Dwarkesh] One more question about oil. During this period between ‘73 and ‘85, when oil prices were high, presumably there was some amount of exuberance. They’re super fragile to the price of oil going down. Was there any kind of contingency plan, some rainy day fund?

1:13:40 [Paine] There was this long chronology compiled by analysts that showed how much the Soviets spent every year. It was huge. But in their analysis, there was no sense of investing in something productive. There was consumption and another thing called investment, but they’re basically the same thing — going around and spending money. There’s none of this being put into productive assets. So to the question you’re asking: no, they had no rainy day fund.

1:14:46 [Dwarkesh] Final question that’s not about the Cold War directly. I don’t know if you have a reaction to this. Just look at Russia’s history through the 20th century. From the Tsars to revolution, to collectivization, to more than 10% of the population dying in World War II, then back to Stalin, and then more communism, and then collapse. Especially if you look at the satellite states — they had terrible histories too, because they’re getting invaded. Whereas you look at other countries that had tragic histories, but then they recovered. It’s uniquely tragic.

1:15:30 [Paine] Yeah, you’re lucky you’re not Russian. No, it is tragic. It started out as a land empire that required certain things to survive. They did survive. In a previous lecture, I discussed how they conquered entire princely states and Khanates. Then you’re using their elites to run the empire. The problem is if you aren’t on the winning side, it’s terrible.

1:16:00 But since the Industrial Revolution, where you get your wealth from commerce and trade and industry, national power becomes a function of your wealth, institutions, and stability. Russia has this very difficult historical legacy. They didn’t have the Renaissance, they didn’t have the Reformation — things that were very influential in the West. They had a lot of things that didn’t happen. Then people like Putin can set the clock way back. What he’s done will take a generation to undo. Russian talent is going to be fleeing from Russia for quite a while.

1:17:00 I remember being in the Soviet Union in 1988. One of my classmates had been an English teacher. He set me up with his friends because the only thing they wanted more than anything else was a VCR player. You could only buy it at the diplomatic store. So I ended up going to the diplomatic thing with my passport and bought an overpriced VCR for them and got months of meals in exchange. Because for a meal, I would talk English for an hour. But it meant that they could all watch Western movies. There are things in movies where there’ll be a scene in a supermarket — the fruit section of the Berkeley Bowl — that was unbelievable.

1:18:00 I think that Raisa Gorbachev, when she visited the West, must have realized that a welfare mother on food stamps lived better than most Soviet citizens, just by being able to have access to Walmart. I have no statistical data on this, but comparing my experience getting sour cream in a jar — you had to bring your glass jar with you so they could take a filthy ladle and fill up your jar.

1:18:30 Let me tell you about the things in a Soviet supermarket. There were 74 items total in this supermarket. Think of that compared to a candy rack as you leave a 7-Eleven. The smell just about knocked you out — rotten produce everywhere. Russians are good at making borscht.

1:19:00 I had to pay hard currency for bones, because I couldn’t get beef. Then I would buy Russian black bread, which they produce well. Then you’re starting to get rotten apples. Russians didn’t even produce apples in sufficient quantities. The Romanians provided the canned tomatoes, Bulgarians provided other things. But you’re talking about Moscow, the showcase. I remember buying potatoes at the market and they’d be half rotten. So you’d have to cut those out. Whatever nutrients are in the rest of that potato…

1:19:40 I remember going to the candy store and it was like a food item. At this point, I bet you were wondering why Napoleon didn’t defeat Russia so you could just visit Paris instead.

1:20:00 [Dwarkesh] Having 74 items is interesting in two ways. One, it’s such a small number. But two, it might be that central planning works better when you have a much smaller amount of items to optimize over. It’s hard to compare between the Soviets and the United States when you’re comparing a rotten potato to the Idaho ones that you can get at any supermarket.

1:20:30 [Paine] Exactly. You said you were there in ‘88 and ‘89. I was watching the Tiananmen Square demonstrations on television in Moscow. The only reason you got that TV coverage was that Gorbachev was visiting Beijing. So all the press was there. And they stayed on because the students were demonstrating. The Chinese government wasn’t aware of the power of television.

1:21:00 [Dwarkesh] But did people realize that they’re watching the complete dissolution of the Soviet Union?

1:21:10 [Paine] No. There was such optimism of thinking we’re going to reform this and it’s going to be wonderful, with no sense of the enormous difficulties ahead. To create the wealth in this country, a lot of people had to know a lot of things. And the Soviets just didn’t have that knowledge base. Sure, the kids who became the ballerinas in the Bolshoi were highly trained. But as an economy as a whole, they didn’t have any inkling of all the things that are missing. Great, you got Marx and Lenin, but not the right education for building a modern economy.

1:22:00 So around this time is when people are finally learning about the horrors of the Stalinist period. So people are optimistic that with a new generation of leaders and glasnost, maybe things will improve. But they’re also horrified by learning about how terrible their history actually was.

1:22:30 [Dwarkesh] Through the ’90s they must realize that things are getting worse. So what is the psychological response?

1:22:45 [Paine] I don’t know, because I wasn’t living there. But I think there was a lot of optimism among intellectuals — “We have the freedom to really understand our history and our world.” This is for educated people, people with college degrees in Moscow. What’s going on in the rest of the country is much worse. As bad as living in Moscow was, living in the provinces was far worse.

1:23:30 And then there was this feeling that the West owed them. “You now owe us to fix everything.” And the Western response was, “No, you are an enormous migraine. You’ve been causing problems across the globe for decades with this nonfunctioning system. And now you want extra aid.” There was some aid, but the West wasn’t going to be as receptive as Russians hoped.

1:24:00 The Bush administration recognized that if we dumped a lot of money into Russia without the right institutions, it would be wasted. You need a legal structure in order to place investments. There’s nowhere to put the money without rule of law.

1:24:30 During the Cold War, the Soviets and the United States were competing for influence over Third World countries. This was a tete-a-tete competition. But one thing that doesn’t get enough credit is the fact that liberal capitalism was more attractive. The economic miracles going on in Japan, Korea, Taiwan, Singapore, Hong Kong — all demonstrated that the Western model worked. And when the Cold War ended, all of a sudden civil wars stopped getting fueled by the two superpowers. Tens of millions of people died in proxy wars. When you end that, all of a sudden these countries can develop.

1:26:00 But there is a problem. In order to beat off communist factions in civil wars, we had to support other dictators. The thinking was that our dictators were better than the communist alternative. And that may have been true given how terrible Stalin and Mao were.

1:27:00 [Dwarkesh] You had a more optimistic take on the post-war period.

1:27:10 [Paine] The people who had survived World War II, including American servicemen and women — they came back and they were a very different generation. The GI Bill was enormously generous to them. Therefore we’re going to give you college education. Not to African Americans, they were excluded — but white Americans got massive opportunities. Many of them were the first to get a college education in their family. There was real optimism.

1:28:00 This is when this country was tremendously generous. Think about the Marshall Plan. It looks really generous, but we made a fortune off of it, as did Europe. It was one of those win-win situations. This is basic strategy. This is one reason to worry about the United States’ turn to zero-sum approaches. It’s much smarter to create situations where everyone benefits.

1:28:40 The other piece is that George Bush is not reelected president. He lost because the economy was weak domestically. But the payoff was huge — ending the Cold War peacefully. But it doesn’t pay off in the next election cycle. I think this is where Americans miss it. We focus on a given day when the real implications of policy are long-term.

1:29:20 Like on tax policy, if we keep racking up our debt, is it going to back us into a corner later on? We need to think harder about long-term implications. German unification cost 60 billion Deutschmarks for West Germany to absorb East Germany. That’s a lot of money. But if you calculate the long-term growth, it’s a huge bargain. That’s how expensive things seem at the moment. There’s a statement that politicians think of the next election, statesmen think of the next generation. The leaders we’ve been discussing — Bush, Kohl, Gorbachev in his way, and the architects of the Maastricht Treaty — were thinking of the next generation. We need more of that.

1:30:30 [Dwarkesh] To try out a different thesis: through this whole period, the US is supporting other countries, especially when oil, after the 1973 crisis, makes the Soviets richer while hurting the West. And yet somehow the West prevailed.

1:31:00 [Paine] This is why some Soviet citizens looked at the oil wealth as a curse. Oil made it possible for the Soviets to not reform. During this period there’s actually a net export of wealth from the Soviet center to the periphery rather than the other way around. Their oil subsidies to allies were enormous. Whatever the oil wealth was, they spent up to the hilt.

1:32:00 [Dwarkesh] Here’s what I don’t understand about the arms race. The Soviet Union is spending 2% of their GDP on Afghanistan. Arms control advocates will make this quip about being able to destroy the world many times over. Why do we need so much? What was the point of spending so much on the marginal weapon system?

1:33:00 [Paine] But you read the plans about these things — we were trying to develop tactical nukes. Whoever deployed it would be within the blast radius. You’re going, “Who develops a weapon like that?” I don’t know the answer of why the arsenals were so massive. But consider Nixon’s China card — this huge diplomatic coup. The Soviets now have to garrison the Siberian front against China. Having one or two more years of extra military spending couldn’t make up for this huge diplomatic coup.

1:34:00 Firstly, I have real problems with the statistics. I was in Moscow. It was so backwards in just about every way imaginable. I get it, they make nuclear weapons. But do they work reliably? Their Ladas or whatever they were — the quality was so bad. It really is an Emperor Wears No Clothes situation. One day you realize, “Oh, you’re actually naked.”

1:35:00 These acquaintances in Moscow were educated people, and some of them didn’t have running water. I don’t even know how that’s even conceivable. I remember visiting someone who had cut themselves on a glass door and needed stitches. They got to the hospital, and they had no thread to do the stitches. Who runs a country like this?

1:35:30 [Dwarkesh] Okay, while the Eastern European satellites had revolted before and been crushed by the Red Army, what happens in the late 80s and early 90s that’s different? There’s still millions of Red Army soldiers.

1:36:00 [Paine] Generational change. The leaders who ordered previous crackdowns were gone. The new generation thought, “We’re not going to splatter all these people.” Gorbachev had traveled in the West. He had friends who, as young people in 1968, had watched as Russian tanks rolled into Prague and thought, “It’s just wrong. We shouldn’t be doing this. This is not what should be happening.” This was their formative experience. He reflects a whole generation of communists who said, “This is just not right.”

1:37:00 There’s this exuberance of the reforms — a tremendous feeling of energy. “We’re all going to do this thing together.” But there’s so much that Gorbachev is missing, that he’s unaware of, and how could he know? He didn’t have the information.

1:38:00 [Dwarkesh] This is the de Tocqueville question. If you do inherit a brutal regime and try to reform it, you risk losing control. What should you actually do?

1:39:00 [Paine] This is so far above my pay grade. But I would say do it incrementally through established institutions. For Russia specifically, there are no nice endings. Europe itself is being forced to improve its institutions by the pressures of competition. But we don’t know how long that will take.

1:40:00 I do think these are interesting lessons. We Americans have this hubris of thinking we can reform 100% of someone else’s economy while we can’t even reform our own healthcare system, which is 20% of GDP and neither party can touch it.

1:41:00 [Dwarkesh] There’s a very interesting argument about North Korea — that they can never do Chinese-style reforms because once the information gets in, the whole system collapses.

1:42:00 [Paine] That’s exactly what happened with Eastern Europeans. Once they could see what life was like in the West, the game was over. Dynasties in parts of Asia have a belief that power lasts three generations. Whether true or not, it becomes a self-fulfilling prophecy. I’ll be interested to see what happens to the Kim regime.

1:43:00 [Dwarkesh] One more question about oil. During the high-price period, was there any contingency plan?

1:43:30 [Paine] No. They spent every ruble they got. A chronology of Soviet spending showed that for every year, the spending was enormous. But in their analysis, there was no productive investment. There was consumption and more consumption dressed up as investment. No rainy day fund whatsoever.

1:44:30 [Dwarkesh] Russia’s history through the 20th century is just uniquely tragic.

1:45:00 [Paine] It is tragic. It started out as a land empire. Since the Industrial Revolution, where wealth comes from commerce and trade, Russia’s been on the wrong side. They didn’t have the Renaissance, they didn’t have the Reformation. Then people like Putin can set the clock way back. What he’s done will take a generation to undo.

1:46:00 Now let me end on a more hopeful note. Actually, I’ve told a story about the last Cold War ending well — which was a good thing for the industrialized world, because it ended peacefully. It was tragic in many other parts of the world, but it ended cold in the industrialized part. It was managed by a very thoughtful generation of people, not just Americans but Europeans and Russians too, who put together strategies to allow for a non-nuclear landing.

1:47:00 From this, you can derive some of the strategies we need in order to navigate the second Cold War. The Soviets were living miserable lives of their own making. Meanwhile, Americans were living fulfilling lives while they waited out the Soviet collapse. They paid taxes, they had to sacrifice. But as I recall, people are running their businesses, they’re buying houses, they’re taking European trips. If we’re going to make it through this second Cold War, we need to be building institutions and improving laws. We will get through this one too, and we will wait for Putin to come up with something different or for his successor to.

1:48:30 But if we blow through our good hand of cards… We are at the cutting edge of technology. If we mess up our immigration system, we aren’t going to have the intellectual talent pipeline. If we’re going to dump all our allies for short-term gain, and they organize without us… if we’re going to just blow through without thinking very carefully about what we’re doing… We become like the Soviets, putting a plastic bag on our own head.

1:49:20 The Soviets had this ancient leadership who just lived off of debt instead of thinking creatively. We don’t have to do it that way. We have enormous advantages, but we need to get our house in order. These are lectures in strategy to give people the background to make informed decisions. That’s your business, not mine.

1:50:00 [Dwarkesh] Sarah, I want to thank you so much. It has been a true education across these six lectures exploring the strategic and tactical decisions which explain the modern world. You’ve been among the most popular guests on this podcast by any measure of view-per-minute average-adjusted anything. If you just sort by popular, you’re at the top.

1:50:40 [Paine] But you’ve got it backwards. I was minding my own business and Dwarkesh cold-called me about doing an interview. I said, “Sure.” Dwarkesh, as a result of all this, my books are bestsellers. So let’s talk about who’s grateful to whom. Thank you for having me. Thank you for coming and thank you all for watching.