On July 1, East Germans lined up at some 15,000 special distribution centers around the country to exchange their old currency for brand new West German D-marks. There was much celebrating and much to celebrate. Not least, if we are to believe the "Statistical Abstract of the United States," because East Germans had just suffered a sharp reversal in their fortunes. The 1989 "Abstract" showed East German incomes at parity with West Germany. However, in the 1990 "Abstract," they dropped to less than two-thirds. Nothing actually happened; our statistics were simply catching up with reality.
Enter the house of mirrors: the Central Intelligence Agency trying to figure out the economic strength of what until just now were the rival blocs, East and West. But first, a note to the reader. If what follows is critical, please believe that in no sense is it meant to be accusatory. I will argue that for 40 years we have hugely overestimated both the size of the Soviet economy and its rate of growth. This in turn has persistently distorted our estimates of the Soviet threat -- notably, in the 1980s when we turned ourselves into a debtor nation to pay for the arms to counter the threat of a nation whose home front, unbeknownst to us, was collapsing. But I will not for one moment contend that this was intentional or even avoidable. On the latter point, I, for one, just don't know.
Here are the main numbers. At the outset of the '50s, the CIA estimates (secret at first, but later published) depicted the Soviets with a sizable economic base, about 350 billion 1980 U.S. dollars and a formidable rate of economic growth. This growth rate was consistently depicted as higher than that of the United States. Over three decades there is only one five-year interval in which the United States outstrips the U.S.S.R. For the entire period, the Soviet growth is shown at 4.8 percent, almost half again the American 3.4 percent. Investment rates were seen to soar, doubling in three decades to 32.5 percent, twice that of the United States and equal to Japan. In the mid-'70s, the size of the Soviet economy in relation to the United States was thought to have passed into the 60 percent range.
Soon, the whole of the Eastern bloc was booming, even as the economies of the European Community weakened. At mid-decade incomes were shown as almost equal. At $10,440 per capita, East German income was ahead of the West German $10,220. At this point estimates for the EC began to turn upward, and the CIA did detect trouble in the U.S.S.R. But at this point also we were broke -- a debtor nation. Based largely on the CIA estimates of the mid-'70s, President Carter began a huge defense buildup, which continued under President Reagan until 1985, when the defense budget turned down because we were out of money. It has, in real terms, declined every year since. But we are still out of money.
It is hard to say what happened. (The Senate Committee on Foreign Relations will hold hearings.) There could well have been, and understandably, a political bias against underestimating. This ''series'' began, after all, with Stalin still in the Kremlin. There may have been cultural biases. What American could imagine that 40 percent of the crops would rot in the distribution system? Hayek had told us about places without prices, but who had ever been in such a place? And then there were the Soviets themselves. When in 1961 Mr. Khrushchev told the world that they would outstrip U.S. production by 1970, he was surely not lying. That surely was what the Central Statistical Administration had told him. And so on.
There were skeptics. I can recall in 1962 Walt W. Rostow, then head of policy planning at the Department of State, remarking that he was not one of those ''6 percent forever types.'' (The CIA had estimated Soviet growth for the period from 1956 to 1960 at 5.9 percent, U.S. growth at 2.3 percent. At 5.9 percent, the Soviet economy would double in size in just over 12 years. These were the ''facts'' President Kennedy's planners had to interpret.) Yet, there were, and are, few Rostows. Jack P. Ruina, Kennedy's head of the Defense Advanced Research Projects Agency returned from Moscow describing his Russian hotel and asking what midsummer madness made us think that behind the 15th century facade there was a surging 21st century technology. But there were few Ruinas also.
In any event, most everyone now seems to agree with the Swedish economist Anders Aslund that the Soviet Union should be thought ''a reasonably well-developed Third World country.'' If the CIA estimates had been correct, he continues in the recent collection, "The Impoverished Superpower," ''the Soviet economy would be a maturing industrialized economy, as was stated in the American debate not long ago.'' We were, well, wrong.
There is no reason to think we overestimated the size of the Soviet military. You can count tanks, and mostly they don't spoil. But we had no idea that the Soviet defense burden was unsustainable. Robert B. Hawkins Jr., no dove, writes:
"Soviet national income, generally thought to be about half that of the United States, is, in fact, less than a third. That puts the Soviet military burden at as much as 25 percent of GNP, compared with the U.S. burden of around 7 percent. The implications are stunning. . . ."
Now then. What else are we getting wrong?
The writer, a Democratic senator from New York, was vice chairman of the Select Committee on Intelligence from 1977 to 1984.