I'm not very familiar with the Brezhnev era or later, but have been reading the biography [1] of Otto Wille Kuusinen, a Finnish communist revolutionary who fled to Russia in 1918 and rose to very high position within the Communist Party of the Soviet Union before his death in 1964. (Also infamous for being the head of Terijoki puppet government set up by Stalin in 1939 as the sole "legitimate" government of Finland.) By all accounts, he was a genuine revolutionary and true believer to the end, and so were most of the original revolutionaries of his generation.

Humans in general are exceptionally capable of justifying and rationalizing their actions or inactions; you may want to look up research on cognitive dissonance and how people deal with it. It would be extremely interesting to hear from someone more familiar with the Gorbatchev's memoirs, for example, on how the leadership personally felt about these things, but I have some info on how the problems were justified to the common people and I believe that many in the leadership believed their own propaganda. (Again - it's a way to make cognitive dissonance disappear.) In short, the propaganda engine framed the subject something like this:

Maybe the rich capitalists have more shiny trinkets, but the quality of life for the common people trapped in that "jungle of futureless society filled with unemployment, predatory lenders, floods, accidents, drug abuse, racism, and crime" sucks!

The text in quotes and the following passage are from a darkly hilarious book [2] by one Lauri Vahtre, an Estonian born in 1960, describing daily life in the Soviet system in a way that may shed light to the flavour of Communist thinking. The book is obviously biased and doesn't even pretend to be more than a personal reminiscence of someone who was anti-Soviet from a young age, but the examples are illuminating: take this one, for instance (my translation, pp. 62-63):

"Good is life in our country." This was one line in an elementary school songbook. That our life was so good we got to know from songs and newspapers. One thing I didn't understand as a child, however: if life in our country was so good, and in foreign countries, capitalist countries, life was so bad, then why there where it was bad there were so many beautiful things, and we had none?

Every now and then I was able to obtain some foreign catalogue or magazine. It felt incredible that all those things were freely available over there. Once the matter was discussed at school. The teacher then tried to explain to kids enchanted by capitalism the truth: that it is nothing like that in reality. Teacher knew that all those beautiful things were only for the rich minority, and ordinary workers in the West cannot buy anything and live in gross poverty. And that foreign countries seem to have material things aplenty, but only because most of the people cannot buy anything and items therefore remain in stores [note: advertising in the West and in Western magazines that managed to reach the Soviet public was explained to result from this - the storeowners were said to be desperate to sell when there were too many things piling up and people were incapable of buying them]. But here, in the Soviet Union, there are few things available from stores because the common people are so rich and have so much buying power that items do not remain long in the stores.

According to Vahtre, another example of the thinking that justified the economic disparity was the emphasis that no one was ever truly free. "Freedom" was defined as "recognizing the inevitable" and knowing one's limits: even though humans cannot fly like birds, once we recognize its inevitably, our lack of freedom to fly does not limit or bother us. This led to propaganda like the following (p. 93, Vahtre's somewhat cynical take and not actual quote from anything):

Even though the Soviet man may be feel limited by occasional and irrelevant lack of material things, the man of the West languishes under financial poverty, and that is much worse. He may have a car and a gas station may have gasoline, but he has no money to buy it. Surely, the despair is much worse than for a Soviet man, who has no car nor gasoline. And why would he need money, either, as he has no car nor gasoline.

In short, the entire (official) conception of how the society and the economy works and how they should work was very different from what we now take as granted. According to the internal logic of this economic thinking, these things were "true" in a very similar manner to how we now take many economic "truths" of our own system largely as granted, immutable and self-evident. In this sense, it is somewhat difficult to say whether the leadership was truly hypocritical or not: to us, not familiar with the economic (and political) logic and assumptions they were operating under, they certainly seemed to be, but according to their own logic, they may have been very genuine indeed.

I believe - and Vahtre says this out loud - that surprisingly many Party and state functionaries and even ordinary people believed to explanations like this to some degree, if only to avoid thinking about the uncomfortable and depressing reality. Again, there are surprisingly and perhaps uncomfortably many similarities to how people today tend to avoid thinking about certain peculiarities of our economic system, but I'm not going to climb any further into any soapbox here. This very different conception of economic system became evident once the Soviet system collapsed: there is a story of a delegation of Russian economic experts visiting London in early 1990s, where after the tours and presentations one asked, "this is all very fine, but tell me, who is in charge of delivering daily bread to the people of London?"

The economic experts could not yet wrap their brains around the fact that no one was in charge, that the price signal was ultimately what drew bread to the stores. Perhaps this was not surprising, since Marxist economic theory was fairly different, and because of more absurd reasons such as Stalin's insistence that natural sciences and social sciences should not be mixed, which led to mathematical economics being practically banned in the 1950s. (There was even an attempt to remove mathematics from statistics, as the latter was declared a "social science.")

However, Vahtre also makes it clear that the common people were generally far more cynical that the teacher above, and that the cynicism increased as time passed and it became evident that the Soviet system was not catching up with the West as promised - indeed, the gap between the living standards was manifestly increasing. Vahtre describes many functionaries, particularly during the Krutchev era, starting as idealists but becoming cynical over the years; some retained their idealism up to the very end (even beyond), but many more didn't. The system in effect bred and encouraged cynicism, as evidenced by another example recounted by Vahtre (p. 80):

When some important functionary answered to listener's questions in an All-Union radio program, he was asked, among other things, why children's stockings were not available. The answer was cynical: "What do you mean, not available? The Moscow main department store (GUM) has them always!"

(The trick here was, of course, that the state tried its best to keep the Moscow shops well stocked.)

When the system was manifestly unfair, as with special stores where only the members of the nomenclatura could shop (or even visit), the beneficiaries generally acted like humans generally do in such situations and did not consider themselves as hypocrites or opportunists; instead, they bought into a story that they were "the vanguard of society" and "the honor, intelligence and conscience of their generation." Therefore, the little privileges were only justified as a reward for their hard work. (I said I wouldn't soapbox any more so I won't.)

(Edited: formatting)

References

[1] Hodgson, J. (1974) Escape to Russia: A Political Biography of Otto W. Kuusinen.

[2] Vahtre, L. (2010) Absurdin suurvalta: elämää neuvostojärjestelmässä (The Empire of Absurd: Life in a Soviet System).

I'm currently reading Stephen Kotkin's bio of Stalin (great book, the footnotes are a must read), which covers the period to 1928. It seems apparent that the Bolshevik leaders (Lenin, Stalin, Kamenev, Zinoviev, Trotsky etc.) - at least through this time period - were what we would consider "true believers" in Marxism, in the sense that they generally acted in what they thought was the best interests of the working class (although none of them had any qualms about executions, torture etc. in the pursuit of those interests). All of them had endured long years of exile, boredom, arrests, beatings and opportunities for betrayal and personal advancement during their struggle against Tsarism, and emerged from this still committed to the goals and ideals of their party (Lenin, for example, received very large sums of money from the German government at various times and could conceivably have absconded with some or all of it had that been his goal).

This did not stop them, however, from enjoying what perquisites were available to the leaders of Russia - although they weren't really that impressive compared to what the Tsars had enjoyed. Stalin, despite being a member of the politboro, still had trouble securing a good apartment in the Kremlin, and used an illness as an excuse to acquire a daily chicken. Lenin did keep and maintain a collection of cars (including ones formerly owned by the Tsar) and had a personal chef (Vladimir Putin's grandfather), but his health precluded him from enjoying any of this, of course.

An interesting possible exception to this general trend was Yakov Sverdlov, who died in 1919. His locked personal safe was placed into storage, and when it was opened at Stalin's behest in 1935 it was found to contain hundreds of thousands of dollars worth of (mostly Tsarist-era) cash and gold, and several fake passports. In 1919 the Bolsheviks were by no means secure on the throne, so Sverdlov's stash may simply have been an insurance policy for the leaders in the event they were forced out of power.

Follow-up question, how did the Soviet and Eastern Bloc leadership rationalize (to themselves and to their people) the lack of economic success they experienced compared to the West.

I'm asking if any specific arguments were made, or how this apparent cognitive dissonance was overcome.