I entitled my 2006 Sir Ronald Trotter Lecture "The Battle of Ideas: Economics and the Struggle for a Better World" for the simple reason that I believe much of the horrific suffering experienced throughout history and in the world today is a consequence of bad ideas. As I have admitted repeatedly I follow the simple line of argument that bad ideas lead to bad policies, and bad policies lead to bad outcomes. I don't say that most bad ideas are accepted because their proponents want the bad outcomes. No, the "badness" judgment results from a critical engagement with the ideas and their experience in action which recognizes unintended and undesirable consequences. Public choice analysis certainly has a major role to play, but in my intellectual framework only after we have exhausted explanations from pure intellectual error (means/ends analysis) a few times first. Socialist and interventionist means are ineffective (or incoherent) with regard to the ends sought (peace, progress and social justice). However, if untold suffering and injustice for the masses and enrichment of few political elites was indeed the desired end, then socialism and interventionism may in fact be effective. I must admit that after the policy experiences of the 20th century with socialism and interventionism and the continuing poverty in Africa and political turmoil and social tensions elsewhere (including the region of the former Soviet Union) I have a hard time understanding why others don't see the causal argument from bad ideas to bad outcomes clearly.
That perhaps mistates my confusion. I am more confused as to the debate over what is a good or bad idea in the realm of economics and public policy. Naomi Klein's The Shock Doctrine: The Rise of Disaster Capitalism places blame for most of the world's problems on global capitalism. There are no unintended consequences in her story, bad things happen because bad men want them to. Capitalism unleashes the opportunistic side of humanity and the powerful and the wealthy exploit every advantage to their benefit as the expense of the less fortunate.
In today's NYT Book Review, Joseph Stiglitz reviews Klein's book. He titled his review "Bleakonomics", which may in fact lead readers to believe that Stglitz would chide Klein for her overly pessimistic view of capitalism. However, that would be an error of optimism on the part of the reader. Stiglitz doesn't exactly endorse Klein's analysis, but he repeats without challenging her claim that Milton Friedman shares responsibility for Pinochet's crimes against humanity. Friedman (and Hayek for that matter) had no official advisory role in Chile and it is time that this false charge be dropped. Friedman's account can be found in Two Lucky People (p. 398ff). He went to Chile for 6 days for a series of talks given to representatives of the public, government officials, members of the military, students and faculty. The main topic was the problem of inflation and how to combat it, and only in talks to students and faculty did Friedman depart from the question of monetary policy to address broader themes of economic policy for a free society. He had one meeting where Pinochet was present, and it was conducted through an interpreter and lasted only 45 minutes. Friedman did not design any policies for Chile, nor was he a close advisor to the General. He spoke plain truth about monetary policy and the need to fight inflation, and he talked to students about the dangers of socialism and collectivism and the benefits of a free market economy.*
Why is it so important to maintain the myth that Friedman (and also Hayek, whose involvement with Chile is even less than Friedman's) share responsibility for crimes against humanity in the name of capitalism? And how come it is so difficult to straighten the Naomi Klein's (and for that matter the Joe Stiglitz's) of the world out on the facts. Neither Friedman nor Hayek ever held an official government position of economic adviser to the president or Prime Minister in the US, UK or anywhere else. Joe Stiglitz actually held very high positions of political power in the Clinton administration and at the World Bank.
But lets move to another point. Stiglitz actually argues that Klein understates her critique of free market economics.
Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies. But Friedman and the other shock therapists were also guilty of oversimplification, basing their belief in the perfection of market economies on models that assumed perfect information, perfect competition, perfect risk markets. Indeed, the case against these policies is even stronger than the one Klein makes. They were never based on solid empirical and theoretical foundations, and even as many of these policies were being pushed, academic economists were explaining the limitations of markets --- for instance, whenever information is imperfect, which is to say always.
This, of course, is vintage Stiglitz**, but it does give the reader the impression that a Nobel Prize winning economists is lending credence to the presentation by a journalist who attempts to demonstrate in no uncertain terms that for the past 50 or more years of public policy history the promotion of capitalism is linked with death, destruction, and deprivation. The only 'solution' is to be found in the empowerment of social democratic institutions of NGOs and civic engagement on economic policies. As Stiglitz argued in Whither Socialism?, he strongly believes that developments in modern economics (largely spearheaded by him) can serve the goals of 19th century socialism better than either Marxist theory or neoclassical market socialist theory. But what if not only Klein gets the historical record wrong, but Stiglitz gets the intellectual history wrong? Two wrongs do not make a right.
* Greg Mankiw discusses the ethics of advising, but in doing so he actually (I would argue) overstates Friedman's involvement with Chilean government. But he does make some solid points to start a discussion on this issue. Murray Rothbard addresses many of the issues raised by Mankiw in his essay "Praxeology, Value Judgments and Public Policy."
** See my Journal of Economic Literature review of Stiglitz's Whither Socialism? Also for a modern history of economic thought which challenges Stiglitz's interpretation see my essay "Where Did Economics Go Wrong?" Finally, for a defense of "shock therapy" not on perfect market grounds, but instead on credible commitment and institutional analysis grounds, see my Why Perestrokia Failed and Calculation and Coordination. And for an application and further development of that argument in the context of war reconstruction (as opposed to socialist transition) see Chris Coyne's After War.