Jeff Sachs in 2012 -- From Critique of Libertarianism to Critique of Keynesianism

|Peter Boettke|

Back in January 2012, Jeff Sachs wrote an op-ed for the Huffington Post entitled "Libertarian Illusions", where he rejected single-minded ideology.  In December 2012, however, Sachs published another op-ed in The Financial Times arguing that "Today's Challenges Go Beyond Keynes" and in parts endorses Hayek over Keynes on the substantive analysis of the Great Recession.

Has Sachs been caught in a contradiction?

The answer to that question for anyone who studies Sachs's career and even these articles closely enough is a resounding NO.  Sachs is firmly committed to a middle-of-the road position.  In the late 1980s and early 1990s when he was known as the architect for 'shock therapy', what he argued was for the necessity of a market economy that was in fact embedded in a system of regulation and macro demand management. But at the core, it was still a market economy.  Sachs is in favor of an activist and robust regime of government intervention. But he also believes at the core of that system should be a market economy.  The market should be free to allocate resources whenever and wherever monopoly power is absent, externalities are non-existent, and public goods are not required.  But when these things are present, then the judicious action of the government are necessary to achieve the good society.  I think it is reasonable to say that Sachs would include in his list of market failures not just monopoly, externalities and public goods, but also macroeconomic instability and income inequality.  In short, Jeff Sachs in the quintessential "establishment economist" from the 1950s-1980s era.  Innocent of much of public choice analysis, and not that persuaded by the Chicago School "New Learning", though he does pay lip-service to some ideas from New Institutionalism (though not many) and he will nod to certain aspects of Hayek's argument about prices, knowledge and discovery.

Sachs is a very compeling person to read. He has a tremendous amout of real world experience to draw on, as well as a strong pedigree in the scientific discipline of economics as taught by the establishment sect (read Harvard-MIT) circa 1950-1980.  To use Mankiw's language, Sachs is the economist as engineer.

So it is very useful to see his latest turn, as the engineer has determined that the current approach is not the right path to fix our problems.

Read both op-eds, and lets discuss what we can learn from the distinction between the economist as scientist and the economist as engineer.  Can we, and what should we still be learning from Hutt's "Politically Impossible?"  If we are too be relevant, can we still push for a politics by principle and not interests as Buchanan argued? And how do you think Sachs would respond to such a distinction, let alone such an insistence?

Comments

[Mario Rizzo]

But did you noltice how "empty" his invocation(s) of Hayek was?

[Rafe Champion]

Great to have the whole of Hutt's book on line. He deserves a higher profile because he was one of the first to appreciate that the vote-buying motive was the Achilles heel of democracy, and also to demonstrate how the militant trade unions drive inequality and cramp wealth creation, in addition to undermining the rule of law. For a profile of his life and work...

http://www.the-rathouse.com/Revivalist4/RC_Huttachieve.html

[FC]

Every time I see someone invoking a supposed tradition of racial equality in labor unionism and the left generally, I want to reach for Hutt's "The Economics of the Colour Bar".

http://mises.org/books/colour.pdf

[Xerographica]

"Electoral propaganda for novel proposals is often of exactly the same nature. But a product which does not come up to the claims made for it will not be repurchased, whereas policies for which politicians may have made possibly extravagant claims, once adopted, cannot be so easily discarded." - Hutt

Taxpayers would not "repurchase" faulty government products...if we implemented tax choice.

"All of this goes to show that without the initiative that comes from immediate responsibility, ignorance will persist in the face of the meritorious efforts that are being made to go beyond presenting information and to teach the use of it by means of lectures, classes, discussion groups. Results are not zero. But they are small. People cannot be carried up the ladder." - Joseph Schumpeter

Close...but not quite "rational ignorance"...
http://en.wikipedia.org/wiki/Rational_ignorance

Speaking of Schumpeter...I added passages by both Nietzsche and Lachmann to the Wikipedia entry on creative destruction...

http://en.wikipedia.org/wiki/Creative_destruction

And the entry I created for concentrated benefits and dispersed costs is up for deletion...

http://en.wikipedia.org/wiki/Wikipedia:Articles_for_deletion/Concentrated_benefits_and_diffuse_costs

[McKinney]

Sachs merely shifted from Keynes’ short-run solutions to the Great D to Keynes’ long-run utopia in the back of GT in which the state directs all investment. So how different is Sachs’ proposal from the 5-yr plans of the USSR and communist China?

I doubt Sachs’ would see much use in the distinction between scientist and engineer. Engineering is just applied science. As for principle, Sachs’ clearly prefers pragmatism.

[McKinney]

Sachs' empty invocation of Hayek is a typical strategy of "middle of the road" people. They place themselves in what they perceive is a superior position by first portraying two ideas as extremes and then being about to see the good and bad in each. In other words, they are superior to the extremists and pragmatic, not ideological.

[Josh S]

I still don't understand why income inequality is supposed to be a bad thing. If it's impossible for my income to rise, why work harder? Why innovate? Why invest? Why develop my skills? Why study? Why do anything if I live in some ideal world where I'm just magically guaranteed the same income as everyone else?