|Peter Boettke|
Tyler Cowen and Jeff Sachs will have a conversation today at Mercatus about The Future of Development Economics. These "Conversations with Tyler" are a new featured event at GMU/Mercatus and I think they are going to be just fantastic venues for the exploration of ideas in a relatively high profile setting. My personal preference for the sharing of ideas is the more intimate setting of a graduate seminar or research colloquium. In fact, I'd say that some of my most lasting intellectual exchanges have been in the context of Liberty Fund style colloquia (such as one I attended years ago on Banking and Development) or in my teaching capacity in graduate seminars --- two such experiences that stand out in my mind are my class in Constitutional Political Economy where I had Chris Coyne, Pete Leeson, and Ben Powell in the class at the same time pushing and prodding me to challenge my own tacit presuppositions in political economy, and when I recently taught an Advanced Seminar in Economic Theory where we explored all the recent literature on knowledge in economic theory. Those kinds of conversations (one with others, the other primarily with myself) are best experienced in small and private settings.
But there is no denying that these Conversations with Tyler are potentially the signature intellectual public event for our research and educational community at GMU Econ and the Mercatus Center. Tyler is a uniquely skilled political economist and social philosopher and he knows how to ask beautiful questions.
Jeff Sachs has been a lightening-rod thinker since a very early stage of his career. He has by all measures had a brilliant academic career at Harvard, and he is known throughout the world as a champion of economic and political reforms to help less developed and transitioning economies. He didn't shy away from taking on "big tasks" as an economic reformer, and from the beginning of the transition from communism in the late 1980s to the lingering struggles of the peoples in Africa and Latin America Jeff Sachs has been there to try to ease the path from subsistence to a vibrant and thriving economic system.
I generally disagree with Sachs's recommendations, but it would be foolish to claim that everything he has pushed for was a "bad" idea, or that his efforts at implementation were all flawed.* This just isn't true. For example, a lot of the advice he gave to both Poland and Russia was actually not wrong. And neither was his first basic piece of advice to Bolivia about how to control their hyper-inflation. There is a lot to learn from Sachs, just as there is from Larry Summers --- not because one agrees with them 100%, but because they have been there and done that, and they are not bitter ideological warriors like Paul Krugman, but champions of a sort of consensus policy economics circa 1985-1990 which they have continued to work on and practice in practical affairs of men. It is a consensus that grants that market economies work better than government central planning, but that market economies require a set of supporting regulatory institutions and activist policy measures in order to operate as best as they can. This consensus truly is the "augmented Samuelsonian neoclassical synthesis model" of microeconomic market failure theory that requires intervention and regulation and macroeconomic instability theory that requires management and activist fiscal and monetary policy. It is critical to note here, however, that Samuelson, Summers and Sachs all believe a vibrant market economy is vital to the long run health of an economy.
So when Sachs examines less developed economies he is first looking for reasons why they haven't developed a vibrant market economy. To him that answer has multiple causes --- institutional, cultural, geographic, etc. Some of these barriers cannot be overcome "naturally" -- which is why judicious but concerted effort from afar must be utilized if we are going to tackle the big problem of persistent and horrific poverty. This is why he gets labeled an idealist -- he believes we can, and must, engage in a concerted effort to address the reason why countries who are trapped in the sick and poor "equilibrium" and help them transition to becoming "healthy and wealthy". The long process of development that produced that in the west need not be repeated, and, in fact, cannot be repeated due to the various natural barriers according to Sachs. So we need to 'jump start' the process of development, but that doesn't mean that we abandon all market principles along the way. At least that is how I would reconstruct Sachs's position. It is also how I would make sense of his ongoing critique of fiscal irresponsibility in the western nations and also the problems with monetary mischief. Sachs can, at times, sound very much like Hayek, Friedman and Buchanan, but he can also at other times sound very much like Myrdal, Keynes, and Lerner. Thus, my designation above as the "augmented Samuelsonian" model --- it is not as anti-market in rhetoric as say the earlier synthesis model of the 1950s and 1960s, but it is also not as market oriented as a New Classical, let alone the more market oriented New Institutional approach that combines the insights of property rights economics, law and economics, public choice economics and market process economics. Sachs may sound at times like Hayek, Friedman and Buchanan, but his analysis is not grounded in the ideas of Mises, Hayek, Alchian, Buchanan, Coase, Demsetz, Kirzner, Manne, North, Olson, Ostrom, and Tullock. He is, in fact, like Samuelson and Summers a very far way from those ideas of basic economic reasoning and political economy.
The conversation this afternoon should be fascinating and in preparation I suggest listening to his podcast at EconTalk. I think he did a better job defending himself than Nina Monk did criticizing him in her earlier podcast at EconTalk. At least that is my opinion. Also, I recommend reading through his exchanges with Acemoglu and Robinson over the central ideas in their book Why Nations Fail and the discussion of the determinants of economic development. See Sachs's original review, Acemoglu and Robinson's response, and Sachs's rejoinder.
I haver earlier pointed out in a CP post how this line of inquiry in economics and political economy opens up some great opportunities for those inspired by the Austrian school of economics and I highlight the work of Peter Leeson, Chris Coyne, Virgil Storr, Ben Powell and Claudia Williamson (I should have also mentioned Edward Stringham's on the governance of financial markets). I would of course be too humble if I didn't also mention my own work on Soviet history and transition, such as The Political Economy of Soviet Socialism (1990); Why Perestroika Failed (1993); Socialism and the Market, ed. 9 volumes (2000); Calculation and Coordination (2001), and development economics in general, see The Collapse of Development Planning, ed. (1994) has pursued this line of research for the past 25 years.
The scholars I mentioned above have all continued to explore and contribute to the literature on the factors that trap people in poverty and sickness, and those that enable them to transition into societies that are healthier and wealthier. They have been joined in this effort by yet a younger generation of scholars in the contemporary Austrian school of economics and classical liberal political economy such as David Skarbek, Diana Thomas, Adam Martin, Alexander Fink, Alex Salter, Shruti Rajagopalan, Jayme Lemke, Vlad Tarko, Abby Hall, and Liya Palagashvili to name but a few of the new generation of economists and political economists contributing to the literature on these questions. Sachs's non-linear and historically contingent model of economic development opens up opportunities for inquiry that these scholars are filling as they explore the history, politics (and law), culture of the economics of development.
Yes, Virginia, there is a hard-core truth in the economics of development -- the only way to increase real income is to increase real productivity. But real productivity of a people is a function of human capital, physical capital and the rules under which people interact with each other and with nature. Nature does come in many different shapes and forms and those shapes and forms matter to some extent in terms of the way developmental processes must evolve to meet the diverse challenges. Those rules are a function of a variety of factors that must be explored if we want to treat those rules not as exogenously given, but as endogenous to the process of the transition from subsistence to exchange in each unique historical, cultural and geographic setting.
PT Bauer's work must loom large in all these discussions if we are to make progress in understanding why some nations are rich and others poor, and why some nations that were poor became rich, and why some that were rich became poor, and why some that are poor seem to be stuck being poor.
Anyway, I am very much looking forward to Tyler's conversation with Jeff Sachs this afternoon. I hope you are too. Plenty of work for visible, as well as invisible, hands to do to understand and address the horrific problem of poverty that impacts billions of lives every single day throughout the world. The stakes in this conversation are very large indeed. As Bob Lucas once put it -- once you start thinking about it, it is hard to think about about anything else. That has been true of economists and political economists since Adam Smith penned An Inquiry into the Nature and Causes of the Wealth of Nations.
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*In the contemporary literature in economic development I would be most closely aligned with William Easterly. This, of course, should not come as a surprise. We will be publishing shortly a symposium on Bill's Tyranny of Experts in the RAE that I think will be of great interest to many of the readers of CP. I would also argue that McCloskey's Bourgeois trilogy is vital for our understanding of economic development.