by William Easterly in the Financial Times (extract of full review)
Alan Beattie’s new book False Economy accurately reflects the collapse in self-confidence among economists on our ability to usefully recommend how “developing” countries can rapidly develop. And he’s right about the reasons for this: both success and failure have often caught us by “surprise”, the key word in the book’s subtitle: A Surprising Economic History of the World.
Beattie’s supremely entertaining and informative book is a great reminder that the details of success are often impossible to predict or prescribe: no one can work out how to achieve each component. The best response is not to have increasingly convoluted advice by experts, but to let individuals with local knowledge roam free by trial and error to find their own successes.
So in the end, the economics profession does have more sensible things to say about achieving long-run success than Beattie allows: (relatively) free individuals, free markets, free trade, free thinking, and institutions that support all of the above.
6 Comments
Interesting, but predictable:)
It begs the question, if we can’t “Stimulate” others economies, how can we stimulate our own?
These are compelling arguments. However, I have one concern with it:
It is a fact that one has not been able to uncover the secrets of growth and/or to implement them, but does that necessarily mean that they cannot be uncovered?
Many scientific progresses and innovations have taken pretty long to come to life. I believe that the research should continue to explore different directions and never assume impossibility on basis of complexity.
Meanwhile, it is true that the best prescription today should be centered around the freedom as the post advocates for.
Distributed control, especially within a stable macroeconomic environment, tends to produce higher growth rates. Centralized control, on the other hand, can lead to e.g. – supply chain inefficiencies.
One might argue further that a system of purely distributed control ultimately teaches microeconomic agents to factor macroeconomic volatility into their decision making. Perhaps if the Fed had refused to allow real interest rates to fall below a certain bound from 1990 onwards, for example, deeper recessions then would have prevented the imbalances the world is facing today.
“So in the end, the economics profession does have more sensible things to say about achieving long-run success than Beattie allows: (relatively) free individuals, free markets, free trade, free thinking, and institutions that support all of the above.”
I think the key word here is ‘relatively’. In economies that run well over the long term (read offer eoncomic opportunity to the majority of people on a somewhat equitable basis) there appears to be a balance between private and public sectors. For example, functioning governments offer unbiased regulation and enforcement; the private sector provides entrepreurial energy, finance and market opportunities. It is not an either or, but a case of checks and balances to produce reasonable outcomes for the majority of citizens without undue gains to one group to the detriment of the other.
When the world’s largest planned economy also becomes the world’s largest economy, how should free market capitalism respond?
For example, if China convinces Argentina to adopt the yuan as its currency, Argentina had better learn to love fiscal tightness like the Germany does…