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A more articulate economist formulates perfectly my most unpopular development argument

From the wonderful, recently updated book by Paul Seabright, via Greg Mankiw via Peter Gordon:

Politicians are in charge of the modern economy in much the same way as a sailor is in charge of a small boat in a storm. The consequences of their losing control completely may be catastrophic (as civil war and hyperinflation in parts of the former Soviet empire have recently reminded us), but even while they keep afloat, their influence over the course of events is tiny in comparison with that of the storm around them. We who are their passengers may focus our hopes and fears upon them, and express profound gratitude toward them if we reach harbor safely, but that is chiefly because it seems pointless to thank the storm. (p. 25)

I think Greg is thinking mainly of politicians’ responsibility for recession or expansion, but Paul’s point was more general — nobody is really in charge but the economy (usually) works anyway.

In another classic passage from the first chapter titled “nobody’s in charge”, Paul describes buying a shirt and then wonders how it would happen if somebody had to be in charge of providing shirts:

The United Nations would hold conferences on ways to enhance international cooperation in shirt-making…committees of bishops and pop stars would periodically remind us that a shirt on one’s back is a human right. The humanitarian organizations Couturiers sans Frontieres would airlift supplies to sartorially challenged regions of the world…the columns of newspapers would resound with arguments over priorities and needs. In the cacophony I wonder whether I would still have been able to buy my shirt. (p. 18)

We have this terrible tradition in development of leader-worship, in which leaders get credit for any economic success that happens on their watch, and we think development can only happen through the intentional designs of the leaders (advised by us all-knowing development experts). This blog has vainly tried to protest this is all wrong-headed. I’m glad Paul is there to say it better than I can — read his book!

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7 Comments

  1. E Aboyeji wrote:

    I just ordered it :)
    Thanks a lot Bill

    Posted August 7, 2010 at 2:15 pm | Permalink
  2. Rebecca Burlingame wrote:

    The shirt story was great. I’ve been hearing a lot about this book and hope to get it soon. The title means a lot to me personally, because it is the company of strangers that ultimately help us survive when family or friends cannot do so. Which is why I worry sometimes about capitalism collapsing under its own complexity. When people think that things can only be done with money, there is the tendency to do as much as possible for the many, with as few people as possible, so as to minimize the expense. Paul gives a good explanation why no one wants that line of thought to go too far.

    Posted August 7, 2010 at 7:48 pm | Permalink
  3. Bill Herrin wrote:

    “Vainly tried to protest” is probably too strong. I know many students who have begun to think differently because of this blog. But it takes some work. For many contemporary college students, UN-type high profile development efforts seem so straightforward, the methods so obvious. It’s hard to get past this, especially when so many of economics’ best insights are, at first blush, fundamentally counterintuitive. This is a theme I use when teaching micro principles and development. I find it’s a nice segue into posts like this one for students who allow their curiosity to be piqued. An invisible hand is kind of like one of those hidden image stereograms. There’s one of a shark here.

    http://www.vision3d.com/sghidden/shark.html

    You’ll see it if you work at it.

    Posted August 8, 2010 at 3:15 pm | Permalink
  4. terence wrote:

    1. I’m not sure that development organisations really are that obsessed with leaders . Most governance programmes tend to focus on structure and process.

    2. If Jones and Olken are right, leaders do matter: http://econ-www.mit.edu/files/2915

    3. The comparison between shirts and development work is daft. Here’s Amartya Sen:

    Perhaps the weakest link in Easterly’s reasoning is his almost complete neglect of the distinctions between different types of economic problems. Easterly is well aware of the efficiency of market delivery when commodities are bought in a market and backed by suitable purchasing power, and he contrasts that with the usual infelicities and inefficiencies in getting aid to those who need it most. But the distinction between the two scenarios lies not only in the different ways of meeting the respective problems, but also in the nature of the problems themselves. There is something deeply misleading in the contrast he draws between them, which seems to have motivated his entire project: “There was no Marshall Plan for Harry Potter, no International Financing Facility for books about underage wizards. It is heartbreaking that global society has evolved a highly efficient way to get entertainment to rich adults and children, while it can’t get twelve-cent medicine to dying poor children.” The disparity in the results is indeed heartbreaking. But jumping from there to arguing that the solution to the latter problem is along the same lines as the solution to the former reflects a misunderstanding of what makes the latter so much more difficult.

    http://www.foreignaffairs.com/articles/61525/amartya-sen/the-man-without-a-plan?page=show

    Posted August 8, 2010 at 7:19 pm | Permalink
  5. Scott wrote:

    Well, environmental regulations on the t-shirt factory, and labor standards for the employee, and the roads to the factory, and the schools the kids go to–all of those things would be regulated or influenced by government. And all of those things would have to do with the economy. Not to mention monetary and fiscal policy, etc. Stimulus after a downturn. Politicians do these things. But yeah, it is probably a bad idea to hold governments to account for economic performance.

    The UN does hold conferences on management of supply chains in t-shirts. Man they are stupid. Those free floating economies will solve child labor on their own.

    Nobody really argues for command and control economies. They argue for oversight and regulation, and smart policy design. But let us knock down the straw man instead.

    Posted August 9, 2010 at 7:41 am | Permalink
  6. fundamentalist wrote:

    terence, so what is the difference? Sen asserts there is a difference, but he doesn’t say where the difference lies and I can’t see one.

    I applaud Easterly’s efforts, but know that he will win few converts because very few people care about the truth.

    Posted August 10, 2010 at 10:02 am | Permalink
  7. Christo Gilberti wrote:

    The post of the Amartya Sen excerpt hits the nail on the head: It’s all about market failures. Some things get distributed efficiently by market economies, some things don’t. Some of those that don’t cause untold hardships, including death. Sometimes the markets can be manipulated to get more efficient resource use and distribution, e.g. cap and trade systems for pollution control. Sometimes there’s nothing to do but drop food to people, e.g. disaster relief. There’s a continuum between that requires some combination of responses. Keynesian stimulus might be an example during a recession; this is not a market mechanism, but an attempt to address a market failure.

    Posted August 14, 2010 at 9:52 pm | Permalink

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  • About Aid Watch

    The Aid Watch blog is a project of New York University's Development Research Institute (DRI). This blog is principally written by William Easterly, author of "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics" and "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good," and Professor of Economics at NYU. It is co-written by Laura Freschi and by occasional guest bloggers. Our work is based on the idea that more aid will reach the poor the more people are watching aid.

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