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Tuesday, November 14, 2006

On the Road Again

William Easterly responds to Jeff Sachs statement that:

Von Hayek was wrong. In strong and vibrant democracies, a generous social-welfare state is not a road to serfdom but rather to fairness, economic equality and international competitiveness.

Here's Easterly's response which makes many of the points made by Tim Duy in his defense of Hayek:

Dismal Science, by William Easterly, Commentary, WSJ: Scientific American, in its November 2006 issue, reaches a "scientific judgment" that the great Nobel Prize-winning economist Friedrich Hayek "was wrong" about free markets and prosperity in his classic, "The Road to Serfdom." ... Prof. Jeffrey Sachs of Columbia University ... announces this new scientific breakthrough in a column, saying "the evidence is now in." To dispel any remaining doubts, Mr. Sachs clarifies that anyone who disagrees with him "is clouded by vested interests and by ideology." ...

First, Mr. Sachs disses the great Hayek by repeating the old canard that Hayek thought any attempt at taxpayer-funded social insurance would put us all on the "Road to Serfdom." This is an especially strange charge, since Hayek ... himself calls for some form of taxpayer-funded social insurance against severe physical deprivation on pages 133-134 of "The Road to Serfdom." ...

Second, if he had studied (Friedrich) Hayek, Mr. Sachs would realize what "The Road to Serfdom" is really about, and how it is of great relevance to Mr. Sachs's own current work... Hayek's great book is all about the dangers of large-scale state economic planning, courageously written in 1944 when Soviet central planning, technocratic socialism and administrative control of the wartime economy appealed as a peacetime model to many New Dealers, celebrity economists and policy wonks of all stripes.

The countries that are now rich subsequently listened enough to Hayek and to common sense to avoid the road to serfdom. Yet today, Mr. Sachs (in his book "The End of Poverty") is peddling his own administrative central plan ... to end world poverty. ... Mr. Sachs is not in favor of central planning as an economic system, but he offers it as a solution, anyway, to the multifold problems of the world's poorest people. If you want the best analysis of why the approach of Mr. Sachs ... will fail to end world poverty this time (as similar efforts failed over the past six decades), you can find it in Hayek.

Third, Mr. Sachs's attempt to make the case for ... the Scandinavian welfare state ... is a little shaky. If this is what passes for the scientific method in Scientific American, American science is in even worse shape than we thought. ...

Mr. Sachs's empirical analysis purports to show that Nordic welfare states are outperforming those states that follow the "English-speaking" tradition of laissez-faire, like the U.K. or the U.S. Poverty rates are indeed lower in the Nordic countries, although the skeptical reader ... might wonder if the poverty outcome in, say, the U.S., with its tortured history of a black underclass and its de facto openness to impoverished but upwardly mobile immigrants, is really comparable to that of Nordic countries.

Then there is the big picture, where those laissez-faire Anglophones in, first, the U.K. and, then, the U.S., just happened to have been the leaders of the ongoing global industrial revolution that abolished far more poverty over the past two centuries than a few modest Scandinavian redistribution schemes. ... Lastly, let's hear from the Nordics themselves, who have been busily moving away from the social welfare state back toward laissez-faire. ...

Mr. Sachs is wrong that Hayek was wrong. In his own global antipoverty work, he is unintentionally demonstrating why more scientists, Hollywood actors and the rest of us should go back and read "The Road to Serfdom" if we want to know what will not work to achieve "The End of Poverty."...

Given what has transpired on the WSJ's editorial pages with respect to global warming, another dispute Sachs was involved in, Easterly has not chosen the best platform from which to talk about what "passes for the scientific method."

My view? Sachs advocates too much intervention, Easterly doesn't advocate enough. Yes, in the long-run industrial revolutions are the best solution to poverty. But, famously, "In the long-run we're all dead."

One last note. Sachs is given credit in a part of the article that was cut because "he does successfully raise the profile of genuinely tragic problems." Here's his latest example from Scientific American:

The Challenge of Sustainable Water, by Jeffrey D. Sachs, Scientific American: While oil shortages grab the headlines, water scarcity is creating at least as many headaches around the world. The most dramatic conditions are in Asia, where ... China and India, are grappling with deepening and unsolved water challenges.

China's great northern plain, home to more than 200 million people, is generally subhumid or arid and depends on unsustainable pumping of underground aquifers for irrigation. The Yellow River has been diverted to the point that it no longer flows to the sea. Meanwhile the water tables of Beijing and other large northern cities are falling dramatically as a result of the pumping of groundwater.

Similarly, southern India is drought-prone, and southern states scramble after river flows that cross state boundaries. When the rains are poor, upstream states such as Karnataka turn off the water flow to downstream states such as Tamil Nadu, with brutal consequences for farmers and communities. In northern India, tens of millions of bore wells are depleting groundwater much faster than it can replenish, just as in China.


Such problems are, of course, not limited to developing countries. Scarce river flows are bitterly contested among U.S. western states and between the U.S. and Mexico. A considerable portion of U.S. agriculture in the Great Plains depends on the vast but depleting Ogallala aquifer.

Continued population and economic growth will put still greater pressures on freshwater supplies. At this point, further claims on rivers and aquifers are often a zero-sum game: more water for one region means increased water scarcity and ecological destabilization elsewhere.

Climate change will raise the tension even further. Hundreds of millions of people in China, India and other parts of Asia depend on river flows fed by melting glaciers in the Himalayas. Those glaciers are receding and many will disappear this century, and the water supply will disappear along with them. ...[The] climate change will alter the timing of those flows even if the levels of snowfall remain the same. With warmer temperatures, the melting snows will fill the rivers earlier in the spring and will be unavailable for the long, dry summers.

Climate change will also alter the patterns of precipitation and evaporation in ways that are still poorly understood. Dry places are likely to get drier; rainfall is likely to arrive in fewer but more concentrated episodes; and extreme weather events such as tropical cyclones are likely to increase in intensity. ...

Solutions will not be simple. Yes, better pricing of water will lead to much greater efficiency. Drip irrigation can reduce the water demand of crops. Desalination can vastly expand water supplies, though at high energy costs. Water storage systems can spare farmers the misery of crop failures. But these solutions presuppose vast expenditures of capital, and such solutions do not automatically address the needs of the poor, who are unable to pay for that capital. Moreover, such solutions are often not commensurate with the scale of the challenge because they can bring huge adverse ecological consequences. ...

With regard to climate change, the Intergovernmental Panel on Climate Change has done remarkable work in mobilizing the search for scientific consensus and possible solutions. A parallel effort on the science, technology and policy for water could prove to be of similar global benefit.

    Posted by on Tuesday, November 14, 2006 at 11:40 PM in Economics, Policy | Permalink  TrackBack (1)  Comments (97)


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