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Thursday, June 02, 2011

Now Change the Rest

David Warsh urges The Economist to remake itself:

Now Change the Rest, Economic Principals: The Economist was founded in 1843 by James Wilson, a hat manufacturer temporarily brought low by one of global capitalism’s first identifiable business cycles. By a series of courageous re-inventions over 168 years, it has managed to become, and then remain, one of the most influential editorial voices in the world.

It is time for another of those periodic reinventions. Wilson’s original prospectus announced his determination to take part in “a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress.”

At the time, as unworthy, timid ignorance he had in mind mainly Great Britain’s Corn Laws, protectionist measures against the importation of grain adopted thirty years before as part of a burgeoning battle between landowners and manufacturers. The Economist quickly won its battle for free trade, whose advantages only recently had been perceived. Its devotion to the advancing frontiers of knowledge has been often redeployed over the years. ...

That bias in favor of intelligence was on display again last week with the magazine’s cover story. ... The lead editorial put the matter succinctly:  “Humans have changed the way the world works. Now they have to change the way they think about it, too.” ...

The Economist doesn’t quite come out and assert that global warming is taking place. ... But its survey goes on to give a good précis of the biogeochemical problems facing humankind: atmosphere, water, energy, food, species diversity. The article concludes that the evidence is strong that a new age in the history of the earth had indeed begun. ...

Here is the remarkable thing. Nowhere in either essay – the editorial or the article itself – do the words “government” or “governance” appear. This is not altogether surprising. The Economist was founded in the early days of scientific economics, a time of powerful mood swings, Malthusian gloom dominating in one decade, technological optimism in the next. Delight in market organization was in the air... The magazine’s preference emerged early on for hands-off policies of laissez-faire as against government control.

Yet the magazine’s greatest editor, Water Bagehot, recognized in the 1860s that there were responsibilities in emergent capitalism that only governments could assume, centralized control of the banking system chief among them. Eighty years later, in the 1940s and ’50s, the magazine gradually came to support Keynesian views that governments bore responsibility for mitigating the ups and down of the business cycle.

Today a further change is required if the editors are to continue to prefer intelligence to ignorance. ... The shift required – one that already has begun under editor John Micklethwait, but one which still has far to go – involves the recognition that the social sciences have begun to integrate concepts of governance, organization and cooperation into the center of their conception of the world, rather than confining them (as they were in The Wealth of Nations)...

Giving up a reflexive faith in laissez-faire while deepening its appreciation of market technologies will not be easy. A telling subhead in last week’s editorial asserts, “The new geology leaves all in doubt” – an echo of a famous sentiment expressed when the collective certainties of the seventeenth and eighteenth centuries – the Biblical account of Creation and the comfort of a geocentric universe – were giving way to the heliocentric understanding of the cosmos. ... Humankind must accept responsibility not just for nature, but for itself – a new age not just for geology but for for political economy as well..

I've talked about this quite a bit in the past (e.g.), so I won't dwell on it, but to me significant market failures -- including but not at all limited to monopoly power -- present a clear and compelling case for government intervention. Government solutions to these problems have been held up, in part, by the idea that market failures are self-correcting. Monopolies will be challenged by new entrants or new products, markets will provide missing information, etc., etc. These ideas gave policymakers who were looking for an excuse to keep government on the sidelines a reason to do just that.

But it hasn't worked. Market failures are self-correcting in some cases, or the consequences of the market failure are too small to justify government taking action. But there are important cases where the problems have not been corrected automatically, and our failure to step in and take action has had or could have significant negative consequences (e.g. market failures, if not the cause of the financial crisis, certainly made it worse, and we have done very little to offset important failures in energy markets that are making the climate change problem harder to solve).

We do need a change in attitude, and not just from the editorial leaders at The Economist (some writers there already show progress). Policymakers and the public must also come to understand that there is an important role for government to play is overcoming these problems.

    Posted by on Thursday, June 2, 2011 at 01:17 PM in Economics, Market Failure, Press | Permalink  Comments (55)


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