Wednesday, April 11, 2007

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How does Jeffrey Sachs think about politics?

Via Greg Mankiw, I read with interest Chris Giles' Financial Times interview with Jeffrey Sachs. This part stood out in particular:

We move on to talk about a specific project Sachs is currently involved in, Millennium Villages, where his ideas on fertilisers, malarial bed-nets and the like are tried on the ground. My less-than-ecstatic reaction to his reports of their success is clearly the same as that of many aid agencies. It instantly raises his hackles. I suggest there are many examples where success in pilots does not translate into something that can be replicated on a large scale, and that you don’t necessarily need to try something to know it won’t work. ”I’m sorry,” he is almost shouting now. ”That, I disagree with completely. That’s preposterous.”

I realise I have exaggerated for effect, and counter that it is equally preposterous to insist they will work. ”I know,” he says, ”but how do you actually do something in life? Do you list all the things that may go wrong and then decide we won’t do it, or do you actually try?”

We talk about global warming. It’s easily solvable, Sachs insists, because the costs of doing something about carbon emissions are exaggerated - so people will soon realise that they can cut carbon emissions without much pain. We talk about global trade - all the US has to do is offer an aid, trade and climate change deal to the rest of the world and a solution is within reach. We talk about US healthcare - within a few years, people will see sense and the uninsured will be covered, he predicts.

As coffee arrives, I wonder aloud whether economics really can solve these big global challenges. In Sachs’s world, problems aren’t really problems because there is always an easy solution. I suggest vested interests, national differences and the fact that reforms tend to throw up winners and losers make issues rather more intractable than he believes. Bringing the subject full circle back to his lectures, he says: ”The key word of all of these lectures is ’choice’. A generation has a choice, and we have choices we make collectively... We have some absolutely terrific opportunities... but we miss opportunities all the time. That’s why it is really important to understand what these choices are - and that is what I’m trying to explain in these lectures.”

Every once in a blue moon, politics works like Sachs decribes in the last paragraph. Most of the time, however, politics bears no relationship whatsoever to this kind of model. And the belief that this is how politics works is a problem that seems to plague really bright economists.

posted by Dan on 04.11.07 at 10:22 AM


actually most economists are quite aware of the existence of political restraints, even if they limit the power of their analysis (in some cases) by making those limits entirely exogenous. Theres even a concept called "the theory of the second best" which assumes in given situations that the optimal policy is not feasible, and then will propose what may otherwise be a non-optimal policy.

posted by: liberalhawk on 04.11.07 at 10:22 AM [permalink]

I'm not aware of any economic theory that posits the existence of an optimal solution to these kinds of problems, because they always end up trading off one person's utility function vs another's. If we are lucky, there exists one or more policies that are better by some measure for enough people that a policy consensus is possible.

posted by: ArmchairEconomist on 04.11.07 at 10:22 AM [permalink]

I've been skeptical about economists ever since I saw Sachs debate historian Steve Cohen over Russian privatization (I was an undergrad at the time) in 1992. Anyone who understood anything about Russia knew Sachs was wrong, terribly wrong about shock therapy and how it would play out in Russia. Sachs (along with Larry Summers and a host of economists at treasury and WB/IMF) won the day and the result was an unmitigated disaster. We gave legal cover to the largest theft in human history and put it under the guise of 'democratization and market reform.' And people are surprised Russians love Putin?

I am glad to see Sachs is now working at the village level. While I am sure he will continue to make a mess of things at least the damage will be contained.

posted by: SteveinVT on 04.11.07 at 10:22 AM [permalink]

I think it depends on what school you go to as to whether or not politics is important.

Concerning Sachs, he came by I think about a year ago trying to sell his ideas. I didn't go as I think I was enjoying some beer that afternoon, but some did and reported back. One of the problems with his idea is that even if gains are produced the rents will extracted by the powers that be. You need institutional change that allows benefits to accrue to those learning new agricultural techniques and so forth to alleviate their poverty. Otherwise, the city elites will just take what they please.

As far as Sachs as economist, I'm not overly impressed. The few things I've read by him were flawed.

posted by: Dude on 04.11.07 at 10:22 AM [permalink]

Purely theory-based, pie in the sky thinking is absolutely critical. The payoff however, may not be visible for decades.

Virtually all modern democrats are happy to describe themselves as Keynesian, but they may or may not have any idea exactly what that means outside of opposition to Republicans and their so-called "supply-side economics".

Once a generation a political thinker will emerge to change the course of history, and they will use some dead economist's ideas. We need to pay more attention to guys like Newt Gingrich who fancy themselves idea men and have the ear of many prominent politicians.

posted by: Erasmus on 04.11.07 at 10:22 AM [permalink]

Speaking of those prestigious Reith lectures, I saw the one at Columbia, and boy was Sachs underwhelming. Makes me agree with you, Dan: a bright economist can be reeealy unimpressive on politics. Maybe it was the worldwide broadcast format, but Sachs didn't say anything -- literally -- that I wouldn't expect from a decently bright undergraduate in a senior seminar on foreign policy. I felt annoyed at having travelled the 60 blocks uptown to see it.

posted by: Lane Greene on 04.11.07 at 10:22 AM [permalink]

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