Tuesday, December 15, 2009

Economics & Social Justice

Mikaela says:
You've got to go listen to NPR's Planet Money blog from today, which covers both the contributions of recently-deceased Paul Samuelson and a re-situating of Adam Smith in the dialog about governments' role in advocating for the poor in world markets by Amartya Sen, a Nobel Prize Laureate in Economics, in his new book, The Idea of Justice.

Samuelson on PBS Newshour interviewed by Paul Solman:

INTERVIEWER: [Y]our student, Robert Merton ...said, look, innovation always brings with it certain risks. You don't kill innovation as a result.

PAUL SAMUELSON: I'm not speaking in favor of killing innovation. I'm speaking in favor of centrist use of the market, which involves necessarily a considerable degree of regulation. Markets by themselves will get themselves inevitably into inequality and into their own destruction. It will happen again and again.

INTERVIEWER: You're a lifelong Democrat.

PAUL SAMUELSON: I'm an incurable centrist.

INTERVIEWER: Do you feel that there was simply an ideological shift towards free-market fundamentalism, some people have called it, that got us inevitably onto this track?

PAUL SAMUELSON: Since 1980, yes.

INTERVIEWER: And that's your explanation for what happened?

PAUL SAMUELSON: Yes. And not only that, the economics profession, the guys I have lunch with and love, have, generally speaking, moved greatly rightward. I'm not sure that all of the fiendish stuff could have been picked up by centrist regulators, but you don't have to be perfect in anything in economic life. If you spent 70 years in economics, you'll understand that.

INTERVIEWER: So things could have been a lot less bad?


Sen on Adam Smith as the advocate of the Invisible Hand:

Sen: That's a complete caricature of Smith. [T]he invisible hand is not one of Adam Smith's theories. He uses the term three times in all of his entire corpus of work, twice as caricature. One is referring to the bloody and invisible hand, from Macbeth if I remember right. The later construction of this "story" that you have been sold from good economists is based on about 16 lines of Wealth of Nations, in which he discusses why people want exchange. For that, you don't need a big theory of morality, because they want each other's commodities.
How can you make these trades survive? Then you need mutual trust and understanding of each other. If you end up in a society with a lot of poor, what do you do? Then you need a concept of justice, you have to have transfer of rich to the poor.

This is from Wealth of Nations: Nearly all intervention in the interest of the rich, is almost invariably counterproductive, whereas all intervention of the state in the interest of the poor is almost always successful and achieves good results.

Smith is one of the heroes of my book - the real Smith not the manufactured Smith put together, totally different from the caricature of Smith.

Interviewer: So you're saying the Wealth of Nations was a tract advocating the redistribution of wealth from the rich to the poor?


Sen: His criticism is always in the interest of the underdogs of society. ... The thing implied about racism ... In one state, he's very angry with Italy about the white supremacy argument. ... He says there isn't a negro anywhere in the North of Africa, with which he's familiar, who does not have a superior concept of justice which his sordid master is scarcely cable of understanding. He was a totally radical figure.