A One-Armed Economist, Please

Lord Bauer Knows Where He Stands

“[W]hile purity is an uncomplicated virtue for olive oil, sea air, and heroines of folk tales, it is not so for systems of collective choice.”—Amartya Sen¹

President Harry Truman hated what he termed two-armed economists, those who would advise him first “on the one hand” and then “on the other hand.” Give me a one-armed economist, he demanded, an adviser who wouldn’t waffle.

I was reminded of this story when I read some of the writings of the Indian economist Amartya Sen, the latest winner of the Nobel Prize in economics. He won the prestigious award (worth nearly $1 million) for his work on poverty, famine, inequality, growth theory, human rights, and ethics, all those wide-ranging debate topics common to development economics.

Writing on these topics is commendable; I just wish I knew what he was saying. Sen is one of those economists that Truman complained about. He represents everything that is wrong-headed about modern economics, which Peter Drucker has rightly described as “clever, brilliant, and bankrupt economics.”²

Too Much Sen

Sen has all the establishment credentials. He’s taught at Harvard and Cambridge and was president of the American Economic Association in 1994. His mentors are Joan Robinson, Kenneth Arrow, and philosopher John Rawls. A prolific scholar, Sen has written and read everything imaginable on his favorite subjects. He cites dozens and dozens of authors. He engages in heavy mathematical modeling and game theory. He weighs the pros and cons of every nuance of high theory. And yet, when it comes to his own view, he never seems to come to a simple conclusion. For Sen, everything is complex and indeterminate.

For example, in 1985 he gave a series of lectures at Cambridge University, subsequently published as The Standard of Living (Cambridge University Press, 1987). Is it possible to measure and compare living standards between individuals or nations? Sen is never sure. In his works on inequality, he rejects utility-based comparisons of income and even distinguishes between “well-being” and “standard of living.” When you’re through reading Sen, you feel like joining the pure subjectivists-relativists. In an often-cited article, “Rational Fools,” Sen offers a critique of utilitarianism and self-interest, saying at one point, “this approach presumes both too little and too much.”³ Only in Sen’s world would that be possible.

The only case I know where Sen establishes a clear position is on famines, an area he knows firsthand. Liberal democracies, he says, avoid famines. “In the terrible history of famines round the world, no substantial famine has ever occurred in a democracy.”⁴

In trying to be ultra-scholarly, Sen obfuscates more than he elucidates. As Sylvia Nasar wrote in the New York Times (October 15, 1998), Sen is “highly influential, but wide-ranging, diffuse, lacking a single killer theorem.” The Chinese philosopher Lin Yutang put it best, “If one is too well-read, then one does not know right is right and wrong is wrong.”⁵

“One-Armed” Bauer

Give me a one-armed economist! In development theory, that candidate would be Lord Bauer. Whether you agree with him or not, you have no doubt where he stands. He is an ardent polemicist in defense of democratic capitalism (including private property, free trade, and limited government) in developing countries.

P. T. Bauer is a long-time dissenter in development economics who has finally been vindicated. In that sense, he follows in the footsteps of other free-market economists—including Milton Friedman, who was ultimately proven right about the efficacy of monetary policy, and Ludwig von Mises and F. A. Hayek, who accurately predicted that socialist central planning could never work.

In the postwar period, Bauer waged a lonely battle against foreign aid, comprehensive central planning, nationalization, and other anti-market schemes. He denied the then-current orthodoxy, such as the vicious cycle of poverty and W. W. Rostow’s stages of economic growth. Today even Rostow admits, “there are, evidently, serious and correct insights in the Bauer position; for example, the shrewd and quick responsiveness of farmers to incentives and disincentives, the superiority of competitive private over public trading systems.”⁶

Like Sen, Bauer has extensive experience in the developing world, having spent years in Asia and Africa as a writer and consultant. He warned the Indian government repeatedly that its five-year plans would never achieve their lofty goals. (The only Indian economist he respected was B. R. Shenoy, a lone dissenter.)

The IMF could learn a lot from reading Bauer’s classic textbook, The Economics of Under-Developed Countries, co-authored by B.S. Yamey (Cambridge University Press, 1957). And one of the best short essays ever written is “The Lesson of Hong Kong.”⁷ Other essays can be found in Dissent on Development (Harvard University Press, 1976) and The Development Frontier (Harvester, 1991). The Cato Institute recently published a book, The Revolution in Development Economics, edited by James A. Dorn, Steve H. Hanke, and Alan S. Walters, that was dedicated to Lord Bauer and includes many of his articles. Nothing could be better, short of a Nobel Prize.

Notes

1. Amartya K. Sen, Collective Choice and Social Welfare (San Francisco: Holden-Day, 1970), p. 200.
2. Peter F. Drucker, The Unseen Revolution (New York: Harper & Row, 1976), pp. 114–15.
3. Amartya K. Sen, “Rational Fools: A Critique of the Behavioral Foundations of Economic Theory,” cited in H. Harris, ed., Scientific Models and Men (New York: Oxford University Press, 1978), pp. 317–44.
4. Amartya Sen, Prospect, October 1995, cited in Chris Patten, East and West (New York: Macmillan, 1998), p. 198.
5. Lin Yutang, The Importance of Living (New York: John Day Company, 1937), p. viii. Yutang’s profound book has recently been reprinted by William Morrow. I highly recommend it.
6. W.W. Rostow, Theorists of Economic Growth from David Hume to the Present (New York: Oxford University Press, 1990), p. 386.
7. P. T. Bauer, “The Lesson of Hong Kong,” Equality, the Third World and Economic Delusion (Cambridge, Mass.: Harvard University Press, 1981).