Monday, 3 March 2008

William Easterly: Practitioner of Pessimism

Link: Easterly on Growth, Poverty, and Aid

I want to share with people here some comments I made at EconTalk on Russ Robert's interview with former World Bank boss William Easterly. Easterly is a pessimist who believes that foreign aid does not work. You can go to the link I gave above to download an audio file that contains the interview. I listened to this interview on my Mp3 player while I was on the train to university today.

Easterly says initially that aid to Africa does not work. The evidence he gives is that about $60 trillion dollars has poured into Africa in the last 60 years and in those 60 years economic growth has been zero. However, this itself does not prove that the aid did nothing. What if without the aid Africa would have experienced negative growth? That lots of aid comes in and results in little growth does mean that the aid did not affect growth. Perhaps another variable negatively affected growth so much that it masked the impact of aid on economic growth in Africa. This is the problem of correlation versus causation. However, Easterly and Roberts, later in the podcast, talk about this problem of correlation versus causation, and Easterly himself criticizes another economist for confusing correlation and causation!

Easterley also says that he believes in freedom and thinks that countries should decide themselves whether they want freedom. He says that in many countries, such as in Latin American countries and even in Russia, the culture or values just aren't there for free markets. He claims that people there simply don't want their economies to be liberalized and therefore it's best to give people what they want. His evidence comes from the fact that left-leaning leaders tend to be popular. Roberts did say that if the democratic system is flawed (e.g. if it is hijacked by elites or thugs) then it may be difficult to know what the people want since it is assumed that the democratic system of voting and elections will tell us what "the people" want. However, it's not as simple as that. As Sowell says in another podcast, there is no such thing as "society." Arrow's Impossibility Theorem proves mathematically that there cannot be a social preference. It backs up what is obvious from the beginning, and that is there is no society, only individuals. To quote Margaret Thatcher: "There is no such thing as society. There are individual men and women, and there are families." I'd even go so far as to say there is no family since a family too is just multiple individuals. But one step at a time.

Suppose 60% of citizens vote to be slaves and 40% vote to be free. If slavery were imposed on everyone because the majority wanted it, then those 40% who didn't want slavery would still get it. This is the problem.

Easterly is against the idea of forcing freedom upon people because, as he claims, forced freedom is oxymoronic or contradictory. However, I believe forcing freedom upon people is better than forcing slavery upon people and also I believe forcing freedom upon people is better than forcing slavery upon people even if most people wanted slavery. The reason why is because forcing freedom upon people Pareto dominates forcing slavery on people. Suppose 60% of people want freedom while 40% want to be slaves. If slavery is imposed, then everyone who wants slavery gets what they want but those who want freedom don't. However, if freedom is imposed, those who want freedom get what they want but those who want to be slaves have the freedom to reject freedom and privately arrange among themselves to be slaves. Thus nobody is worse off if we force freedom upon citizens.

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