Bryan Caplan  

Henderson Beats Wikipedia

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I just got my copy of David Henderson's Concise Encyclopedia of Economics. I've loved this book since the first edition, and now that I'm a contributor, I love it all it the more! But seriously, this book is fun to read. Henderson's editorial vision puts it several cuts above reading comparable Wikipedia entries.

I'm particularly proud of my entry on Communism. Last week, I randomly came across this comment by Steve Sailer:

A perhaps more important question is what are the systematic weaknesses of economists?

As we saw when elite American economists were given a chance to play a major role in Russia in the 1990s and ended up contributing to one of the worst human catastrophes of our generation, the myth of the rational economist is one that desperately needs debunking.

I was planning on writing a reply, until I noticed that I had pre-replied in my encyclopedia article:
Free-market reforms have been harshly criticized, especially the drastic reforms derided as "shock therapy." But countries that reformed the most have seen the greatest rise in their standard of living, and those that resist change continue to do poorly. Critics lament large measured declines in output, but much of the "lost output" consists in products for which there was little consumer demand in the first place. Many former communist nations suffered hyper-inflation, but only because—ignoring all sensible economic advice—they printed money to cover massive budget deficits. The "shock therapy" prescription would have been to slash government spending and/or sell more state assets.
Economists are a convenient scapegoat for bad outcomes in the former Communist bloc. But what economist advised hyperinflation? What economist advised massive deficits?

It's true that plenty of economists designed Rube Goldberg privatization schemes that were easy for political insiders to exploit. But what do you think these economists would have said if you'd recommended transparent sales to the highest bidder? Their response would have been: "That's the best approach, but it's politically impossible." And they would have been right.


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COMMENTS (7 to date)
manuelg writes:

Bryan,

Are the Chinese Communists?

Are the Vietnamese Communists?

Our family has investments in Vietnamese real estate, and stock exchange. It looks as if we will do quite well.

How would you describe the primary difference between the Chinese, Vietnamese, and Russian forms of Communism?

Steve Sailer writes:

Right, the Chinese and Vietnamese have done better than the Russians because they didn't follow the advice of Harvard economists. If you can't yet sell off nationalized industries at a fair price to a wide variety of shareholders (as Thatcher successfully did in the 1980s in Britain), then hang on to them until you can, rather than give them away to crooks.

Instead, Khodorovsky was put in charge of auctioning off Yukos Oil, which owns 2% of the world's oil resources, and he accepted one bid, for $159 million, and called it a day. By the way, the one bid was from himself. (Putin has since stolen it back.)

Steve Sailer writes:

And then there was the actual financial corruption of Harvard's Andrei Shleifer in Russia, which led to something like 27 million dollars in federal fines.

Has the economics profession done _anything_ to sanction this superstar economist for corruption? Harvard at least gave him some kind of nominal demotion, but I haven't heard of economics organizations doing anything to him.

Roper writes:

At the end of the day communism will not work for the long haul of a country.

Communism is great as long as the country does not rely on the ability to be innovators and early adoptors of technlogy and innovations.

None of those countries are particulary good at creating ideas and developing new commerce. The Chinese have become very adept at taking a process and making it cheaper, but at the cost of their environment and their human capital.

Over the long haul communism just will not work, because at some point the workers have to step back and realize that if they work their fingers to the bone they will not have much more than the lazy person that does little to nothing. There is no incentive for the individual to be innovative and that will always lose to innovation and imagination.

BTW The Russians will eventually get themselves out of their issues as long as they can sustain a population long enough to do so and give everyone a run for their money.

Rimfax writes:

So, are you saying that economists that designed mechanisms to transition an economy screwed the pooch? Mechanism designs, if you will? Good thing they didn't give those guys a Nobel Prize or anything.

Martin writes:

Bryan, there is no "inside look at this book" at amazon, and no preview at google books. Please complain to the publisher. That's just bad. And that for a non-profit that wants to disseminate its ideas!

Hi, Martin.

There is something better than an inside look at the book. The entire first edition is available free at the Library of Economics and Liberty:

The Concise Encyclopedia of Economics, David R. Henderson, ed.

The new edition is greatly expanded and updated, with many new articles added, but there are also many articles that were so well-written the first time that they remain substantively the same.

I'll bring up your comment to the publisher and to Henderson. The copyright holder is David Henderson, so that he, not the publisher, would have to make the decision to release the material to Amazon.

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