Bryan Caplan  

Against Growth Agnosticism

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Tim Kane is as sickened by growth agnosticism as I am:

So why is that so many popular discussion of growth emphasize how totally mysterious it is? William Easterly's book, "The Elusive Quest for Growth" is a case in point, but I think that kind of soundbite epitomizes the policy conversation. Growth is described ad nauseum as a "mystery" in reverent tones. And, not to make a pun, it really makes me sick. (This is no knock on Easterly -- his point is that experts tried to force correlations into causations, and failed. They were stuck on Kaldor 1.0)

How about this: growth isn't a mystery. By and large, we know what works and what doesn't. Corruption doesn't work well, property rights do. Globalization is working everywhere it is allowed. Protectionism is a disaster, in the long term and usually before. Democracy, unfortunately, seems insignificant in promoting growth, but free markets are essential. And, as every young American RTS playing teen knows, technology wins. And as almost every great innovator attests, entrepreneurship equals technology.

There remain unanswered questions, sure. But because scientists have yet to control fusion hardly means they can't design an engine that harnesses energy for locomotion. Because philosophers have yet to agree on the meaning of life surely does not imply they have no sense of morality. Bottom line: we know everything we need to know about growth to end poverty on Earth in this century.
When I was reading Portfolios of the Poor, I kept thinking about the needlessness of all the characters' suffering.  Poverty is tragic in the literal sense: Countries' flawed collective decisions are the ultimate cause of their own plight.


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COMMENTS (16 to date)
chipotle writes:

Bryan Caplan,

I think you're probably right but, please, allow me to play "Devil's Advocate." (In this case, the DA role is also a little too close to literal.)

Is it not the case that we "know" what causes growth but only in a general sense? For instance, Tim Kane says that property rights are key, but property is a bundle of rights. And adjudication of competing rights claims is no simple matter. The cultural and institutional context for enforcement of property rights is actually a complex and delicate order and that order must be partially designed; it is not wholly spontaneous. (The right to contract is written into the Constitution but it also grew up around a particular set of cultural norms and a specific history.) Conscious institutional design is the social science equivalent of brain surgery.

If you deny the universal possibility of productive capitalism, consider this. Is it not the case that Russia was given a mega-dose of neo-liberal reform in the '90s and ended up poorer for the trouble? It is a common belief in Russia that the neo-liberal reform was essentially sabotage and that all of this capitalist rhetoric and the regime it supported was merely a cover for plunder. Surely this is not a record that free-market capitalism can run on.

Argentina had a neo-liberal moment in the late '90s that ended with a severe crisis in 2002.

Many countries that have experienced neo-liberal reforms have felt acute pain in large segments of the population; this is, roughly speaking, the genesis of the anti-globalization movement.

[I'm especially interested to hear your take on what happened in Russia in the '90s.]

OneEyedMan writes:

I believe the factors you mention cause growth, but I don't know it. The evidence just isn't strong enough to move it into established fact territory.

"Corruption doesn't work well" Well that certainly depends on what the alternative is. In many places efforts to removing corruption would not improve things but instead lead to violence.

"property rights do"
Yes, of course, but the process of establishing property rights in countries that lack them can actually exacerbate the miss-allocation of productive resources

Globalization, entrepreneurship, technological development, capital formation, democracy, and even functioning free markets all see to be deeply simultaneously determined with growth.

Mr. Econotarian writes:

With regard to Russia, I can only quote the Index of Economic Freedom 2009:

"Russia's economic freedom score is 50.8, making its economy the 146th freest in the 2009 Index. "

"State involvement in economic activity remains considerable, and institutional constraints on economic freedom are severe. Non-tariff barriers add significantly to the cost of trade. Inflation is high, and prices are heavily controlled and influenced by the government. Virtually all foreign investment faces official and unofficial hurdles, including bureaucratic inconsistency, corruption, and outright restrictions in lucrative sectors like energy. Corruption weakens the rule of law and increases the fragility of property rights and the arbitrariness of law enforcement."

Russia has a long way to go!

http://www.heritage.org/index/country/russia

Greg Ransom writes:

"They were stuck on Kaldor 1.0"

Is this reference such common knowledge that is needs neither explanation or footnote?

8 writes:

Democracy unimportant...you just lost the State Department and Executive branch.

Some of the agnosticism comes from not wanting to point out that some cultures have aspects that contribute to their failure. It isn't that there's no answer, it's that no one wants to say it/hear it/do anything about it.

RJ Moore II writes:

"Is it not the case that Russia was given a mega-dose of neo-liberal reform in the '90s and ended up poorer for the trouble?"
What does neo-liberalism have to do with free markets or private property? It's more statist mercantalism with a liberal facade.

US writes:

@Greg Ransom

Two "footnotes":

http://en.wikipedia.org/wiki/Kaldor%27s_growth_laws

http://en.wikipedia.org/wiki/Kaldor%27s_facts

Peter Twieg writes:

And, as every young American RTS playing teen knows, technology wins.

I'd venture to say that the person who wrote this has never actually played an RTS.

Gary writes:

We know what makes for a healthy person: pumping heart, detoxifying liver, urine-producing kidneys, other working organs. Yet, if a man with several tottering organs entered an emergency room, it's not at all clear that he could be made healthier even if he had access to the best surgeons and parts.

So does our knowledge of organs and their benefits allow us to say, "we know how to cure a person suffering from multiple organ failure"? It's painful to admit, but I think I've got to throw in my lot with OneEyedMan.


Nick writes:

Every young RTS-playing American knows that massive numbers of primitive units, produced faster than most people can click, win. And that whoever plays long enough to come up with technologically-advanced units is probably a "n00b", as it were. ;-)

Troy Camplin writes:

I've actually thought about writing a book on the general theory of growth -- it would be interdisciplinary, and talk about the rules necessary for growth at different levels of complexity. There surely must be common rules of growth, whether that growth be living things or economic. It would be a followup to my Diaphysics, which is about how complexity emerges -- making it, in a real sense, about a certain kind of growth.

Tracy W writes:

There surely must be common rules of growth, whether that growth be living things or economic.

Why do you believe this?

Karol Boudreaux writes:

Bryan, I largely agree with your observation. I think the problem comes when policy makers and politicians attempt to take a dysfunctional economy and turn it into one that functions and grows. The mystery is more about managing the public choice and collective action problems rather than identifying the institutions that support growth.

David Stearns writes:

This passage is making a really fundamental conflation, beautifully captured in Gary's healthy person analogy. Knowledge about what works is entirely different from knowledge about how to bring about what works. Corruption is a cultural outgrowth that takes a lot of norm-changing to erradicate. Though I'm not overly-familiar w/ Easterly's work, it seems to me his point isn't too concerned with what characteristics economies w/ strong growth seem to have, it's that we are very ignorant about which policy bundles will bring them about.

Am I missing something here? The distinction seems really obvious to me, and the passage you quote really useless.

Troy Camplin writes:

I believe it in no small part because we give the same label only to similar things. That, and in my studies of biology and of economics, I noticed some similarities. I would like to have the time and money to do the work to find out if my suspicion is right, though.

George writes:

Corruption is a cultural outgrowth that takes a lot of norm-changing to eradicate.

One idea for getting rid of corruption: enshrine it in law. It's traditional to pay a government official $50 to get his stamp on a license? Fine: that's now the legal procedure.

Then you can chip away little by little at the odd and counterproductive quirks of the corrupt system by incrementally changing the laws. You won't provoke a massive immune-response kind of reaction from everyone who's corrupt, fearing that a general sweeping away of corruption will upset their apple cart. And they won't be afraid they'll be punished retroactively for corruption: they can collect the $50 until the law changes, at which point they can simply stop (or risk penalties).

Plus if the particular corrupt practice reflects some actual rational bargain or power-balancing act (e.g. teachers demanding bribes because their government salary is laughably small), there's some opportunity to use the political process to find an equivalent or better bargain (e.g. teachers will now be paid $100/year more by the government, and $10/year less by each student).

Again: practices we see as corrupt are, for better or worse, part of intricate systems which deserve to be called institutions. You might as well turn them into bad laws, so they can be slowly and openly replaced with good laws. Heck, you might even get officials in the habit of obeying the law (at least to the degree they do here in the U.S.).

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