Easterly on the intellectual costs of economic recession


William Easterly warns that the global crisis may have long-lasting, damaging effects through scholarly and policy choices:

[T]he risk of a backlash against individual freedom is far more dangerous than the direct damage to poor countries caused by a global recession, falling commodity prices, or shrinking capital flows. We’re already seeing this dangerous trend in Latin America…

A spreading fire of statism would find plenty of kindling already stacked in the Middle East, the former Soviet Union, Africa, and Asia. And there are many Western “development” experts who would eagerly fan the flames with their woolly, paternalistic thinking.

To Jeffrey Sachs, perhaps the foremost of these experts, the crash is an opportunity to gain support for the hopelessly utopian Millennium Development Goals of reducing poverty, achieving gender equality, and improving the general state of the planet through a centrally planned, government-led Big Push…

[A]fter a long and scary Great Depression, democratic capitalism did survive. And the U.S. economy returned to exactly the same long-run trend path it was on before the Depression.

We also know that, for another important part of the world, democratic capitalism did not hold up so well. In many ways, that failure stemmed from a misguided overreaction on the part of a new, influential field of economics that was highly skeptical of capitalism, was deeply traumatized by economic calamity, and considered much of the world “underdeveloped.” Born in the aftermath of the Depression, “development economics” grew on a foundation of bizarre misconceptions and dangerous assumptions…

First, seeing Depression-style unemployment in every part of the world led these economists to assume that poor countries simply had too many people who were literally producing nothing… Second, these thinkers lost faith in bottom-up economic development that was “spontaneous, as in the classical capitalist pattern” (as a later history put it), preferring instead development “consciously achieved through state planning.”… Third, these economists grew to believe that the most important factor in reducing poverty was the amount of money invested in the tools to do so. After all, if there were simply too many people, they reasoned, the binding constraint on growth must be the lack of physical equipment… Fourth, the collapse of international trade during the Depression made development economists skeptical about trade as an engine of growth.