Invisible Hand Article Analysis – Bloomberg
Mr. Stewart’s Economics Class
Fall Semester 2014 – Assigned Tuesday, October 7th 2014
Credit: http://www.bloomberg.com/news/print/2011-02-28/india-s-top-economist-slaps-dark-side-of-invisible-hand-books.html
India’s Top Economist Slaps Dark Side of Invisible Hand: Books
ByTimothy R. Homan-Feb 27, 2011
Franz Kafka had something in common withAdam Smith, the father of modern economics. They shared a vision of a system running on its own steam, writesKaushik Basuin his alluring new book, “Beyond the Invisible Hand.”
Smith’s system was benevolent, of course -- an “invisible hand” guiding the economy -- while Kafka’s was malevolent and surreal: Arrested and prosecuted, Joseph K runs from bureaucrat to bureaucrat in “The Trial,” trying to learn what crime he has supposedly committed in a society with no central authority.
This is what Basu, an Indian economist, calls “the other side of the invisible hand,” a dark side where individual actions unleash “oppression and malignancy” ranging from coercive contracts to discrimination. Kafka’s vision is, in some ways, more pertinent than Smith’s to the world today, he argues.
If that sounds like a rant from the blogosphere, look up Basu’s CV. A professor atCornell University, he’s now serving aschief economic advisertoIndia’s Ministry of Finance.
His latest book, subtitled “Groundwork for a New Economics,” aims to show that many economists have dogmatically accepted capitalist theories as fact and have failed, as a result, to scrutinize their own discipline. This blind belief has permeated society and politics with unintended consequences, he says. Why, the thinking goes, should the state get involved if workers agree to put in 14- hour days in hazardous conditions with no legal protections?
‘Rampant Misuse’
“The free-market proposition is a powerful intellectual achievement and one of great aesthetic appeal,” Basu writes. “But its rampant misuse has had huge implications for the world -- in particular, in the way we craft policy, think about globalization, and dismiss dissent.”
All too many economists and policy makers believe there is no viable alternative to unbridled capitalism, he says. In celebrating selfishness, they’ve forgotten that altruism can carry economic clout. Consider the billions of dollars in relief donors pledged toHaitiafter last year’s deadly earthquake.
This is a serious book, not bedside reading, as Basu himself says at the onset. Economists will be at ease with his use of technical jargon and proofs, while the uninitiated may struggle to keep up. Basu devotes the bulk of the text to deconstructing some sacrosanct tenets of capitalism that have become entrenched in government policy over the past 60 years.
Beyond Self-Interest
Contrary to laissez-faire theory, individuals don’t always act in their economic self-interest, he shows. Some people will die for a religious cause; others will forgo a desired product by participating in a boycott. Nor do free markets eradicate discrimination: Women still earn less than men in the U.S.
And what of the assertion that any governmental attempt to guide the invisible hand restrains society’s optimal potential? Free-market fundamentalists tend to forget the economic benefits that flow from state projects such asDwight D. Eisenhower’s Interstate Highway System, which got 90 percent of itsfundingfrom the federal government.
Would any of this have surprised Smith? Probably not. Smith was an 18th-century moral philosopher, and his concept of the invisible hand arose from a broader vision of a just society -- the same thing Basu is after.
To get there, Basu offers some recommendations. For starters, he would alter how governments and global institutions measure economic development. Instead of focusing on gross domestic product or per capita income, he would judge a nation by the income of the bottom 20 percent of its population. Using this metric, the U.S. drops in the world rankings from first to sixth, he says, whereas Japan moves from sixth to second.
Job Losses
In a globalized world, of course, countries that seek to counter poverty and inequality often lose jobs to locales with cheaper wages and laxerlabor laws. So companies that outsource jobs, says Basu, should be obliged to surrender a portion of their earnings to those adversely affected by the labor shift.
Just how this would happen isn’t clear; Basu is loose on the implementation details. He sees global governance as a solution for what ails the planet, though he doesn’t explain how such unity might be achieved. Perhaps he’s counting on a burst of altruism from global leaders, though there hasn’t been much of that on display at gatherings of the Group of 20 nations.