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… is from page 139 of Peter Bauer’s penetrating 1969 article “Dissent on Development,” as it is reprinted in the original 1972 edition of Bauer’s invaluable collection of the same name (Dissent on Development [2]):
The collection of resources for government financed or sponsored investment often has a substantial disincentive effect on saving, effort and enterprise, because of the taxation or controls imposed for this purpose. These disincentive effects can easily offset, or more than offset, the potential increase in income from investment. The contribution of [government-directed] investment to development is a net factor, after allowing for the repercussions of both the collection and the expenditure of the funds. These repercussions include not only a diminution of resources in activities or sectors from which they have been transferred, but also the consequences of their collection on the incentive to save, invest, undertake risk, incur effort and produce for sale. Yet many discussions on planning consider government development outlay as a simple addition to resources, regardless of the provenance of the funds or the repercussions of their collection.
This approach is in part an example of the practice of economics without costs, that is a treatment which ignores the alternative uses of resources absorbed by one activity.
DBx: Bauer was here addressing technocratic “Progressives” who rejected market processes in favor of grand plans designed and implemented by well-meaning geniuses armed PhDs and state power. But his words continue to ring true today, 51 years after they were first published, not only as a necessary warning of the hubris of “Progressives” but also of a hubris increasingly found on the political right, and particularly among “economic nationalists.”
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