In the Wall Street Journal, Deirdre McCloskey reviews Daron Acemoglu’s and James Robinson’s Power and Progress. Three slices:
Mr. Acemoglu is a prolific economist and a shoo-in for the Nobel Prize; his MIT colleague Mr. Johnson is an economist and professor of management. In “Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity” they claim that the billions of daily decisions by you and me—to venture on a new purchase or a new job or a new idea—do not “automatically” turn out optimally for ourselves or society. In particular, poor workers are not always helped by new technology. The invisible hand of human creativity and innovation, in the authors’ analysis, requires the wise guidance of the state.
This is a perspective many voters increasingly agree with—and politicians from Elizabeth Warren to Marco Rubio. We are children, bad children (viewed from the right) or sad children (viewed from the left). Bad or sad, as children we need to be taken in hand. Messrs. Acemoglu and Johnson warmly admire the U.S. Progressive Movement of the late 19th century as a model for their statism: experts taking child-citizens in hand.
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Since the 1920s, economists from John Maynard Keynes to Paul Samuelson to Joseph Stiglitz have been claiming, with increasing self-assurance though with surprisingly little evidence beyond the blackboard, that (1) private arrangements work poorly, (2) the state knows better, and (3) we therefore need more state. Messrs. Acemoglu and Johnson have long believed in this anti-liberal syllogism. Statism recommends a growing Leviathan, as Mr. Acemoglu argued equally eloquently in “Why Nations Fail,” a 2012 book with James Robinson.
We need, in other words, the legislation currently being pushed by left and right to try again the policies of antitrust, trade protection, minimum wage and, above all, subsidy for certain technologies.
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“Power and Progress” puts forward a new statist agenda and argues against a foolish reliance on individual discovery and free entry into jobs and markets. Well, so what? What’s wrong with their case for a new Leviathan, so long as it is advised by certain economists from MIT?
For one thing, Messrs. Acemoglu and Johnson use economic history uncritically. When they want to praise Progressivism, they do not mention its fascination with racism, eugenics, compelled sterilization and nativism, detailed in such works as Thomas C. Leonard’s “Illiberal Reformers” (2016). When they want to tar capitalism with slavery, they appeal to the recent “King Cotton” school, popularized in the “1619 Project.” When they want to criticize the practice of surveillance in the early factories, they do not acknowledge the universality of surveillance in any organization, as analyzed for the Royal Navy in the economic historian Douglas Allen’s book “The Institutional Revolution” (2011). When they want to cast doubt on the gains from early industrialization, they speak of “long hours” and “crowded cities” as though traditional jobs in the field and workshop did not have long hours and as if those who chose to go to cities seeking work went there mindlessly.
As an economic historian, I do admire their attempt to bring history to their argument. It’s something Mr. Acemoglu does in all his books. But it’s disastrous for real science to close your ears to the other side. Science advances by conjecture and refutation, both. If history is to be used, it must be tested. Messrs. Acemoglu and Johnson don’t.
The deeper problem in the science of the book is its economics. Look at the numbers. During the past two centuries, the world has become radically better off, by fully 3,000% inflation adjusted. Even over the past two decades the lives of the poor have improved. The “great enrichment” after 1800 and its resulting superabundance has brought us out of misery. Even the poor workers who did not benefit in the short run have done so enormously in the long run. In 1960, 4 billion of the 5 billion people on the planet lived on $2 a day. Now it’s fallen to 1 billion out of 8, and the income average is $50 a day. The state didn’t do it, and forcing short-run egalitarianism or handing power to the Office of Economic Development can kill it, as it regularly has. Messrs. Acemoglu and Johnson see great imperfections in the overwhelmingly private sources of the enrichment. With such imperfections, who needs perfection?
Another way to see the problem is to remember the common sense, refined in Economics 101 and Biology 101, of entry at the smell of profit. Messrs. Acemoglu and Johnson seem to have missed out on those courses. The great fortunes they deprecate have the economic function of encouraging entry into the economy by other entrepreneurs who want to get rich. This competition cheapens goods and services, which then accrues to the poor as immense increases in real income.
Also diving into Patricia Cohen’s NYT ‘report’ is John Cochrane. A slice:
In this sense the classic teaching of economics does a disservice. We start with the theorem that free competitive markets can equal — only equal — the allocation of an omniscient benevolent planner. But then from week 2 on we study market imperfections — externalities, increasing returns, asymmetric information — under which markets are imperfect, and the hypothetical planner can do better. Regulate, it follows. Except econ 101 spends zero time on our extensive experience with just how well — how badly — actual planners and regulators do. That messy experience underlies our prosperity, and prospects for its continuance.
(DBx: Cochrane is correct about most Econ 101 courses, but not about all of these. I begin my Econ 101 course – actually, as George Mason University numbers it, Econ 103 – by describing in great detail just how very materially deprived were nearly all pre-industrial-era human beings compared to ordinary denizens of modernity. I make clear that our standard of living today is made possible only by free markets in societies that allow permissionless innovation.)
AIER president Will Ruger announces AIER’s new publication, New Deal Rebels, edited by Amity Shlaes.
Bob Murphy talks with Steve Landsburg.
