Sen starts off by asking three questions, the first of which highlights something of an ideological problem:
“First, do we really need some kind of “new capitalism” rather than an economic system that is not monolithic, draws on a variety of institutions chosen pragmatically, and is based on social values that we can defend ethically?”
Perhaps. Perhaps old and new capitalists need to broaden their thinking. This leads him to a second question:
“How do we assess what is taught and championed among academic economists as a guide to economic policy—including the revival of Keynesian thought in recent months as the crisis has grown fierce?”
Sen suggests that Keynes has limitations, and focuses on those limitations by contrasting him with Cecil Pigou , a Cambridge economist with whom Keynes disagreed. Sen argues that what Pigou focused on that Keynes did not was how much human psychology effects the markets (pessimism creates a vicious circle), and the importance of addressing the problems of the poor and disadvantaged:
“There is a critical need for paying special attention to the underdogs of society in planning a response to the current crisis, and in going beyond measures to produce general economic expansion”
If Sen means that we have a moral duty to focus on the poor and disadvantaged in pursuing economic policy decisions, then I would somewhat agree. Few ideas can potentially preserve American dynamism, social mobility and egalitarianism (freeing it from grip of even the most righteous (E)galitarians). However, few ideas could so easily become (and so often are) idealized, codified, and enforced by by those who know what’s better for us than we do. I’m a little wary.
Sen’s main focus though is on Adam Smith, and he argues that Smith understood the fact that free-markets don’t function in a vacuum; they require moral, legal, and other institutional support structures for their survival. A system of laws and economic practice is required to maintain and enforce a basic level of ethical/moral activity in the markets, and was developing rapidly during Smith’s time:
“Investment in productive businesses could not flourish until the higher rewards from corruption had been moderated.”
Agreed. This is deep, pragmatic wisdom.
Sen also points out that the reaction to Smith’s Wealth of Nations was quick to come:
“While a number of socialist critics, most notably Karl Marx, influentially made a case for censuring and ultimately supplanting capitalism, the huge limitations of relying entirely on the market economy and the profit motive were also clear enough even to Adam Smith.”
I’d just offer that the Marxist/Communist worldview is still very much with us, influencing me, you, Sen, India, Europe…and some of those who perhaps cling too tightly to “capitalism” right now. It’s not as urgent an issue as many zealots on the right here in America may claim…but it’s certainly there.
So what to do? Sen suggests we could try and solve the health-care situation (we are spending a lot of money on a rickety, ineffecient system) but even in doing so, we need:
“Third, in addition to working our way toward a better assessment of what long-term changes are needed, we have to think—and think fast—about how to get out of the present crisis with as little damage as possible.”
But how do we do as little damage as possible?
“What is also needed is a clearheaded perception of how different institutions actually work, and of how a variety of organizations—from the market to the institutions of the state—can go beyond short-term solutions and contribute to producing a more decent economic world..”
I’m still a little wary of that state part.
Obviously, I’m not an economist, so I’ve probably just stepped into a heated debate…one with differing schools of thought and competing influences. One of Sen’s suggestions seems to be that we need to think more about having government in the picture, which is in line with much of the views that seem to have animated his life’s work.
Any thoughts and comments are welcome.
Addition: This is a quite liberal, center left, but economically profound vision about which I harbor much doubt. Does Sen’s thinking truly address America’s current issues with an understanding of its traditions? See the above post.
Related On This Site: Is health care a right? From If-Then Knots: Health Care Is Not A Right…But Then Neither Is Property? Martha Nussbaum worked with Sen in India…Martha Nussbaum In Dissent–Violence On The Left: Nandigram And The Communists Of West Bengal
Also: Robert Nozick anticipates arguments for distributive justice in his libertarian response to similar arguments: A Few Thoughts On Robert Nozick’s “Anarchy, State and Utopia”