Friday, August 23, 2013

A couple of economists walk into a bar fight

The New York Times briefly mentions that two famous economists disagree with each other--All the news that fits! They being Nobel laureate Amrtya Sen and Jagdish Bhagwati;
Mr. Sen argues that India, almost alone among emerging Asian nations, has failed to invest substantially in the health and welfare of its people. This failure could doom its economy and people, he says, because a country’s future growth depends just as much on its social infrastructure as its physical state.
India’s economy grew nearly 8 percent annually in the past 10 years, second only to China among major economies. This improved incomes for hundreds of millions and created a growing middle class....
But Mr. Sen argues that India’s growth has failed to translate into substantially better lives for hundreds of millions of others. 
 Followed by several paragraphs of how poor, malnourished, ill-educated are millions of Indians. Setting the stage for the Time's Gardiner Harris's claim that his rival is shrill, his verbal criticism is downright nasty. Well, judge for yourselves, thanks to Russ Roberts Econtalk podcast, out just this week.

Personally, we are of the school that thinks Bhagwati could quit his day job and make it as a writer for Jay Leno;
...this is a very important point, actually, the growth itself, as we doubtless know here, too, means that your revenues at any given tax rate are likely to go up. Once the revenues go up, then you can spend money additionally to improve the poor, not just by giving them gainful employment, but you can additionally improve their welfare by basically spending on health and education, mainly for the poor. So these we call redistribution, but they are social expenditures. And so that is the secondary impact. So that is something which we see in India right now, which is a lot of revenue has come in, enabling us finally to do something about health, education, etc., because the Prime Minister, who is a friend of mine from 60 years ago, we were at college together at Cambridge, he often would say: Look, I would like to spend more, but where the hell do I get the money from? Because you know, people like Amartya Sen and [?] used to just say, well we can spend money by reducing, you know, the expenditure [tanks]. If you don't buy a [tank] you can build 5 primary schools. But that is pure arithmetic. Go into the political process and say, I'm going to reduce defense? That's not always possible, particularly for countries like India which are surrounded by lots of--like Myanmar to our East, which is Burma, and then you've got insurgencies in the northeast, and the Chinese dabbling there and Pakistan on the other side. And then we've got Sri Lanka below, which also is being cultivated by the Chinese in a big way. But given all that, for me to go and say that we could reduce spending so we could have 5 more primary schools--they'll just tell me to go back to Columbia and teach there. Because that's not a valid thing. But on the other hand, if you are generating more revenues, that is really going to help. And that is what has happened. We see therefore a sequencing for large countries with too few rich and too many poor, and that applies to all the countries I mentioned. We first have to grow the economy. Then we come in, in a proper sequence, to spending more on social expenditures. Of course you can spend more at any time, but not significantly enough to make a difference to my argument.
....So any of my opponents, like Amartya Sen and so on, they don't have any such analysis on their side. They just assume that if it's growth, it's going to be for people like you and me and them. It's not going to be for the poor people. But that's not true.
There's quite a bit more evidence marshalled by Bhagwati that India's poor have had their lives improved by the growth that followed the elimination of the License Raj in the early 1990s. Evidence that the Times' reporter doesn't mention.

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