December 15, 2005
The young Stanley Fischer problem

Iíve been mulling over a statement by Stanley Fischer that I quoted the other day, describing how he used to think while an important decision-maker at the World Bank:

...protectionism is the obvious way for people who haven't been trained to think. So as I started, I found all that very persuasive. [Ö] I was not fully convinced of the virtues of [a] more market-[driven] approach when I was in the World Bank in the late '80s. [But] the more I saw of what countries were doing to themselves and to their citizens, the more I moved in the direction of markets.

Hereís the practical problem: how do we minimize the damage done by well-meaning but naÔve dirigiste economists in positions of power, for example at the World Bank and IMF, before experience finally teaches them that markets work better than top-down schemes? Let's call it ďthe young Stanley Fischer problemĒ. (I donít mean to ridicule Fischer; in fact, Iím saluting his candor in admitting that experience has shown him the folly of his earlier protectionist-dirigiste views. No, really.)

P. J. OíRourke recently identified the general problem more humorously than I can, in a comment on a speech by British Conservative Party leader David Cameron:

Cameron appeared on Today and answered the usual question about what he was going to do about some terrible social problem with: "We're going to bring the best minds to solve this one." That was the moment when he lost me. The guy obviously doesn't understand the fundamental truth about politics, which is that the best minds only produce disasters. Scientists, for example, are famously idiots when it comes to politics. I agree with Friedrich Hayek, who said in The Road to Serfdom that the "worst imaginable world would be one in which the leading expert in each field had total control over it".

One approach to mitigating the YSF problem would be: reform our graduate training in economics. Teach some actual case studies of government failure, not just hypothetical cases of how to correct market failure. That wouldnít hurt, and Iím all for it, but it runs headfirst against all the professional incentives for professors and grad students in a world where the World Bank and IMF hire hundreds of full-time economists and consultants. The staffs of the World Bank and IMF have vested interests in inventing clever new missions for their agencies. Research demonstrating the agenciesí failings is not the ticket onto their professional gravy train. (Susan Anderson and Peter Boettke have documented the dirigiste leanings of research sponsored by the agencies here.)

So is there any way to really solve the YSF problem, short of liquidating the World Bank and the IMF?

Posted by Lawrence H. White at 05:39 PM in Economics  ·  TrackBack (0)

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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