Wednesday, December 06, 2006

Jagdish Bhagwati Speaks Sense

Regular readers will recall that I have suggested for two years running that the Nobel Bank of Sweden prize should be awarded to Professor Jagdish Bhagwati and in today’s International Herald Tribune.

International Herald Tribune (6 December) there is a fine example of why this man, Jagdish Bhagwati, should be recognised by his peers as one of the very best theorists and practical policy exponents of economics alive today:

I must say that the notion that the free traders among us are into “very laissez-faire” positions is also mistaken. Our policy postures are not at all of the “hands-off” variety. To take an important example, the postwar theory of commercial policy, whose development owes much to my scientific writings, actually calls for supportive action for free trade to work for social good in many instances where the markets do not function well. Thus, if firms are free to spew CO2 in the air or dump mercury in the water, their private costs will not reflect their social costs. Adam Smith’s invisible hand, where we rely on market prices to guide us, may then point in the wrong direction. Only when we introduce tradable permits for polluting firms, or polluter-pay taxes, can we then argue convincingly for free trade” (Jagdish Bhagwati).

Apart from his use of Smith’s metaphor (we know what he means), his understanding of the needs of development, exemplified in the rest of his answers to readers’ questions, is outstanding for their good sense and for his unrelenting insisting on the full range of influences on behaviour to be taken into account in policy prescriptions (his insistence on freedom and justice – two close interests of Adam Smith – is typical, as with Amartya Sen).

Read for yourself at:


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