Tuesday, June 11, 2013

Questionable Conclusions from an Interesting Premise

Tca Srinivasa Raghavan posts in The Hindu HERE 
Marginal Utility: Moral immorality” What if my altruism comes at your expense?
Three-and-a-half centuries ago, the Scotsman Adam Smith, the Bhishmapitamaha of western economics, wrote a book called ‘A Theory of Moral Sentiments’. His better known work, The Wealth of Nations, was based on the ideas in this book.
In a sentence, the former’s purpose was to explain to the morally underdeveloped English that human beings could be selfish and altruistic at the same time. A key purpose was to get the rich to be more caring for the poor.
That was fine except that he overlooked one thing: what if my altruism came at your expense and vice versa? That problem had to wait for Keynes to come along and create it. For, in 1936, Keynes enunciated a new idea, at least for the West. (It had been known as raj dharma in India for at least a couple of thousand years).
The basic idea is simple: it is the duty of the state to intervene to raise the level of economic activity in the country when it has dipped below morally acceptable levels. Its success was based not on an appeal to charity — as Smith’s had been — but to force. The state would levy fresh taxes on the rich to help the poor.
Your money, my happiness
This problem, of getting others to pay for your sense of morality, is what underlies the NAC’s (National Advisory Council) formulations. Had Mr. Smith been asked to review its antics over the last nine years, I am sure he would have written a companion volume called ‘A Theory of Moral Immorality’.
At the core of this confusion lies a problem that was identified by Kaushik Basu, now Chief Economist at the World Bank, in the mid-1980s. It asks the following question: why is aircraft design not determined democratically?
It was not a frivolous question. Dr. Basu was simply saying that no matter what it is, expertise is important. In creating and paying heed to the NAC, Sonia Gandhi disregarded this injunction because, thanks to Keynes, it was possible for her to pass on her pain to the taxpayer. Their collective altruism would be financed by you.
… Adam Smith had no economic policy agenda in mind and saw no direct role for the State. Keynes had no political agenda in mind in that he never intended his theory to be used for garnering votes.
Yet, that is what all democracies have ended up doing.
How it happened
It is a myth that only good ideas have many fathers. Even bad ones do. In this specific case, it happened because the idea of justice morphed into the idea of a just society — no one has ever rigorously questioned this transition because it is seen as being in bad taste — and the idea of a just society led to the politically beneficial idea of entitlements.
Leading the charge for the last was our own Amartya Sen. Inadvertently he created the intellectual basis for decent people, knaves and politicians to achieve a common purpose.
Sen’s idea that in a just society people have entitlements has been transformed to convert an entitlement into a legal right.
[There is much, much more in the long article: follow the link.]
Adam Smith’s take on some of the issues raised above include the government’s responsibility for what was known in the 18th century as “police”.  This is quite different from its meaning today as a function of “law and order”.  In Smith’s day “police” meant the responsibility of the government to ensure that towns and cities were supplied with necessary food subsistence for the consumption of the citizens living in them, which included removing obstacles to the free movement of subsistence goods from the countryside.  Parts of this process included removing bandits and such like by instituting the rule of law for all. 
This “all” included qualifying the absolute rule of Emperors, Kings, usurpers and governments noted for their “vile” behaviours, the removal of which took centuries, which alas has not yet been completed across large parts of the Earth.   However, this removal process was never seen by Smith as having being quickened by a revolutionary “quick fix”. Those who have attempted “quick fixes”, whatever the quality of their good intentions, have always led speedily to totalitarianism of some degree or another, a message not yet grasped by new generations, though their impatience is understandable given the vileness of their rulers.
Hence, Smith’s suspicions of “men of system” who are “wise in their own conceit” and think that people are like “wooden chess pieces” in the “great chess board of society” moveable about at the will of a “player”, ignoring the fact that in human societies every individual piece” is a person “who has a principle of motion of its own” (TMS VI.ii.2.17).  Revolutionaries, in their frustration, often resort to tyranny as bad, and certainly no better, that the tyranny that forced them to seize power.
I am not aware that Smith appealed “to charity” in TMS or WN and he certainly did not appeal “to force”. 
I wrote on Lost Legacy (November and December 2010), a critical review of Kaushik Basu’s “Beyond the Invisible Hand” Princeton University Press, 2010, to which he replied in May 2012, and we came to a clearer and more acceptable understanding of what he meant.
The statement that “Adam Smith had no economic policy agenda in mind and saw no direct role for the State” is questionable.  In a modern market-state society the proposition as it stands, in my view as a moderate libertarian, requires considerable qualification.
Moreover for Tca Srinivasa Raghavan to argue that Amartya Sen “Inadvertently … created the intellectual basis for decent people, knaves and politicians to achieve a common purpose” and that “Sen’s idea that in a just society people have entitlements has been transformed to convert an entitlement into a legal right” also requires qualification for me to be comfortable with it, in the light of my Smithian comments above about the inevitably long process it takes in human societies to change the deep rooted socio-cultural forms carried over from the history of the last 10,000 years or so.


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