Here are two additional sectionettes from my “Notices of the AMS” book review entitled “Economic and Common Sense” on Steven Landsburg’s book “More Sex is Safe Sex – the unconventional wisdom of economics”. Both sectionettes deal with Government intervention in economics. The first is about fertilizer subsidies in Malawi. This was a move made by Malawi’s government against the advice of the world bank and against standard market economic teachings. Judging from the outcomes of the last couple of years it was a successful move. The second is an anecdote about administrative measures the US government took against inflation in the early 1970s, as told by Bob Aumann. I do not know if these measures were successful.
Current events, the financial crisis and the attempted bailout make the topics of these little sectionettes of some relevance. (And so is the issue of “what do firms want” and the larger issue of “economics and common sense”.) I do not think that the dramatic and sad current financial crisis by itself is definite evidence to support more liberal forms of market economy (which I tend to favour) rather than more conservative versions. (Or the other way around.) In other words, I tend to think that a crisis of this nature can occur (and perhaps cannot even be avoided) under both economic systems. The issue of governmental intervention is also far from being clear. The case for subsidies for fertilizers in a hunger-stricken country seems much clearer than (humongous) subsidies for financial institutions; both in terms of effectiveness and in terms of basic values of fairness and human dignity. Continue reading