Wall Street Journal: Why Economists Are Still Grasping
With the billions of dollars they are spending, Bill Gates, Warren Buffett, Bill Clinton and Bono are likely to make progress in their quest to prevent treatable diseases from killing millions of people. Nearly all of these people live or will live in poor countries.
That worries economist Simon Johnson. He doesn't doubt the moral imperative to fight disease. Still, he wonders: "Do we really know how to help the poor people — the increasing number of poor people? Do we really know how to help them out of poverty?"
Such questions haunt academics, governments, international institutions and global do-gooders. …
The article mentions three reasons why poor nations aren't catching up faster. The third mentioned is the one I think is core.
A third view is that earlier economists focused on the wrong thing. Mr. Johnson, among others, argues that what really matters is having solid political, legal and economic institutions — courts, central banks, honest bureaucrats, private-property rights — that allow entrepreneurs to flourish. Imposing what seem to be sound economic policies on corrupt, incompetent or myopic governments is doomed. Building strong institutions is a necessary prerequisite. In this camp, there is a running side argument about which comes first: the institutions or the educated people who create them. Was the Constitution key to U.S. success, or was it Jefferson, Madison and Hamilton?
In Mystery of Capital, Hernando DeSoto explains very convincingly that the poor in developing nations control upwards of ten trillion dollars in idle assets. Insufficient property rights and capital markets hinder the free flow of economic exchange and render these assets almost worthless.
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