Tyler Cowen: Jeffrey Sachs on Charter Cities, Paul Krugman, and How to Reform Graduate Economics Education
TYLER COWEN: To pick a success from the past, let me mention Poland. In my opinion, Poland has gone very well. It’s a great country. It’s been a success. If I made the following claim, would you agree with it? That you, Jeffrey Sachs, have done more for economic liberty through the medium and history of Poland than almost any other economist alive today? True or false?
.. In 1989, I made recommendations for Poland. I said several unusual things, like “Don’t pay your debts, get debt cancellation. You need emergency, a billion dollars on this date,” and so forth. Everything I recommended actually ended up happening with US government support.
.. Then in Russia two years later I was asked by Gorbachev and then by Yeltsin to help them, because they saw what was happening in Poland. They liked that. They wanted something similar. So I said exactly the same things, and the US government kept saying, “No, no way, no way.” I kept saying, “But that kept working there.”
I didn’t understand it in some deep sense for a long, long time, how weird this was. I knew it wasn’t the difference of economic advice. I understand what a financial crisis is.
TYLER COWEN: Culturally weird, you mean.
JEFFREY SACHS: No, how weird it was in the historical moment that things that had worked extremely well, had shown themselves, where I had had Brent Scowcroft and Bob Dole and others strongly supporting it, all of a sudden just no support from Washington. The IMF saying, “We’re not going to do this.” I said, “But, Richard Urban, you did that two years ago in Poland.” “We’re not going to do it.” “Why?” Flat.
OK. What’s the lesson of this? Quite important, actually. It’s a little bit off-topic, but very important. We didn’t want to help Russia in 1991. We wanted our unipolar world. I didn’t know that at the time.
.. I had had Brent Scowcroft and Bob Dole and others strongly supporting it, all of a sudden just no support from Washington. The IMF saying, “We’re not going to do this.” I said, “But, Richard Urban, you did that two years ago in Poland.” “We’re not going to do it.” “Why?” Flat.
.. What I didn’t understand was everything I said about Poland was immediately accepted because it was good advice and because Poland was going to be a bulwark of NATO. Everything I said about Russia didn’t matter whether it was good advice or not. Russia was on the other side.
TYLER COWEN: But China did it without us, without American help for the most part. What is it about Russia that meant Russia couldn’t do it? The problem was not like a Khrushchev-Kennedy dialog. But Russia must have failed in some other way where China more or less did not. What is that element?
.. JEFFREY SACHS: Many things. First of all, Russia faced in 1991 an extremely acute financial crisis. If you haven’t lived through a deep, deep, deep financial crisis, it’s hard to understand what it is.
.. But there’s a big difference of being a urban industrial, broken, Soviet economy.
TYLER COWEN: Which was deindustrializing eventually anyway.
JEFFREY SACHS: Which had so overgrown the investor heavy industry, and it was in a lot of collapse, versus being an agrarian, impoverished country, as China was in 1978. The pathways were bound to be very, very different. The geography is different, by the way, because China’s just filled with people who could do low-cost labor right at the ports on the east coast of China.
Whereas for Russia, it’s almost basically a landlocked landmass that was running off of petroleum which had collapsed in global price, which had collapsed in the physical facilities in the countryside, with collapsing steel mills, collapsing everything.
.. Syria had a huge drought, the biggest in its modern history, from 2006 to ’10. It led to many social ramifications that contributed to the explosion of violence starting in 2011.
This fact of these ecological crises turning into social catastrophes, I think, is a very real phenomenon. We should not presume that somehow we’ll just be able to handle this stuff. I’m told constantly, “Crisis leads to innovation and solution.” The truth is that’s sometimes true, and sometimes crisis leads to catastrophe.
.. Just a final word about that. We have so much statistical machinery to ask the question, “What can you learn from this dataset?” That’s the wrong question because the dataset is always a tiny, tiny fraction of what you can know about the problem that you’re studying.
If you want to know about the problem, get out there and learn about it. Don’t think that you’re going to find it in your dataset. For that we need a different kind of epistemological approach and a different kind of teaching approach as well.
I want our students out on the hospital wards, as it were