In the 19th century, classical liberal thinkers such as William Graham Sumner were clear about the institutions that had produced the amazing increases in the standard of living which were taking place at the time:
“Some men have been found to denounce and deride the modern system – what they call the capitalist system. The modern system is based on liberty, on contract, and on private property.” (1883)
Compare Sumner’s description of key elements with that from Elhanan Helpman’s recent survey The Mystery of Economic Growth, which, after 141 pages discussing the current state of academic debate on economic development, concludes
“Although it has been established that property rights institutions, the rule of law, and constraints on the executive are important for growth, the exact ways in which they effect income per capita are not well understood.â€
Cautiously, hesitantly, after a hundred and twenty years during which academic opinion almost unanimously rejected “the modern system . . . based on liberty, on contract, and on private property,†we have come full circle. Had Sumner’s institutional insights been considered expert opinion throughout this period and successfully implemented in nations around the world, poverty could have been eliminated long ago; imagine what a different world we would be living in if our universities had churned out generation after generation of Sir John Cowperthwaites, of all nationalities, each of whom advocated persistently for classical liberal economic policies in government, journalism, teaching, research, etc.
Even Helpman, however, doesn’t cite the correlations between increased economic freedom (as measured by the Fraser Index) and increased rates of economic growth. Worse yet, Jeffrey Sachs, Director of the UN Millennium Project, Scientific American columnist, and probably the most influential economist on the planet, explicitly denies that economic freedom has any relationship to economic growth. His NYT best seller, The End of Poverty, points out that economic growth is not correlated with the level of economic freedom, and then moves on without further discussion. Given the evidence that increased economic freedom, rather than level of economic freedom, is the salient variable, it is mysterious why he ignores this evidence.
Meanwhile, there are investment funds that explicitly focus on economic freedom indices, and successful investors have acknowledged similar principles throughout this period.
How can we improve the dissemination of valuable perspectives on how to alleviate poverty? Clearly the academic reputation system has not been an efficient mechanism for discovering and disseminating this information.
Reputational bets, such as the famous Ehrlich-Simon bet on resource scarcity, are a start. I’ve proposed a reputational bet between Jeffrey Sachs and Bill Easterly in which we compare, twenty years from now, the twenty nations with the largest gains in economic freedom with the twenty nations that have received the most foreign aid, excluding those in both categories, and see which collection experiences the largest average increase in per capita income. Sachs would refuse such a bet, knowing that he would lose, and would thereby be forced to acknowledge that institutions generally, and those that promote economic freedom in particular, do, in fact, have important implications for economic growth. He could no longer blithely mislead global institutions, political leaders, NGOs, the scientific community, and the public.
But tying academic reputation to predictive ability more broadly would have more profound repercussions for knowledge dissemination and reputation. We need to acknowledge the utter failure of academia, outside the hard sciences, as an efficient system for knowledge generation and dissemination (What exactly are the net social returns on our 120 year investment in academic sociology?). Prediction markets, success in which is tied to academic reputation in relevant fields, would profoundly change the process through which we identified and disseminated socially-validated expertise.
