http://minneapolisfed.org/pubs/region/int9512.html
Interview with Kenneth Arrow
Region: In 1978, you wrote an article for Dissent titled 'A Cautious Case
for Socialism.' Given the recent changes in the Soviet Republic, would you
now make a 'cautious case for capitalism'?
Arrow: I should start by saying that, as usual with magazines, the title is
not written by the author. It was actually more of an autobiographical
account of my early concerns with socialism. Let me say that the ideals that
were sought for there, I still firmly accept. I think the idea that a
society has to be responsible for all of its citizens, those who do well and
those who do not, is really a precondition of a good society. Let me say
that from the time I first understood economic principles, I was always
concerned also that any system be operated on an efficient basis, which
meant decentralization because knowledge is not concentrated anywhere. It's
based on motivation, and so these are the advantages of, say, the cautious
case for capitalism, that the market system is efficient.
On the other hand, markets are not, in my opinion, a full solution to any
problem. The obvious problem they don't meet is the concerns of the welfare
of individuals who may get lost in the operation of the system--the
distributional question. We've seen this growing as we go further and
further toward a market ideology in the United States and the United
Kingdom. We've seen a decline in the welfare of the working poor, leaving
aside any other pathologies, just the working poor, a very distinct increase
at the very top levels.
This is not universally true by the way. It's not true of those European
countries that have maintained social welfare institutions to a much greater
extent than we have--Germany, France and, of course, the Scandinavian
countries; and they are not doing worse than the United States on an overall
basis. The fact is that the United States in the last 12 to 13 years has
shown a remarkably modest rate of growth per capita. So it's not that we're
unleashing tremendous productive forces.
The switch to the market in Eastern Europe, of course, has not exactly been
one of the greatest advertisements for the market. There's no question the
socialist system--and I hate to use the word 'socialist,' but I suppose some
description of a system in which the state is in control--was breaking down,
really collapsing. In these countries, most markedly in Russia itself and in
a number of the others, it obviously was based on a tyranny, which is
unacceptable even if it were producing good economic results, which it was
not. But the fact is the conversion to a price system, which according to
all our theories should have resulted in an immediate boost of productivity,
has done nothing of the sort. Some people say Russia is running at 50
percent of its gross domestic product under that during the Communist
period. In fact, none of the countries seems to have recovered the level
that they had under communism, although the other countries in Eastern
Europe are doing better than Russia and particularly the Czech Republic
seems to be doing modestly well. East Germany I can't count because they
have a rich uncle. You have economic benefits which have nothing to do with
the workings of the system. While I do believe that these countries will
sooner or later find an equilibrium and start a satisfactory rate of
progress, they're going for quite a long period through a tremendous drop.
I think on the efficiency level, not only the distribution level, capitalism
is a flawed system. It probably has the same virtues as Churchill attributed
to democracy: It's the worst system except for any other. And I think that's
right, but it cannot be thought that some unmitigated belief in free markets
is a cure even from the efficiency point of view. As I say, the United
States is not showing that now. The British probably could be getting
better, but they're not remarkable either. The fact is the heyday of
intervention, as in the 1960s, was our golden era, in retrospect, from the
point of view of growth. Admittedly, the reasons for the growth may have
nothing to do with the system at all, but with unexploited opportunities due
to the war and the Great Depression.
Classic economic theories recognize public goods aspects of one kind or
another--the need for economic intervention in, obviously, the supply of
infrastructure and, particularly in this case, of education. We're not
supplying that infrastructure at an appropriate rate today. I don't doubt it
isn't just money; it's organization and goals and so forth. The intrinsic
social structure, the family structure and so forth, is certainly in a very
bad state. And I think that this is showing up in productivity. I think part
of the reason, and I can't prove this, we're seeing a decline in some places
is the breakup of the family, which is partly the result of an extreme form
of individualism.
Region: Do you feel that intervention on the part of the state would
improve these matters? Education? Family?
Arrow: Education certainly. Education is still, in spite of private
education, a state matter. Family is a difficult matter. I must admit I do
not know that the state can intervene successfully in a family. It's a fact
that everything is connected with the individualist temperament, the kind of
economic environment which stresses the individual, but this is not directly
the result of a state policy, nor do I see any good way by which the state
could intervene except in some marginal ways.
...
Michael Pugliese
-----Original Message-----
From: Jim Devine <[EMAIL PROTECTED]>
To: [EMAIL PROTECTED] <[EMAIL PROTECTED]>
Date: Wednesday, February 07, 2001 8:48 AM
Subject: [PEN-L:7849] Re: RE: Re: RE: Critique of mathematical economics
>Mat wrote:
>>Many of the key contributors to the gen eq. theory, e.g. Arrow and Hahn,
>>have stated that the most important function of these models is to show
>>how impossible it would be for it to hold in the real world, since the
>>assumptions that are required for the solution would likely never exist.
>>So it is a 'negative' contribution in that sense. Hahn has a great quote
>>that neoclassical economics is:
>
>I couldn't find the quotation, but Hahn also once wrote that the actual
>attainment of Arrow-Debreu-Hahn general equilibrium might involve mass
>bankruptcies.
>
>It's interesting that Arrow considers (or once considered) himself to be a
>democratic socialist (and Hahn might too). Of course, by "socialist" he
>means that the state should play a role making the market work or something
>like that.
>
>I believe Debreu doesn't care enough about reality to deal with such
issues.
>
>Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
>
