The Misconceptions of "Development Economics"

Topics: Wealth, Distribution of wealth, Economics Pages: 2 (511 words) Published: October 4, 2005
The Misconceptions of "Development Economics"

The main idea in this article is how much and what kind of government intervention should take place in developing countries. Some believe lassez-faire is the solution, while many believe a dirigiste dogma government is needed. There are also ways of reducing poverty and distributing assets in order for countries to become more developed.

Lassez-faire will only work efficiently if perfect competition is present. This is very unlikely to happen in today's economy, because of externalities in production and the inability to predict the future.

The main argument for dirigisme is based on a central authority directly controlling quantities of goods demanded and supplied. This authority must be benevolent, all-knowing and all-powerful in order to improve the market. This form of government also has its faults. There is no proof that the government will be more successful in foretelling the future than individuals. Outcomes based on one forecast could be much worse than a large number of participants in a market economy, because it is like putting all your eggs in one basket. A multitude of small forecasts would be a much more sound strategy, because bureaucrats are less likely to take care when forecasting because they do not lose financially when they are wrong. Overall, it may be better to let the private sector take risks according to their own judgments.

Another strong argument for dirigiste dogma is the idea of distribution of wealth and of everyone being equal. The desired distribution of the central authority could be attained by either redistributing assets or by creating lump sum taxes. The problem with distribution of assets is that there is no "just" distribution of income and assets accepted throughout out the world. This would not rid the country of its poverty like many people still believe. There are two ways to try to redistribute income and make everyone equal. The first is to raise...
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