The economics of socialism as economics of shortage. A critical review

Summary The article is an extended review of J. Kornai’sEconomics of Shortage. Salient feature of this book is a behavioural in place of a decision-theoretic approach to socialist economies. The article discusses central concepts of Kornai’s analysis as hard and soft budget constraints, shortage and slack, taut plans, sellers’ markets. The main hypothesis says that the achievements of socialism, work guarantee and redistribution, bring about soft budget constraints and thus cause shortage. It is argued, however, that existing socialist systems have ample leeway for economic reforms. Review article of J. Kornai, Economics of Shortage, Vol. I and II, North-Holland Publishing Company, Amsterdam and New York, 1980. Pp. XVII + 650. 2-Volume Set Dfl. 170,-.     

The insulation argument in neoclassical international economics: A critique

Conclusion In this paper I have tried to prove that the insulation argument for independent fiat currencies is flawed, both because of its lack of sound theoretical foundation, and because of its empirical irrelevance. We have seen that the confusion about essential monetary notions makes the case for monetary independence look intuitively appealing. However, the occurrence of asymmetric trade shocks cannot be a good reason in its favor, for such shocks are more an illusion due to an incomplete knowledge of economic history and to a weak understanding of the adjustment mechanism in a worldwide integrated economy. Moreover, regardless of the importance of such trade changes, devaluation cannot offset the need for relative prices and wages adjustment to match the impact of the change. And by the additional inflationary effects it entails, devaluation harms the structure of production and makes the adjustment even more difficult. Finally, we have seen that even if it is desirable to insulate a region against a foreign shock-when this shock is the manifestation of a boom—it is impossible to do it. The insulation idea should therefore be eliminated from the field of international monetary economics, together with the policies advocated on its behalf.     

The new local economics: A reply to John Benington

Attempts are being made to construct a “new local economics” and important claims are being made on its behalf. In present circumstances, its contribution, though with some valuable achievements as John Benington has shown, must nevertheless be marginal. The task is to gain the maximum leverage from minimal resources, and this article suggests that the key priorities should be to use local authorities' influence as purchasers, employers and investors.     

Supply-side economics: The rise to prominence

Conclusions At this point, I would like to summarize the main arguments presented in this article. I will then briefly comment on what I feel are the main implications of these arguments.     

The economics of philanthropy: The case of church giving

Conclusion The results from this initial attempt to explain church giving are heartening, especially the explanation of giving to the church for philantropic purposes. The “parsimonious” model outlined explains much of church giving. Those who would encourage philanthropic giving to the church should encourage joint consumption but discourage joint investment. Expenditures for “stones and mortar” discourage philanthropic giving in the church.     

Lending versus giving: The economics of foreign assistance

Historically, very little attention has been devoted to assessing the costs and benefits of concessional loans vs grants as the means of transferring resources to developing countries. Here it is argued that this omission is in part due to the lack of an acceptable analytic construct within which to measure the costs to donors and benefits to recipients of loans and grants. The paper proposes such a framework and explores some of the policy implications for development assistance policy, in particular the trade-off between the volume of assistance and the terms of that aid. The objective is to lay the groundwork for a more constructive dialogue between borrowers and lenders which, hopefully, could foster foreign assistance flows of greater value to developing countries.     

The new development economics

The theory of rural organization based on rational peasants in environments where information is imperfect and costly provides a simple explanation for a wide variety of phenomena in LDCs. It provides insights into both why sharecropping is so widespread and why it takes on the particular forms that it does; it provides an explanation of the interlinkage of credit and land markets, and of cost sharing. The paper argues that this theory provides a better explanation of these phenomena than do the competing theories. This theory can be viewed as an important application of a more general paradigm, the “Imperfect Information Paradigm,” which has been useful in explaining economic phenomena under a wide variety of settings: under competition, oligopoly, and monopoly; in labor markets, capital markets, in insurance markets, and product markets; and in developed and less developed countries.