Opportunity cost- i.e the value of the 'next best' alternative- is the key concept of Economics. As Ronald Coase pointed out, it is a 'global concept'. It does not depend on the decision space of any individual or group. Rather it is the best alternative to letting that individual or group decide. If they ignore the 'global opportunity cost', they may soon end up being decisive over much less. Thus opportunity cost is really about looking over your shoulder as you make a choice and ensuring that you are doing at least as well as the next best chooser whoever or wherever he may be. This is what drives 'Tardean mimetics'- i.e. imitating the superior.
A choice is economic, if- because of scarcity- the chooser may get weeded out or pruned back in his scale and scope of activity by impersonal forces. We may think of the Economic as a global force which does this weeding out on the basis of opportunity cost such that what thrives is what was better than its closest alternative.
It is tempting to say, 'Ricardo's theory of comparative advantage assures us that so long as we do what we have a lower opportunity cost ratio for doing, we'll survive. We won't be weeded out.' Sadly, if scarcity obtains, what will happen if you don't mimic the rival, is that you get demographically, or otherwise, replaced.
Making a choice is not the same thing as causing a state of the world to come into existence. If you make a foolish choice, the mechanism for its implementation may reject it. For a choice to have a causal effect, the status of the chooser should not be so diminished by it that choice is lost. Thus, the primary 'opportunity cost' of a particular choice is losing the capacity to chose anything at all.
This is particularly true of Collective Choice. It may appear that some crazy shit can be chosen. But if it is chosen, all that may happen is that crazy shitheads are disintermediated or else their imbecility is used as a camouflage by smart people to get what they want.
Ideologues constantly pretend that there is a feasible choice we must all now, for some silly pseudo-ethical or stupidly historicist reason, make right now. But any Society implementing that choice would degenerate into chaos. There has to be a robust mechanism such that a choice reliably returns the outcome chosen.
How can we differentiate stupid choices which won't be implemented from those that will? Speaking generally a choice which permits the status of the choser to persist is effectively implementable, ceteris paribus.
Sen's contribution to Economics represents crazy shit. Doing what he says means losing the ability to do anything at all. Of course, pretending you are guided by Sen, or the Archangel Gabriel, or whatever, may be a shrewd way of signaling that you are as hypocritical as you are greedy.
In 1971, India's Planning Commission was reconstituted with, Sen's pal, Sukhamoy Chakraborty, B.S Minhas, and MS Pathak (of Engineers India). Minhas, a Punjabi, resigned over the issue of Government monopoly of the wheat trade. He was offered his old job back after he was proved right but refused because by then the Emergency was in full swing. Pathak appears to have left for America for health reasons and to have worked in the technology sector there. Chakraborty thus was left as the one economist of note in a Planning Commission which everybody considered corrupt, stupid and harmful to the country.
Chakroborty himself seems to have believed that India could not exploit economies of scope and scale because...urm... Indians are shit. It couldn't just copy what other poor countries which had come up had done or were doing because...urm...Indians are shit. However, Indian economists could and should show great concern for the poor coz otherwise the poor might get angry and insist that India stop being shit. This would mean that Indian mathematical economists would be told to fuck off. The Planning Commission would be scrapped. India would just do what other similar countries had done to get ahead.
To be clear Planning is futile if planners think the country is shit and will always be shit. Imitating non-shite countries is the way to go. It is imitation, not planning, which causes development.
In 1974, Sen wrote-
Sen is explaining why his pal Sukhamoy was shit. It was because Sukhamoy had identified the nature of the State of the Government and the people of India as utterly shit. Successful planning required turning a blind eye to Sanju's corruption or whatever meretricious proposal the son of the Vice President came up with.
Obviously, fudging the numbers till the corrupt get what they want requires a very special type of Economic evaluation. It is the one thing the planner, or project evaluator, can control. Thus, either you can lie and be a planner, or you can resign because planning and project evaluation is about telling stupid lies. Of course, if there is something you can control, don't bother with planning or evaluation. Just do what smart people are doing. If they are moving to where the pay is better, do likewise.
Sen came from a part of India which was heavily penalized by the 'freight equalization' policy of the Government which meant industries could be located in 'backward areas'- i.e the constituencies of powerful politicians. The planners job was to fudge the numbers. Thus Sen writes-
some stupid foreign economists- more particularly if their Government are paying for this stupidity.
Sen is saying, in this paper, that if you are asked to make a plan or do a project evaluation, but have no control over how and what is done, then you are likely to be part of a scam. But, this is the central insight of Capitalism! If you control a resource, you have an incentive to plan and make and stick to a budget such that the resource is used more productively- i.e. profitably. It makes sense for 'ownership' and 'control' to go together. Otherwise you get 'Agent-Principal' hazard. This is what happened to Tagore's Bengal. Most 'zamindars' (tax-farmers who had been turned into landlords by the Brits in the belief that all these 'Thakur's would magically turn into 'Turnip' Townshends (i.e. they would improve their Estates and act like Whig aristocrats)) were absentee landlords. They lived in luxury in Calcutta just as the Anglo-Irish 'Ascendancy' landlord lived in luxury in London while their tenants starved. Tagore himself tried hard to improve his estates. But, he recognized that it was the 'kulak' whose ruthless methods and superior local knowledge who would inevitably replace the zamindar- howsoever liberal and progressive. This was not necessarily a bad thing if the marginal peasant migrated to the Cities and got a job in a factory. However, like Gandhi, Tagore hated industrial machinery.
Sen, ending his 1974 paper, explains why his profession is useless. Essentially these guys are fooled into thinking that their work will make poor people in faraway places better off. But they have no control over what will be done with their work. They are just providing an alibi of an arcane mathematical sort for a bunch of fraudsters who will gain control over the program and enrich themselves unconscionably.
In other words, Sen is saying 'look, you and I know that 'shadow prices' are useless unless they reflect 'global opportunity cost'. This means the open market price. The Soviet Union has screwed itself up because it is not using the global price for petrol, wheat etc. Sure, we can pretend that there is some 'labor theory of value' or some 'externalities' which change 'shadow prices'. But if we are not ourselves in control of what is happening, anything we compute won't be used for a good purpose. It will simply provide an excuse for some corrupt and mischievous action.'
Sen began his paper by pointing out that everything depends on the nature of the State and the Government. But this is outside the control of people like Sen. So either they are dupes or they get their own back by just making up any old shadow prices without bothering to do any complicated maths. Sadly, there was no difference between the painstaking calculation of shadow prices and just pulling them out of your arse.
Meanwhile, by 1974, everybody could see that countries which wanted to develop could do so simply by imitating other countries which had done so. Instead of bothering with 'shadow prices', they just looked at prices on open, global, markets. That's it. That is the whole story. Development Econ was useless (though necessary because of post War Capital and Exchange controls under Bretton Woods). However, Arrowvian Social Choice and Rawlsian Jurisprudence were even more useless. So was pretending Famine- which people like B.R Sen at the FAO had helped end by massively boosting agricultural productivity and distribution- wasn't about local non-availability of food. Thus, Sen concentrated on being more useless then those he left behind to do 'project appraisal'. It must be said, the World Bank did help China rise in the Eighties. Edwin Lim explains how this was done. In the Nineties, Lim was posted to India. He thought he had died and gone to Heaven! The Indians- people like Manmohan and Montek- were superbly educated and anxious to do even better than China. But Lim failed in India. Why? He says it was because Indian intellectuals and activists found it more profitable (because of grants from International Foundations) to prevent Development. It was a great feather in one's cap if one could say 'I stopped those evil bastards at the World Bank from financing such and such project'. Sen's oeuvre provided ammunition for this anti-development insurgency. To be fair, Sen wasn't against development. He just thought there should be endless public consultation and debate about everything before anything got done.
There was a huge 'opportunity cost' to Sen-tentious blather and 'woke' activism. In the end these nutters were disintermediated. India grew by night.
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