A good game?
Sahram Nowzad, in his review of The Consequences of Economic Rhetoric, dismisses the debate among the book’s contributors as an intellectual game. This misses the point. If economic advice is important and has a payoff, we have to be concerned on how we arrive at that advice. Reasoning about reasoning is more than a ploy to avoid the charge of practicing a dismal science.
The debate is not new, but has moved beyond Keynes’ doubts on stochastic analysis to one of questioning a research agenda based on discovering a priori laws and their validation through statistical quantification (similar to the work of physicists).
Is the concern going too far, as Solow contends in one essay, threatening to throw out the baby with the bath water? Or, is the coin of mathematical formalism false specie as McCloskey, et al assert?
That the outcome can affect how economists advise can be seen in the same issue: nine authors in six articles write of the importance of achieving neo-Walra-sian equilibrium without mentioning the Arrow-Debreu conditions. Are they avoiding possible slurs from literary critics or, have they given up hope of persuading politicians, policymakers and even economists that meaningful guidance can be derived with its help?
At issue is whether the profession and those seeking its guidance derive present value from the application of the methodology of scientism to economics. The debate bears on the work of every economist who attempts to persuade. Contrary to Mr. Nowzad’s conclusion, I submit it is of no small consequence.
Bahram Nowzad responds:
Social conversation is an eminently enjoyable activity for its own sake, but an intellectual debate that just goes round and round becomes sterile after a while. Mr. Krowitz would have economists discover a priori laws and validate them through statistical quantification “similar to the work of physicists.” Alas, while certain economic magnitudes may be measurable, the workings of the economic system also depends on a complex amalgam of motivations, reactions, and behavioral tendencies, which are not easily quantifiable and are subject to change, complicating the task of the economist qua advisor. Mr. Krowitz’s “meaningful guidance” to policymakers is just as likely to be based on intuition, pragmatic common sense, and luck, as on statistically validated a priori laws, as any policymaker will tell you. As to the economics profession’s pretentious positivistic claims, the late Sir John Hicks put it well: “There is much of economic theory which is pursued for no better reason than its intellectual attraction; it is a good game.”
In their article, “The Price of Postponed Adjustment,” by Sebastian Edwards and Peter Montiel (September 1989), the authors are unable to explain why underdeveloped countries suffering from economic imbalances do not attempt to take steps toward adjustment, including the devaluation of domestic currencies. A special characteristic of developing countries is that adjustment decisions taken by policymakers always involve an implied decision to undertake a social and political adjustment in the country concerned. Experience shows that adjustment efforts result in political and social disturbances in developing countries.
Second, the worsening of international terms of trade is a fact, but it always occurs against the interests of primary commodity exporters and developing countries as a whole. This is not related to a period in time just before the emergence of a crisis or before a devaluation.
Finally, the distortion of the economic structures, the lack of coordination between production plans, and the continued worsening of the terms of trade are behind the rise of black markets and inflation, which is not the result of postponing adjustment.
Peter Montiel responds:
The Professor makes three points. The first one is a political one and outside the scope of the article. Our purpose was to identify some of the costs of waiting. Second, the issue about the secular behavior of the terms of trade is irrelevant to our article. Terms of trade tend to fluctuate for developing countries (whether around a rising or falling trend), and we simply say that devaluation too often followed episodes of worsening. Last, our article was not about the rise of black markets and inflation, but about the effects on premium (given the existence of black markets) and on inflation of postponed adjustment. Increases in the premium and inflation may also be caused by other phenomena, but we believe that postponement tends to have the effects on these variables described in our article.
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