Front Matter

Front Matter

Author(s):
International Monetary Fund
Published Date:
November 2017
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    F&D

    FINANCE AND DEVELOPMENT

    BACK TO BASICS

    Economic concepts explained

    F&D

    FINANCE AND DEVELOPMENT

    BACK TO BASICS

    Economic concepts explained

    © 2017 International Monetary Fund

    Commissioning editor: James L. Rowe

    Managing editor: Marina Primorac

    Production editor: Lijun Li

    Copy editor: Lucy Morales

    Cover design: IMF Multimedia Services

    Back to Basics: Economic concepts explained

    Foreword

    PITY THE ECONOMIST. Financial stock prices have recovered from the great financial crisis of 2007–09—and, in some countries, are touching all-time highs. But the stock of economists remains in the tank.

    Not only did we fail to see the financial crisis coming—as Queen Elizabeth II memorably observed during a 2008 visit to the London School of Economics—but our economic policies seem to most people not to have restored the global economy quite to its bloom of earlier decades.

    Thus, politicians these days scorn “experts” and encourage voters to ignore them. They feel free to disavow even their own economic analysts in favor of convenient alternative views. Economic forecasting is widely derided as useless—or worse. How often have I been asked by a journalist, “Why should we believe anything you say, when you were wrong about ___?”

    There are sadly many ways to fill in that blank, and some criticism of economics is well justified. Yet, just as it is important not to overstate what economics can do, it is critical not to understate it. Economics is far from a precise science—who would expect to predict with any accuracy global outcomes that depend on the individual actions of about 5 billion working-age individuals, not to mention the intervention of natural and man-made disasters? At the same time, however, economics provides an essential tool for understanding, and to some degree shaping, those events.

    The articles in this collection, all from the International Monetary Fund’s quarterly magazine Finance & Development and updated in 2017, illustrate the rich diversity of questions that economics can illuminate. The best economic analysis clarifies thought: it is a mental discipline that helps make sense of complex events, ranging from famines, to bank runs, to housing shortages. It can proceed from the bottom up—focusing on the decisions of individuals and how they hang together at the economy level—or from the top down—reminding us how an economy’s resources, its technology, and its trading opportunities limit what its people and government can consume over time.

    As you will see reading these pages, economics is less than a science—which is what gets economists into trouble—but, looked at in another way, it is more. One of the architects of the International Monetary Fund, John Maynard Keynes, called economics “an easy subject at which few excel…. The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher—in some degree.” It may be the curse of economists that their subject cannot be reduced to a routine technical exercise—like dentistry, to use another example of Keynes’s. But that is also what makes economics so fascinating.

    —Maurice Obstfeld

    Economic Counsellor and

    Director of Research Department

    International Monetary Fund

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