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December 11, 2010

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This quote sounds great as a way for economic theorists to get off the hook: The problem isn't theorists; the problem is policy makers in business and politics who forget the many qualifications mentioned by economic theorists from Adam Smith onward. Except I think Dixit lets economic theorists off way too easily. If politicians and business leaders are simplifying the lessons that can be learned from economic theory in a problematic way, it should be the duty of economic theorists like Dixit to set them straight. Economic theorists have a duty to see that their work is not misused by those who misunderstand their findings. After all, if they allow policymakers in business to misuse their theories, then they are part of the problem. Policymakers who convince the constituencies that their policies are backed by economic theory but who are forgetting the important qualifications nonetheless gain false credibility. I just don't see how it is acceptable for economic theorists who are in an ideal position to set such policymakers straight to sit back in an ivory tower while Rome burns.

So contrary to Avinash Dixit, even if his assertions that "economic theory came out of [the economic crisis] rather better than policy practice" is correct, I would suggest that economic theorists still have some serious soul-searching to do. Even if the problem isn't with economic theories per se, but rather with the way those theories have been misapplied, doesn't that suggest that something must change in the way that economic theorists interact (or choose not to interact) with policymakers and those who make use of their work??

Zach

Regarding the book review...what are your thoughts on his last paragraph, where he asks whether (in this new, multipolar world) rising economic powers such as BRIC would be receptive to your ideas?

It would seem to me that China and Brazil have consistently sent signals along these lines...I'm not sure about India (Russia isn't really a factor).

Would you agree with that? Have you had any interaction with governments there that you could share?

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