On the World
Observation / Economics Profession and Crises
NEVATHIR
November 28, 2018
Before 2008 global financial crises, many economists considered the Great Depression a historical episode irrelevant to modern economy, which allowed cynical politicians and vested interests who took advantage of economists' ignorance to launch a overwhelmingly unfair class war during the past decade. There were honest politicians who treated the crises seriously, but they received little help from the economics profession.
Considering the scale of crises, the magnitude of fiscal expansion required for appropriate government intervention, and dysfunctional politics, modest stimulus packages were all honest politicians everywhere could hope for and managed to deliver.
A focused economic taskforce could have planned comprehensive rescue, but popular economics favoring markets over practical administrative intervention proved a formidable barrier for economic planning. The doctrine of free-market capitalism bears limited resemblance to modern economy, but its teachings formed widely shared values among the public.
Popular economics raised numerous issues against administrative intervention. A argument is administrative inefficiency at delivery and management compared with markets.
Popular economics credits price mechanism for apparent market efficiency. However, since goods traded on markets are produced by firms whose efficiency results from administrative coordination, popular economics merely tells a fragment of market optimization. Where price mechanism is less efficient than the firm, efficient administrative coordination exists. It's possible that appropriate administrative government intervention may deliver full employment at short time horizon.
Due to sticky prices, price mechanism provides poor short-run market adjustment toward full employment. Governments may not be spectacularly efficient, but markets are worse.
Efficiency aside, few economists have concrete policy agenda for fiscal expansion.
Although Keynesians agreed that fiscal expansion may restore full employment, the agenda remained theoretical with little or no specific policy recommendation for what to do with the money. Full employment restoration wasn't governments' regular concern. Thus, ad hoc stimulus packages results. For timely and effective response to financial crises, sustained macroeconomic management should be built into governments.
The public also questions whether governments understand people's wants.
Businesses study customers' wants everyday. Governments lack market feedback. For sustained macroeconomic management to work, governments have to aggregate people's preferences with statistical means and business partnership.
Keynesians provided theoretical explanation for financial crises, but not the foundation for appropriate government intervention. A designated taskforce for macroeconomic management makes the difference between effective policy and ad hoc stimulus packages.