Monday, September 21, 2009

The State of Macro Economics - End it!

The back and forth between fresh and saltwater economists has to end soon. The details are of interest only to the few ordained in what they think is higher mathematics. Most mathematicians I have talked to, in fact, consider the sort of math economists indulge in suspect in their selective usage -- a bit like shopping in supermarket. You take what you like on different shelves without too much attention how a math theorem is proved.

The "big picture" of this whole debate is not all that vague.

Market economics, read some version of laissez-faire, has to be the best available tool to create more wealth than any other know systems. To paraphrase the immortal words of Winster Churchill, "Free market is the worst economic system, except for all the others."

However, it is also clear that to allow total freedom in the economy is like allowing two football teams to police their matches without a competent, fair and uncorrupted referee. In other words, we need a government.

Here is the perennial problem. Call it "human conditions". You can't live with it (government), you can't live without it.

Most governments are indeed incompetent, unfair and corrupt. But if you totally abolish them, the end result may well be a state of permanent chaos and wars, a la tribal conflicts in Africa.

So what to do?

Well, free market won't work without a fair referee. To ensure the referee stay clean and fair, you need a political system to enforce. Ergo, democracy.

And then you need to invest in a competent government. It sounds easy, but history shows it ain't. Otherwise, we won't have so many underdeveloped countries whose biggest problem lies squarely in dismal public governance. Ergo they have lousy governments.

Ask any African, Latin American, Vietnamese, North Korean, Thai, and most recently Americans.

There are not so many secrets in economic or, indeed, political theories. It's the people, "stupid".

We cannot NOT have laissez-faire, but we cannot have total laissez-faire. We cannot allow a government to become "too" big, yet we cannot NOT have a government.

To find the "optimal" mix will continue to be a huge challenge for all of us. For there isn't one simple answer. The rest is just conversation. Sometimes it is interesting. Often it is self-indulgent for academics.

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