Friday, June 26, 2015

Fixing Problems Requires Understanding Them

Dambisa Moyo thinks that one of the problems of the economics profession is that we spend too much fighting and not enough time actually fixing problems, especially regarding poverty and economic development. Her solution is to put down ideology and pragmatically embrace the virtues of any and all systems of economic thought.

She uses the competing ideas of Hayek and Keynes as a framework through which to illustrate her point. He perspective is demonstrated by the pragmatism she thinks we need:
A balanced economic approach that draws on the Hayekian incentive-based prescriptions, but also recognizes the critical role of strong central governments to act effectively in times of crisis, their role in boosting aggregate demand, putting to work underutilized resources and clearing markets when they won’t clear themselves.

While Moyo's goals are laudible--economics serves people as it provides them guidance for ameliorating economic problems--her prescription will achieve her ends only if both Keynesian and Austrian theory are relevant and applicable in different circumstances. There a plenty of reasons to question the soundness of Keynesian theory and the success of Keynesian economic policy. It may very well be that we need to fight the intellectual battles to discover and establish true theory, so we can then rightly apply it in economic policy. Formulating economic policy based on bad economic theory is a recipe for doing more harm than good.

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