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The Quiet Triumph of Economics

May 11, 2018 in Economics

By Diego Zuluaga

Diego Zuluaga

If an economist from 1918 could be transported to the present
day, he – back then, it was always he – would be both impressed and
disappointed.

He’d be impressed because economic science has long
settled what in his time was the most pressing empirical issue: whether a
system of production coordinated and planned from the top could
yield better outcomes than the independent actions of individual
people guided by the price system.

Today, there is no serious intellectual case for the planned
economy. That proponents of more central planning — through,
for example, industrial policy — wrap their arguments
in vague language about “long-term strategy” and “mission-oriented directionality”
is a testament to the lack of economic credibility such views
command.

The economist from 1918 would also be disappointed, however, for
the answers to other fundamental questions of economic policy
remain as elusive as ever.

There is ample room for
improvement in the way that economic science is conducted. But
those calling to tear economics textbooks apart and start over
should ponder the accumulated evidence.

What causes the business cycle, and how can downturns best be
combatted? What is the optimal mix of taxes and how high should
they be? Does the distribution of income and wealth have
consequences which economic policy should address?

More theories have been put forward to address these puzzles
than were available 100 years ago. But economists remain divided as
to their relative merits.

Furthermore, economic practitioners struggle, as ever, to
communicate their findings to the public. So yawning is this gap
that the subjects where there is the greatest consensus among economists
such as the benefits of free trade, immigration and competition
— remain hotly contested among the general population.
Indeed, there is no shortage of well-meaning people who blame the recent populist surge
across the West on a failure of economics.

Yet, expectations that economic science will eventually deliver
permanent political stability and universal contentment are
destined for disappointment. But what economics can do is help to
avoid the perennial instability and spiral of poverty
characteristic of 1960s China and 2010s Venezuela.

Think of economics, therefore, not as a recipe for the good
life, but as an insurance policy against the worst consequences of
human folly.

As with any insurance plan, there is a premium that must be paid
in the short term. Thus there should be no price controls on politically contentious
items. Subsidies to favoured industries must also be avoided. Tight
controls on the movement of goods, capital and …read more

Source: OP-EDS

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