Russell said...1) I really like economics. I get quite a kick out of my Masters degree in the subject, due for completion this year. Little more proof is needed than I'm happy to be identified as one in a society where economists are not exactly groovy.
So far I'm unimpressed. You don't seem to like economics so you're proposing that the world should work some other way. Unfortunately, economics doesn't force the
world to work a certain way; economics (good economics at least) describes the
way the world actually does work. If you don't like that, then you don't like
how real people behave.
2) The post upon which I was commenting made many assumptions about human behaviour.
Economic practice dictates that assumptions have to be made in order to simplify a chaotic world and allow fallible humans to make models, which can make reasonable predictions about future behaviour. If the model doesn't work, our assumptions need more careful scrutiny. All I did was to go along with the same assumptions Russell did and point out problems he hadn't considered in his account. Of course this is affected by opinions which sway the saliency of different economic arguments. Russell is also motivated by opinions which push him the other way. I don't see either of us as doing bad economics, merely using economic arguments to derive different opinions.
The danger is that orthodox economic theory has developed in such a way as to neglect important facts of nature. These theories are then used to make policy recommendations which can be devastating in their ignorance.
For example, most of its economic models are static, mainly because much of economic theory has developed for the convenience of mathemtics and the mathematical tools needed for dynamic analysis have only been recently discovered. As a result time is often neglected. Discussion is of states of the world and how to achieve them. Little is spoken of the evolution of such states and how the way in which something develops dramatically affects its current state. Now, most of Britain's industries are run in the private sector. This is mostly a good thing; the post-war central planning experiments were grossly ineffiecient. However, Britain has been able to develop appropriate legal frameworks and tacit accepted practices that control what businesses can get away with.
The Soviet Union had no such luxury. Overseen by Nobel laureate Jeffrey Sachs, the government was advised to privatise its assets to expose them to some market discipline. Good plan on paper. The enterprises were grossly inefficient and needed to be reformed to help insert some innovation into a sclerotic society, let alone economy (not that the two are separate entities but let's leave that for another time). Sold for rock bottom prices, what were formerly state assets were sold on at huge profit and the money flown out of the country, thus creating the notorious oligarchs, crippling Russia's infrastructure and impoverishing millions.
Now Prof. Sachs cannot be held to account for the oligarchs' immorality, but he should have recognised that the appropriate institutions were needed before Russia could successfully exploit the benefits of the market. To adopt the AE's argument, by neglecting the dimension of time, by ignoring learning processes necessary for competence and thereby failing to see how the world actually worked, Sachs was doing bad economics.
(This is not with the benefit of hindsight, either. A similar story occurred in Hungary a few years before. What is more, as director of Colombia's Earth Foundation, Sachs is once more making shock therapy cock-ups. In his book The End of Poverty his idea is implement decisive infrastructure projects and benefit programs to pull Africa out of poverty. One problem, this has been tried before, and little of the money was well spent. As economist William Easterly asserts, only by a system of gradual implementation could mistakes be corrected, lessons learnt and the money be effectively spent.)