Tag Archives: policy

Believing the assumptions of economics

Andy Haldane (Executive Director of Financial Stability at the Bank of England):

“Again, I have an evolutionary story as to why economics ended up in this place. I don’t think it’s because people were taking pay-checks from consultants or countries to cook the answers. I don’t think for a minute that was the core of it. It was driven by the quest for certainty, and mathematisation of economics was a means of achieving that certainty. It was the desire to have the laws of economics as well-defined as seemingly were the laws of physics or other natural sciences, as a basis for policy experimentation. They were all good reasons for wanting to make the discipline rigorous and robust.

I think one of the great errors we as economists made in pursuing that was that we started believing the assumptions of economics, and saying things that made no intellectual sense. The hope was that, by basing models on mathematics and particular assumptions about ‘optimising’ behaviour, they would become immune to changes in policy. But we forgot the key part, which is that the models are only true if the assumptions that underpin those models are also true. And we started to believe that what were assumptions were actually a description of reality, and therefore that the models were a description of reality, and therefore were dependable for policy analysis.”


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Previous policy reports for Rio+20: disconnected from the realities of power

Duncan Green:

“I have skimmed a few of the curtain raisers for next week’s Earth Summit in Rio, and sure enough, they fall into the familiar pattern of ‘If I ruled (or at least ‘managed’) the world’ documents: a summary of the research evidence, a call to arms (in this case save planet and species, preferably both), and a shopping list of policy recommendations.

In such reports, all solutions seem to be win-win. Beyond vague appeals for political will, there is almost no discussion of politics (there’s an election going on in the US – do you think that might be germane?), power (who gets to decide what, and what are their motivations) or the chain of events (shocks, elections, scandals, cumulative pressure from citizens, peer pressure from governments) that might possibly lead to something being agreed. Reports typically employ the passive tense – ‘innovation/cash/leadership is needed’, neatly avoiding having to identify just who has to do it, and why they might decide to do so“.

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