Andrew M. Kamarck - Economics for the Twenty-first Century: The Economics of the Economist-fox

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ECONOMICS FOR THE TWENTY-FIRST CENTURY

Economics for the Twenty-first Century

The economics of the economist-fox

Andrew M. Kamarck

First published 2001 by Ashgate Publishing

Reissued 2018 by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
711 Third Avenue, New York, NY 10017, USA

Routledge is an imprint of the Taylor & Francis Group, an informa business

Copyright Andrew M. Kamarck 2001

All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.

Notice:
Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe.

Publishers Note
The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original copies may be apparent.

Disclaimer
The publisher has made every effort to trace copyright holders and welcomes correspondence from those they have been unable to contact.

A Library of Congress record exists under LC control number: 00054302

ISBN 13: 978-1-138-72024-4 (hbk)
ISBN 13: 978-1-315-19510-0 (ebk)

Contents

Guide

John Train, a noted investment adviser, when asked what is the best training for making investment decisions (i.e. the allocation of scarce resources), stated, To start with , I am quite sure what isn't: majoring in economics.... Investment success requires above all a knowledge of business...; a feeling for how people function; and a wide and deep judgment of affairs in general. [1994] On the contrary, economics, when it is not the desiccated subject of Train's scorn, provides the broad knowledge which Train considers necessary for investment success.

My colleagues during my career, particularly in the World Bank, demonstrated how economic training enabled one to take full advantage of all pertinent knowledge and experience to make wise investment and policy decisions. All of us, prior to joining the Bank, had held top positions in governments, central banks, investment banks, and other private sector businesses in countries throughout the globe. In coping with the new unique problems we were faced with in the initial years of the Bank, there was an intensive learning process profiting from the rich experiences available. It is impossible for me to identify exactly who was responsible for particular strands of my present fabric of thought. These were spun in a synthesis of discussion and experience.

I was fortunate in the last five years to participate in several workshops, organized and directed by Armand Clesse of the Luxembourg Institute for European and International Studies, as part of a series of a long-term project on "The Vitality of Nations". This project investigates, using a multidisciplinary and multinational approach, the issue of the rise and decline of countries. The project has produced a number of insightful studiesfrom which my own text has profited. The project fits precisely my interest in how economics needs to be approached and used to be valuable. Dr. Clesse accordingly included a workshop at the Harvard Faculty Club on 24 April 1998 on a draft of this book. A summary report on the workshop is annexed to this book. As is evident from references found throughout the book, the workshop was invaluable to me in validating and clarifying some of my thoughts, suggesting new ideas, and finally saving me from some errors that I had stumbled into. I also benefited from an additional critique that Jack Powelson was kind enough to undertake.

I am most grateful to my World Bank colleagues and Dr. Clesse, his collaborator, Anemone Thomas, and the participants in the workshop for all the benefit I derived from their association, assistance and guidance. If I have gone astray in some respect, it is, of course, my personal responsibility.

A person is not likely to be a good economist who is nothing else. J. S. Mill.

Isaiah Berlin, in his essay on the hedgehog and the fox, depicted the chasm between thinkers who relate everything to a single system, a single organizing principle, and those who see the world as too various to be caught by any single universal absolute. Conventional economics has been dominated by hedgehog theorists. Michael M. Weinstein described it this way:

On my first day as a graduate student in economics the professor introduced the discipline by intoning, "All of economics is a subset of the theory of separating hyperplanes."...

I...muttered, only to myself, that I had thought economics was about the plight of people living in sub-Saharan Africa or the impact of technological change on living standards....

Decades later, I find economics graduate students asking themselves the same question: where is the economics substance in graduate economics programs? [2000, 1]

Scholars have been expressing their dismay for a generation at the state of economics. In 1982, Wassily Leontief complained that the theorists producing mathematical models and econometricians fitting algebraic functions did not advance in any perceptible way a understanding of a real economy (Letter to Science ). And Mark Blaug commented that economics is becoming ... an intellectual game played for its own sake and not for its practical consequences, creating models which are ...scandalously unrepresentative of any recognizable economic system. [1997, 2-4; quoted in Sugden 2000, 28-9]

The Economist puts the economy's view of economists this way:

Is it any wonder that businessmen cannot stand economists? The typical manager never seems to face the same problem twice, always says exactly what he means, expletives included, and is certain that the people he deals with are not even remotely rational. He could not have less in common with the typical economist, who is always searching for universal solutions, cannot articulate them even when he finds them, and bases his entire view of the world on the principle that people are rational to a fault. [1997, June 14, 67]

To provide the explanatory power and useful guidance needed for people in the economy and government, economics has to be mature enough to recognize the extraordinary complexity of the real world. As Hicks insisted, "What we want, in economics, are theories which will be useful, practically useful." [Hicks 1983, 15 cited in Hutchinson 1996, 208]

My last book, Economics and the Real World, laid out the limitations confronted by economics in grasping that part of the real world that economic theory is assumed to cover. Most important is recognizing the roughness of the accuracy that is attainable in comprehending the real world. The sources of data often have their own agenda to exploit. Most economic phenomena are continua, categories are arbitrary, and the accuracy attainable is rough and imprecise. Further, there are major defects in some existing economic concepts and other necessary concepts do not yet even exist. Discovering or knowing a fact is without much meaning if one does not possess the necessary concept to understand it.

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