Sunday, September 27, 2009

Sorman, Guy. "Economics Still Doesn’t Lie." CITY JOURNAL September 25, 2009.

“The French have heads not for economics but for politics,” Alexis de Tocqueville wrote wisely in 1848. Along with this disinclination toward economics, the French tend to be anticapitalist and friendly to state intervention. So for them, for others annoyed by economics, and even more for those who can’t stand the free market, the recession has an upside: it’s open season on economists. How could economists fail to predict the crisis? Doesn’t their shortsightedness impeach the very status of economics as a science? Not at all. Economists follow the scientific method. Based on observed facts, they measure, examine regularities, derive models from such regularities, and submit the models to criticism and to the test of reality. Thus economics progresses from one falsifiable hypothesis to another. Some models stand up to tests; these become laws that can be expressed mathematically; and the number of economic laws grows. Economics is a science because it is a system of thought that moves forward, leaving behind old notions that have proven false. And not least among its accomplishments is improving the condition of the human race. Consider the history of the twentieth century after 1945. Millions of human beings have emerged from poverty, and millions continue to do so. Eastern Europe is rebuilding; Brazil, India, and China are making great progress. But their accomplishments are not due to cultural shifts, political changes, or the sudden discovery of natural resources. Rather, these nations moved out of poverty and toward relative well-being by following sound economic strategies: free trade, business competition, and a stable money supply. These strategies are part of a broad consensus among economists about the way to achieve economic growth. Other elements of that consensus include the relation between wage levels and employment, Joseph Schumpeter’s concept of “creative destruction” (economic evolution spurred by innovation does not proceed in smooth linear fashion, but through alternating phases of expansion and crisis), and the advantages of securitization (namely, the spreading of financial risk). Economists continue to have lively quarrels, but these disputes generally take place within certain parameters. For an economist to contest the principle of free trade or to recommend inflation, for example, would be comparable to a physician’s practicing bloodletting. . . . Read the rest here:

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