Page 77 - Global Political Economy_Understanding The International Economic Order

CHA PTER T HREE
sence of empirical testing of their theories, strong differences flourish.
Rather than a theoretical consensus on macroeconomics, one encoun-
ters Keynesians, New Keynesians, Post-Keynesians, Classicists, New
Classicists, monetarists, proponents of rational expectations, and
other fractious schools of economists, all using formal mathematical
techniques andcoming to quite different conclusions, largely because
they start with differing assumptions.
Another problem limiting the usefulness of economics as an ana-
lytic tool is foundin large andimportant subfields of economics that
have never been testedor are in fact nonempirical andtherefore not
really testable. One such subject is the fieldof industrial organization.
The theory of industrial organization has made major theoretical
strides, especially through application of the model of noncooperative
games from game theory, a development that has made industrial
organization one of the most theoretically developed subfields of eco-
nomics. Even so, the fieldof industrial organization is confronted by
the serious methodological problem that, although many alternative
models of corporate behavior applicable to specific industries have
been developed, there is still no general model or overarching theory
of industrial organization. In fact, as Joseph Stiglitz has observed,
economists do not even agree on the fundamental model for analyzing
or describing the economy. 29 As Daniel Bell andIrving Kristol have
pointedout, most economic controversies involve differences over the
30
nature of economic reality. Andprospects for a science of economics
are indeed limited without agreement on the nature of the economy
itself; that is, which economic model/s shouldbe appliedto describe
the market. This leads to a situation where political and ideological
biases play a larger role in the acceptance of theories than economists
generally admit. 31
Economists’ assumption that economics is a universal science appli-
cable to all times and places can leadto analytic distortions andfaulty
policy prescriptions. Their inability or unwillingness to recognize the
significance of differences among states and societies and/or the in-
fluence of cultural andhistorical settings limits the usefulness of eco-
nomics. The imposedpolicy prescriptions of the International Mone-
tary Fund(IMF) following the East Asian financial crisis provide an

29
Joseph E. Stiglitz, “Another Century of Economic Science,” Economic Journal
101, no. 404 (January 1991): 134–39.
30
Daniel Bell andIrving Kristol, eds., The Crisis in Economic Theory (New York:
Basic Books, 1981), viii.
31
John Tiemstra, “Why Economists Disagree,” Challenge 41, no. 3 (May/June
1998): 46–62.
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