Page 82 - Global Political Economy_Understanding The International Economic Order

NEO CLASS ICAL C ONCEP T OF AN ECONO MY
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mative principle for economics. As a moral principle for individuals,
this idea cannot be faulted. However, its relevance for the real world
of political affairs is not only dubious, but the principle is highly
questionable in political terms because it assumes that absolute gains
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are important but relatedlosses are insignificant. State-centric ana-
lysts, on the other hand, stress the importance of relative gains or
losses as much or more than absolute gains.
This difference in emphasis can be crucial to evaluation of a partic-
ular development. For example, viewed by the criterion of Pareto op-
timality, an absolute gain to one state is justifiable. However, a state-
centric assessment couldbe very different. A case in point would be
an absolute gain in the wealth andhence in the power of an aggres-
sive state such as Nazi Germany in the 1930s. Such a development
wouldhave been morally justifiable according to the Pareto criterion.
However, in political terms, a wealthier Nazi Germany couldshift
the international distribution of power in favor of that potentially
aggressive state andthus the likelihoodof war could increase. Econo-
mists’ emphasis on absolute gains andstate-centric analysts’ emphasis
on relative gains in a worldof competitive states arise from their very
different assumptions.

Economists and Public Policy

The prominent role of professional economists in American public
life has been an important feature of American society since the end
of WorldWar II. In 1946 the Full Employment Act assignedthe im-
portant task of ensuring full employment to the federal government;
the Council of Economic Advisors, whose members have included
some of America’s most distinguished economists, was created by
that Act to assist the President and the federal government to carry
out this responsibility. Gradual acceptance within the economics pro-
fession of the Keynesian doctrine of demand management provided
the Council with the rationale andtools for macromanagement of the
American economy.
Celebrating the elevatedstatus of the economist in American public
affairs, Walter Heller, chairman at that time of President Lyndon

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This term is namedafter Vilfredo Pareto (1848–1923), an Italian economist and
sociologist.
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A Pareto-optimum equilibrium is one in which at least one individual’s welfare
wouldbe improvedandno other individual’s welfare wouldbe lessened.
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