Page 86 - Global Political Economy_Understanding The International Economic Order

NEO CLASS ICAL C ONCEP T OF AN ECONO MY
issues as if they were solely or at least primarily technical problems.
Because economists believe that reality consists of only those matters
that they can model and quantify, even when they are aware of the
role of social factors or political forces that shape economic andpub-
lic affairs, they deem such matters to be outside the scope of econom-
ics andtherefore irrelevant because they cannot be measuredor mod-
eled. Therefore, economists deliberately ignore or downgrade such
factors in their analyses andpolicy recommendations. Whereas econ-
omists believe that economics is scientific, they frequently regardso-
cial andpolitical affairs as matters of personal taste andprivate
opinion.
Nonetheless, as Paul Krugman’s popular writings have indicated,
economists’ confidence in their ability to guide the economy and to
advance the commonweal had significantly weakened after Heller’s
1965 Godkin Lectures, mentioned earlier. The discovery of the “natu-
ral rate of unemployment” anddevelopment of the theory of rational
expectations revealedthe limitations of economists’ macroeconomic
policy tools. 46 Moreover, Krugman bemoanedthe fact that “policy
entrepreneurs” frequently displaced economists in providing eco-
nomic advice to society. Referring to supply-side economics and other
questionable economic doctrines, Krugman, using less than elegant
words, suggested that a major task for economists must be “to flush
such economic cockroaches down the toilet.” 47
As I discuss both the strengths and limitations of economics, I note
that the strengths generally outweigh the weaknesses. With the rigor
of their methods and the insights of their theories, economists have
made major contributions to public affairs and have tried, not always
with success, to safeguard the public against such a dubious idea as
trade protectionism and against the excesses of economic regionalism.
The economics profession itself, however, is deeply divided on such
issues as trade, monetary affairs, and economic development even
though the problems of the global economy andpossible solutions are
often treatedby economists as if they were solely technical matters
amenable to the methods of economic science. Although the contribu-
tions of economics have been crucial to our understanding of the
worldeconomy, one must also appreciate the role of political and

46
In nontechnical terms, the natural rate of unemployment is the lowest rate that an
economy can sustain without experiencing inflation. The doctrine of rational expecta-
tions posits that the market will always anticipate government policy andwill neutral-
ize its intended effects.
47
Paul R. Krugman, Peddling Prosperity: Economic Sense and Nonsense in the Age
of Diminished Expectations (New York: W. W. Norton, 1994), 291–92.
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