By Dani Rodrik
The economics occupation has develop into a favorite punching bag within the aftermath of the worldwide monetary main issue. Economists are commonly reviled and their impression derided by means of most people. but their providers have by no means been in higher call for. to solve the anomaly, we have to comprehend either the strengths and weaknesses of economics.
Dani Rodrik argues that the multiplicity of theoretical frameworks - what economists name ’models’ that exist aspect by means of aspect is economics’ nice energy. Economists are informed to carry different, almost certainly contradictory types of the realm of their minds. this can be what permits them, after they do their task correct, to appreciate the realm, make valuable feedback for bettering it, and to boost their inventory of data over the years. briefly, it truly is what makes economics a ’science’ a unique form of technology from physics or another normal sciences, yet a technology still.
But syncretism isn't a comfy frame of mind, and economists frequently jettison it for lost self belief and vanity, particularly after they confront questions of public coverage. Economists are liable to fads and models, and behave too usually as though their self-discipline is set the hunt for the version that works regularly and in all places, instead of a portfolio of versions. Their education permits them to down by way of navigating between various types and understanding which one applies the place. Ideology and political personal tastes often replacement for research in settling on between versions.
So the publication bargains either a defence and critique of economics. Economists’ state of mind approximately social phenomena has nice benefits. however the versatile, contextual nature of economics can be its Achilles’ heel within the palms of clumsy practitioners.
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Additional resources for Economics Rules: Why Economics Works, When It Fails, and How To Tell The Difference
Example text
Economists often go astray precisely because they fancy themselves as physicists and mathematicians manqué. 45 economics rules At the other end of the spectrum, critics scoff at economists’ scientific pretensions—chiding them for practicing make-believe science at best. 1 Perhaps even dentistry is too lofty a goal, in view of the variety of maladies and syndromes that afflict human societies. A good deal of modesty is in order about not only how much economists know, but also how much they can learn.
The lower price decreases their profitability, and they respond by cutting back their sales. But in a model of a market that is monopolized by a single firm, a moderate price ceiling (that is, a ceiling that is not too far below the unrestricted market price) actually induces the firm to increase its output. To see how this mechanism operates, a bit of simple algebra or geometry comes in handy. Intuitively, a monopolist increases profits by restricting sales and raising the market price. Price controls, which rob the monopolist of its price-setting powers, effectively blunt the incentive to underproduce.
Models do more than warn us that results could go either way. They are useful because they tell us precisely what the likely outcomes depend on. Consider some important examples. Does the minimum wage lower or raise employment? 2 Does capital flow into an emergingmarket economy raise or lower economic growth? 3 17 economics rules Does a reduction in the government’s fiscal deficit hamper or stimulate economic activity? 4 The answer to each question depends on some critical feature of the real-world context.