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2011-01-14

No point to be pessimistic or complain

The following is my comments on a Chinese post on economics and economists, from a young student probably.

Comments on “现代经济学无法解决的最大问题”, see dayansui的日志, 8/01/2011, http://www.pinggu.name/space-924303-do-blog-id-79474.html

It may be useful to re-read the dominant economic theories in the 1950s, to early 1970s, i.e. the mixed economy, as opposed to the free market economy or pure market economy.

Among them, those who took a pragmatic view of fiscal and monetary policies, like Samuelson, may offer more than some of their more recent counterparts.

In that light, Keynesian should be broader than just active fiscal policies and include good monetary policies too.

On top of that, two or three points worth noting:

1. the long term consequences of fiscal policies, especially large government deficits and resultant government debts.

2. the target of macro policies, especially monetary police, should also target asset markets and their price stability or stable paths. Further, there is an issue of how to best deal with the sort of economic recessions like the current one experienced in the US and Europe as well as in Japan earlier.

3. the use of income and taxation policies and social welfare policies to deal with income inequality.

Along this line, it is not too difficult to advance economics in terms of macroeconomic policies (and some implications for microeconomic policies such as the avoidance of the sorts of economic behaviour like those reflected in the US sub-mortgages problems).

But, it is important to note that over regulations of the markets can be counter-productive and reduce efficiency. Another is not to create disincentives to not work.

Also, one should be mindful that in every field there is also a frontier where there are questions but their answers are yet to be found.

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