Economic ideology and reality

Comments on TONY MAKIN “Fiscal stimulus, not Europe, to blame for economy”, 30/12/2011, http://www.theaustralian.com.au/national-affairs/opinion/fiscal-stimulus-not-europe-to-blame-for-economy/story-e6frgd0x-1226232857308

While it is ideally good that governments run balanced budgets, is there a point of process optimisation that may give rise to budget deficits and surplus in some years?

While monetary policy has been argued by many economists to be used as the macroeconomic policy tool to regulate the economy, haven't we already seen that monetary policy has its limitation as well, especially during the GFC 1, where interest rates were at or near 0 and economies were still struggling even with strong fiscal stimulus in the US and Europe?

Why do some economists only think along a particular line of thought with little regard to the reality and to whether it is working or not?

Besides, how can the traditional monetary policy along to deal with the two speed or patch work economy as Australia has witnessed with mining booms?

Economic theories and economic policies

Comments on Tony Makin “Saddled with legacy of fiscal extravagance”, 30/08/2010, http://www.theaustralian.com.au/national-affairs/saddled-with-legacy-of-fiscal-extravagance/story-fn59niix-1225911594527
While the argument of fiscal extravagance is correct, it is problematic to use the point that "in mainstream macro-economics, arguments in favour of using activist monetary policy, conducted under the auspices of more independent central banks, have dominated arguments for deploying activist fiscal policy", as the support against fiscal extravagance.

Even that point was correct in actual policy effectiveness (it is doubtful at the best) in normal circumstances, the nature of the GFC should question the generality of that point in the wake of the GFC.

Any economists, especially those who prescribe to actual policies, need not to be ideological in theories and need to take into account the differences between the assumptions in a theory and the real world conditions and take a pragmatic approach to policies.

Stiglitz, a strong Keynesian, is probably wrong in his judgement about the appropriateness of Australia’s fiscal policies in the wake of the GFC, some strong monetarists have been also wrong in continue to use the argument against any use of fiscal policy as a tool to deal with the GFC.

Both sides of the macro economists need to be realistic enough to realise some of their views may be wrong or incorrect sometimes!

Economists debate - interesting but not necessarily always productive

Comments on Richard Pomfret “Too soon for obituaries: economics is alive and (reasonably) well”, 4/06/2009, http://www.eastasiaforum.org/2009/06/04/too-soon-for-obituaries-economics-is-alive-and-reasonably-well/

Although I studied some economics, my economics is really rusty. So to engage in a debate among professional economists, especially academics, is a little over reach for me. It seems that all the people on both sides can be supervisors for me to do another PhD in economics (and one was actually my supervisor when I did one in the early 1990s, although I won’t say who). But I am encouraged by the ongoing economic crisis and may act like a venture economist (capitalist) in the debate. Forgive me if I am too naïve or wrong.

It is probably a fact and normal to have economists who may often disagree among themselves. In fact, some jokes on economists include one like that if you have N economists in a room you may have N or more different opinions.

Some economists tend to develop their own new theories (and some may withstand tests) by killing or wounding existing theories. Yes, it is perfectly normal to find the shortcomings of existing theories to progress and advance. But history of economics appears to suggest that the birth of new theories do not necessarily mean the death of existing ones. They may all live and thrive well under particular conditions, that is they may have their usefulness and suitable for some cases.

There have been debates between monetarists and Keynesians. The rational expectations revolution in the 1970s produced the famous result of policy ineffectiveness. But when times of crises, policy makers have no other tools but the two main ones: fiscal and monetary policies, though expectations have become an important part in modelling.

From these limited (but fairly famous ones) episodes of economics, it is not too difficulty to see that both monetary and fiscal policies as well as expectations, both rational and adaptive are useful. It is seldom the case in economics that one theory will always replace another, irrespective whether the proponents of new theories may tend to say otherwise.

So let’s move beyond formalities, though useful they may be, and focus on advancing economics. If the debate can provide some new useful insights into the current economic crisis, it will be good. It will be even better if some policy solutions can be found in the process.