But economists, despite the abysmal predictive track record of their discipline, are forever recommending ways in which the institutional environment should be altered to make the economy work better.
Because politicians and bureaucrats have believed that economic advice is soundly based, this system-altering advice of economists has been taken seriously and acted upon – despite the frequent opposition of many other segments of society. Thus most of Europe has entered a monetary union that consciously restricts the freedom of its member states to undertake expansionary fiscal policies – because economic theory argues that government deficits are bad. Around the world, governments frequently oppose minimum wage laws – because economists argue that such laws increase unemployment. Tariff barriers have been reduced or eliminated – because economics argues that free trade achieves higher social welfare than regulated trade. Indebted Third World governments have been forced to abandon subsidies on basic commodities – because economists argue that these subsidies reduce economic growth by distorting the price mechanism. Russiawas rushed into privatisation – because politically influential economists believed that a rapid transition to capitalism was both possible, and preferable to a gradual transition. And the Western world’s middle class has been encouraged to entrust its future security to the ups and downs of the stock market – because economists believe that finance markets are inherently ’efficient’.
