Letter published in the Financial Times, February 23rd, 2022
In your leader today “Economics should never waste a good crisis” (FT View, February 12) you state that there is no way of running an experiment on a whole society.
This is surely mistaken. While it may not be possible to run a controlled experiment within a single country, the economic history of the last century is of a large number of countries being the subject (and usually the victim) of a succession of ‘whole society’ economic experiments.
‘Whole society’ economic experimentation, from the state control of the early Soviet Union and its later manifestations in many countries across the globe, including modern China, through the inflationary problems of the 1970s (and later of Zimbabwe and Venezuela and now, possibly, Turkey), culminated in the global Crisis of 2008, with its origins in the long-standing belief in the “dynamic stochastic general equilibrium” macroeconomic model allied to an uncritical acceptance of the virtue of unregulated markets.
This succession of experiments has been the standard human experience for more than a century, as a macroeconomic theory is proposed by persuasive economic advisers and implemented by governments, becoming the new orthodoxy (often, as you state, in reaction to the problematic consequences of the prior dominant theory).
We must hope that the current new initiatives for a fresh, less abstract and more realistic, approach in macroeconomics deliver better results for mankind than their predecessors.