Transnational Social Policies: The Development Challenges of Globalization - Essay Example

Transnational Social Policies: The Development Challenges of Globalization 1. Introduction 1.1 Modern policymakers are responsible for putting into place policies that lend themselves to positive outcomes. These public servants would be doing a great disservice to their populations if they put into place policies that were not well thought out and researched. History plays a great role in making policy decisions. For the most part, history can teach us what worked and what didn’t work in the past. Policy makers would be smart not to repeat economic policies that have had negative results. New decisions (policies) based on old models that worked are more likely to prove successful. 1.2 One goal of many policy makers is economic growth. Rather than try to make policy without help, the policymaker would be wise to use models of economic growth that are available. The choice of models greatly depends on the circumstances at hand. For example, creating policy for a third world country based upon an economic growth model better suited to a technologically developed country would be a big mistake. Research of classical economic models would be needed. Also, these models can (and are) be expressed mathematically. Economic growth can be measured and predicted by changing factors used in these models/formulas. 1.3 Policymakers would be wise to lend an ear to the debates between Keynesian economists and classical economists. These economists may be able to put new modern factors into old models and calculate a positive outcome. The debate between economists can provide ideas about how to create successful policies based on the old models (while taking into consideration the new factors). Policymakers could make great use of formulas (mathematical representations of models) to calculate possible outcomes. 1.4 It is helpful to review the characteristics of Keynesian economics and classical economics. The Keynesian economic model is used to track changes in aggregate demand, price level, and gross domestic product1: C=consumption, I=investment, G=government spending, X=exports, and M=imports. GDP= gross domestic product. C+I+G+X-M=GDP 1.5 Keynesian theory asserts that the expenditure of the buyer is the income of the seller. Money is exchanged for something that the buyer values2. The Keynesian model allows for disequilibrium in the labour markets where aggregate employment is dependent upon aggregate demand3. There are several Keynesian models. Joan Robinson’s model focuses on the assumption that the economy is running at full capacity. Faster growth equals higher profits and savings are more sensitive to income than investment. Profits and demand are determined endogenously (within the model). Robinson’s model assumes full employment4. Daniel Morales-Gaomez notes in his writings that the Keynesian model expresses the notion that state intervention is needed to bring about economic development5. There is debate between those who believe that state/government intervention is needed versus those who believe government should not intervene. Classical economics (theories developed by noted economists Adam Smith, David Ricardo, Thomas Malthus, and John Stuart Mill) focused on growth, economic freedom, laissez-faire, and free competition. 1.6 Theories in classical economics changed greatly with the industrial revolution. Classical economics emerged during the change from a feudal society to a more capitalistic society. Classical economists of that era, Francois Quesay and Adam Smith, measured wellbeing by the national yearly income rather than the King’s treasury6. Classical economics assumes an economy at (or close to) full employment. When we think of classical economics we think of Say’s law that states that supply creates its own demand. Production in the economy equals demand. 2. Policymakers interest in debate between Keynesian and Classical economists 2.1 Policymaker’s interest in the debate between Keynesian and Classical economists can be understood by applying the following analogy: A doctor treats the sick, but uses what he has been taught to diagnose and treat his patient. When he has questions about medications he might use, he contacts the pharmacist. Another way of thinking about it is the cliché: Don’t reinvent the wheel! 2.2 Policymakers use economists much like the doctor would use the pharmacist. The policymaker would follow debate between different schools of thought so that he would be able to make the best decisions based upon the most current information. 2.3 Policymakers, for the most part, are members of government. Governments are run much as a business would be run. And, study of the business cycle is helpful when making policy decisions. It is noteworthy here to mention that Keynesian economic theory is the result of John Maynard Keynes attempt to explain the business cycle and that the practitioners of economics are mostly politicians. Policymakers are also much involved in wartime economics and post war economic recovery7. It is important that we have economists who are charged with the responsibility of keeping us aware of earlier contributions so we can repeat successes and avoid earlier mistakes.8 2.4 The Marshall plan spurred economic recovery in Europe following World War II. The plan was introduced to post-war European democratic socialist governments who were not willing to adopt economic policies based on classical economics. $13 billion of economic aid pumped into the European community spurred economic growth and recovery.9 2.5 A finding of the original debate between Keynesian economics and classical economics was that classical economics never produced a consistent theory on macroeconomic issues. A noteworthy rebuttal is that Keynes made no major theoretical contributions or policy recommendations. Also argued is that Keynes was a Marshallian (not related to the Marshall plan) and that Marshallian economics was the only model he knew well.10 In fact, John Neville Keynes (John Maynard Keynes’ father) was more a Marshallian than his son. Marshallian economic thought was the dominant school of thought from around 1890’s to about 1930.11 2.6 Although the question here is: should policy makers pay attention to debates between Keynes economists and classical economists? The broader question is: should policy makers be familiar with other schools of economic thought as well? The answer is “yes” and “no”. Yes, policymakers should consult with economists when drafting public policy. And, no. Public policymakers should not be economists who are well versed in economic theories or models (they would be biased). 2.7 Economists can play a big role in government policymaking by becoming well schooled in the many theories and models that would influence public policy. Although the debate between Keynesian and Classical economics is important, it is also important to recognize and examine other theories out there. There are notable Austrian, Swedish, and German economists who have made great contributions to Macroeconomics. 3. The Keynes – Classics Authenticity Debate 3.1 Abrosi argues in his book that many economists claim that they can give an authoritative account of economics following the Keynes tradition but soon follow their proclamation with what they presented “wasn’t all that accurate”12. This is in keeping with the authenticity debate that surrounds Keynesian economics. An example that gives merit to Ambrosi’s argument is David Colander’s comments: Although I argue that Keynesian economics should be saved, . . . Quite honestly, I do not care what Keynes said when; I do not care whether what I call Keynesianism is what Keynes really meant, and I do not think students care either. I am not even sure that Keynes really knew what he meant.”13 Ambrosi asserts that economist may need to shift their search for the authentic Keynes to some other form of authenticity such as documentable intellectual exchange14 3.2 Classical economics is not immune from the authenticity debate. Classical economists did little to substantiate the authenticity of classical economics. But, like Keynesian economics, just raising the question brought classical economics back to forefront of economic debate.15 3.3 It should be noted that Keynes began the Keynesian-Classics discussion by starting his work with Pigou’s version of classical economics.16 Keynes worked from the knowledge of Classics available (Pigou) rather than beginning his theory on original thought. One can say that Keynesian economic theory is built on classical thought. So, they are different but related. One question that has been asked by economic theorists is “did Keynes render a correct interpretation of Pigou’s classical economic theory?”17 That is open to interpretation. 4. Summary 4.1 Modern policymakers can put into effect policies that can lead to positive outcomes. History has taught us many lessons about what did, and did not, work. It is the job of policymakers to make good policy decisions based upon the information available to them. Policymakers can benefit from keying in on the ongoing debate between Keynesian economists and classical economists. Familiarity with both schools of thought is a must, but policymakers should let economists provide information, and history, to help with decision making/planning. There are several different versions of the Keynesian model contributed by notable economists such as Joan Robinson, Michal Kalecki, and Englebert Stockhammer. The Keynesian model suggests that government intervention is key to economic growth. Classical economics have undergone changes during Europe’s transition from a feudal society to a more capitalistic society. Determination of wellbeing changed from measuring the King’s treasury to measuring the national yearly income. Policymakers are, for the most part, members of the government. Policymakers depend on economists to keep them aware of earlier contributions to economic thought. This knowledge helps policymakers avoid mistakes made in the past and repeat successes. The Marshal plan spurred economic growth in Europe. The plan was mostly accepted because leaders at that time were reluctant to accept an economic recovery model based on classical economics. The debate between classical and Keynesian economics is ongoing with an argument that neither one produced a consistent theory. Policymakers should be aware of the debate between different schools of economic thought and should take advantage of economists who are well versed in macroeconomics. Models of economic growth would be very useful to policymakers as these formulas make it possible for the policymaker to change the variables and thus predict possible outcomes. Policymakers would be wise to include economists from different schools of thought as part of their policymaking teams. Authenticity continues to be debated in economic circles. The focus originally meant to authenticate Keynesian and Classical economics has done little but bring those two models of economic growth to the forefront of economic debate. And, finally, Keynesian economic theory has its roots in Classical economics. Works Cited 1. Farlex, 2006. http://financial-dictionary.thefreedictionary.com/Classical+Economics 2. Atlee, John S. Completing the Keynesian Revolution: A Conceptual Framework For Macroeconomic Science. 6/25/1997. Cambridge, MA www.iea-macro-economics.org/krev-sum.html 3. Deardorff, Alan V. Deardorff’s Glossary of International Economics. University of Michigan. 2001. 4. Robinson, Joan. Essays in the Theory of Economic Growth. London. Macmillan. 1962 5. Morales-Gãomez, Daniel. Transnational Social Policies: The Development Challenges of Globalization. Ottawa, ON Canada. International Development Research Centre. 1999 6. Hollander, Samuel. Classical Economics. Oxford. Blackwell. 1987 7. O’Driscoll, Gerald P. Jr. Economics as a Coordination Problem: The Contributions of Friedrich A. Hayak. Kansas City. Sheed. 1977 8. Yeager, Leland B. The Keynesian Diversion. Western Economic Journal 11. June 1973:1, 63. 9. Gimbel, John. The Marshall Plan. Stanford University Press. Stanford. 1976 10. O’Driscoll, Gerald P. Jr. Economics as a Coordination Problem: The Contributions of Friedrich A. Hayak. Kansas City. Sheed. 1977 11. The Cambridge Neoclassicals, Cambridge University, Cambridge. 2006. http://cepa.newschool.edu/het/schools/english.htm 12. Ambrosi, Gerhard Michael. Keynes, Pigou, and Cambridge Keynesians: Authenticity and Analytical Perspective in the Keynes-Classics Debate. Universitat Trier FB IV, VWL European Economic Policy. Palgrave. Macmillan. 2003. Page 9 13.Collander, David. Economics. Richard Irwin 1999. page 365. 14. Ambrosi, Gerhard Michael. Keynes, Pigou, and Cambridge Keynesians: Authenticity and Analytical Perspective in the Keynes-Classics Debate. Universitat Trier FB IV, VWL European Economic Policy. Palgrave. Macmillan. 2003. Page 12 15. Ambrosi, Gerhard Michael. Keynes, Pigou, and Cambridge Keynesians: Authenticity and Analytical Perspective in the Keynes-Classics Debate. Universitat Trier FB IV, VWL European Economic Policy. Palgrave. Macmillan. 2003. Page 13 Read More