Dani Rodrik has tried to articulate the effectiveness of economic methods while explaining a model. He points out the strength of Economics in a smaller scale and clarifies its causes and effects on the ground of social reality.
Dani Rodrik is an economist whose research revolves around globalisation, economic growth, development and political economy. He is a professor of International Political Economy at Harvard University. He is currently president-elect of the International Economic Association (IEA). This book titled “Economic Rules - The Rights And Wrongs Of The Dismal Science” is a personal tribute to his profession and a comprehensive account of its current state. This book is about the level of criticism in mainstream economics and the use and misuse of economics ideas.
According to the author, mainstream economics has been a subject of multiple criticisms. Due to ongoing global crisis, public awareness about these issues has grown gradually. Multiple theoretical and political questions are now being raised about economics from different angles. This book is also such a compilation where the author focuses on the strengths and weakness of Economics. Dani Rodrik has tried to articulate the effectiveness of economic methods while explaining a model. He points out the strength of Economics in a smaller scale and clarifies its causes and effects on the ground of social reality. Through this book he aims to bridge the gap between the views of economists and non-economists.
In the introduction he has dealt with the use and misuse of economic ideas. He has explained why economics sometimes gets it right and sometimes does not. According to him the Economic Model has a mathematical framework that economists used to make sense of the world. Models are both economics’ strength and weakness, making it a science but not one like Quantum Physics. At a primary level the author deals in three sets of economic ideas that are used in different areas: world economy, urban transport and poverty reduction. To deal with these, economists all over the world apply simple Economic Framework to predict the development of an economy. In this interpretation the discipline is associated with an apparatus of formal modelling and statistical analysis rather than particular hypothesis about the economy. Besides calculating the economy of a country, economic methods can be applied to other areas to understand social and political life. Hence, he admitted that each economic model is our best cognitive guide with endless information that constitutes social experiments.
The first chapter is about models where the author makes a case that simple models are essential to understand the work of a society as they capture the effects of reality. The models are valuable as long as they carry the quality of simplicity, and formalism and neglect many facets of the real world. He says: “When models are selected judicially, they are a source of illumination and when used dogmatically then it results to errors in the policy”. As a reader goes ahead, she finds that the book’s starting point is that the distrust of economics is mainly because of a mix of misinformation and misrepresentation. Rodrik identifies the main culprit for its dismal reputation as being a widespread lack of understanding of economics, its unique methodology, and role of models.
Methodology and models are the two focal points of the book which are covered in four chapters out of six. The remaining two chapters are devoted to the responsibility of economists and how criticism can be challenged in a constructive manner. The book thus offers a summary of the main practices of economics, its theoretical and empirical ‘rights and wrongs’, ending with a number of ‘commandments’. Rodrik predicts that if economists can manage to create more empathy for the methodology of their discipline and act in a more modest manner with respect to their models, much of the ‘outside’ criticism would disappear.
The first part of the book is dedicated to the basic features and practical purposes, as well as the explanatory merits and limits of economic models. Rodrik explains in detail, and with vivid examples, why the use of abstract models, in a formal or non-formal way, is essential for the understanding of how societies work. These models are based on a reduction of the complexity of social reality. Thus, to the critics he says that leaving certain factors and relations out of the analytical perspective is the strength of Economics and not its weakness. He describes hypothetical modelling as an inevitable technique to sort subject matter and focus on economic questions with a clear explanation. In chapter three, Rodrik discusses general principles of model selection and illustrates his point with a concrete example, his model for ‘growth diagnostics’.
Chapter 6 and 7 of this book deal with the idea that can result from economic modelling and that also criticises economics on some ground. Here, Rodrik discusses major pitfalls of the profession under the topics of ‘error of omission’. He explains that past failures have resulted mainly from an unjustified ‘overconfidence’ of certain preferred theoretical models. He gives the example of the famous Efficient Markets Hypothesis, as well as from short-sighted policy recommendations. with Whe help of the Washington Consensus, Rodrik elaborates why policies will sometimes fail. Although it was stabilized, privatized and liberalized (p. 160) – which favoured catching up via unfettered markets but it ultimately failed in real world. He links these policy failures mainly to ignorance of their limitations, and thus it is a structural barrier to economic development.
He explains the reason behind China, being successful. It is because the so-called Asian tiger undertook fine-tuned industrial and trade policies rather than laissez-faire. But Rodrik is rather overly optimistic on this point, claiming, in a positivist way, that economists learned their lesson and certainly would be more cautious with their predictions. Economics Rules is geared towards a wider audience and so far, has attracted many positive reviews. Nevertheless, it provokes some critical questions. What does Economics Rules actually have to say to heterodox scholars? The heterodox scholars will probably sympathize less with Rodrik’s appreciation of neoclassical and New Classical theory, or even with his narrow remarks on classical political economy. The book leaves open a number of key issues. It remains unclear why economic methodology should keep ‘hierarchies based on rank, personal connections and ideology’ out of the discipline.
Overall, a substantial part of this book is devoted to showing that Economics encompasses a large and evolving variety of frameworks, with different interpretations of how the world works and diverse implications for public policy. Criticising both the economist and non-economists he said that the economists need a better story about the kind of science they practice. For non-economists he said that there is much to criticise in Economics but there is also much to appreciate.
From a reader’s point of view, Rodrik seems to ignore the existence of an elite in Economics and downplays its consequences. Another striking point is Rodrik’s response to the debate on pluralism. His answer, ‘pluralism with respect to conclusions is one thing; pluralism with respect to methods is something else’ (p. 199), is rather unsatisfactory. Rodrik’s further reply to the effect that pluralism and openness already exists in economics perpetuates the ignorance of critical and non-mainstream ideas in economics. At the same time, he is clearly part of the mainstream. His book exemplifies how to problematize Economics without going too much into the complications. Nevertheless, from it, we do learn a lot about Economics, the sociology of Economics, and its ideological peculiarities. Unfortunately, the book offers little to overcome the problematic issues in economic issues.
(The author is an intern with Academics4Nation)
1.Rodrik, D.: weblog, URL: http://rodrik.typepad.com/dani_rodriks_weblog.
2. URL: http://drodrik.scholar.harvadr.edu