From Standard Theory towards a Genuine Theory of Economic Policy

According to the Economic Commission for Latin America and the Caribbean (ECLAC), the region's economic performance so far this century, without going further back, has been mediocre, with no prospects for improvement in the immediate future, save for a few exceptions. Numerous economic and social indicators show very worrying levels of prostration and stagnation. Official sta- tistics display slow growth, high public debt, rising unemployment and informality, deep concentration of income and wealth, endemic poverty, citizen insecurity, excessive bureaucracy, and rampant corruption. Perhaps it is some consolation to know that monetary policy administration, apart from Venezuela, Argentina, and Bo- livia, has been cautious and positive, showing moderate inflation rates, but has been marked by a paradoxical trap: macroeconomic stability has not translated into sustained growth, full employment, and distributive equality of general welfare. What has gone wrong? ECLAC is very prolific in its explanatory arguments, accompanied by proposals to rectify economic policy for the future. The propos- als encompass topics such as resource mobilisation for development financing, institutional strengthening for productive transforma- tion, and governance and social policies for poverty reduction, social protection, and equality. All of this sounds interesting, but these are very conventional formulas and prescriptions, not innovative and nothing disruptive to the mentioned trap and its traumatic conse- quences. The core thesis of this article on poor performance and pro- posed solutions is succinct and direct: the mediocrity of the outcomes stems from a limited understanding and restricted application of modern economic policy theory. Let us now see how I base and sup- port this bold argument in a brief essay.