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Muddling through and policy analysis


  • David Colander


In a variety of books and articles, both published and in process, I've been out pushing the idea of the “economics of muddling through “ as the description of the approach to policy that will become standard in economics over the next 20 or 30 years. The argument is both prescriptive - I argue muddling through is what should be done - and descriptive - I argue that muddling through is what is currently being done, although, like Monsieur Jourdain speaking prose in Moliere 's Le Bourgeois Gentilhomme, many economists don't recognize that that's what they are doing.1 If we've been muddlers for so long, why should we be willing to admit it now? I think there are three reasons. • First, there is a change occurring in formal theorizing in which the holy trinity -rationality, greed, and equilibrium - is being abandoned as required aspects of any model, and being replaced by a slightly broader trinity-purposeful behavior, enlightened self-interest, and sustainability.2 • Second, the work in the formal general equilibrium model built upon the foundation of the holy trinity has been thoroughly explored; all the low hanging fruit has been picked, and young theoretical researchers are naturally gravitating to less explored areas. • Third, today's muddling through is not your father's muddling through; it involves the use of a whole range of applied mathematics that is difficult to use unless we admit we are muddling. Today's muddling is technically impressive muddling and is afar cry from the armchair heuristics that characterized early muddling. The paper is organized as follows: First I consider the history of welfare economics, providing a narrative of how we got to where we are. Second, I briefly outline some important changes that are currently occurring in economics. Third, I expand on my reasons for believing that we are now ready to accept a “muddling through” characterization of applied policy, something we have not previously been willing to embrace.

Suggested Citation

  • David Colander, 2003. "Muddling through and policy analysis," New Zealand Economic Papers, Taylor & Francis Journals, vol. 37(2), pages 197-215.
  • Handle: RePEc:taf:nzecpp:v:37:y:2003:i:2:p:197-215 DOI: 10.1080/00779950309544384

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    References listed on IDEAS

    1. Aaron Drew & L Christopher Plantier, 2000. "Interest rate smoothing in New Zealand and other dollar bloc countries," Reserve Bank of New Zealand Discussion Paper Series DP2000/10, Reserve Bank of New Zealand.
    2. Pierre-Olivier Gourinchas & Aaron Tornell, 2000. "Exchange Rate Dynamics, Learning and Misperception," Econometric Society World Congress 2000 Contributed Papers 0795, Econometric Society.
    3. Benigno, Gianluca & Benigno, Pierpaolo, 2001. "Monetary Policy Rules and the Exchange Rate," CEPR Discussion Papers 2807, C.E.P.R. Discussion Papers.
    4. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    5. Jordi Galí & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
    6. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach," American Economic Review, American Economic Association, vol. 91(2), pages 248-252, May.
    7. Cheung, Yin-Wong & Chinn, Menzie D. & Pascual, Antonio Garcia, 2005. "Empirical exchange rate models of the nineties: Are any fit to survive?," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1150-1175, November.
    8. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    9. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
    10. Engel, Charles & West, Kenneth D., 2006. "Taylor Rules and the Deutschmark: Dollar Real Exchange Rate," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1175-1194, August.
    11. Elton, Edwin J & Gruber, Martin J, 1970. "Marginal Stockholder Tax Rates and the Clientele Effect," The Review of Economics and Statistics, MIT Press, vol. 52(1), pages 68-74, February.
    12. David K. Backus, 2001. "Affine Term Structure Models and the Forward Premium Anomaly," Journal of Finance, American Finance Association, vol. 56(1), pages 279-304, February.
    13. Kollmann, Robert, 2002. "Monetary policy rules in the open economy: effects on welfare and business cycles," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 989-1015, July.
    14. Angela Huang & Dimitri Margaritis & David Mayes, 2001. "Monetary Policy Rules in Practice: Evidence from New Zealand," Multinational Finance Journal, Multinational Finance Journal, vol. 5(3), pages 175-200, September.
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    Cited by:

    1. David Colander, 2003. "Post Walrasian Macro Policy and the Economics of Muddling Through," International Journal of Political Economy, Taylor & Francis Journals, vol. 33(2), pages 17-35.
    2. David Colander, 2005. "From Muddling Through to the Economics of Control: Views of Applied Policy from J. N. Keynes to Abba Lerner," History of Political Economy, Duke University Press, vol. 37(5), pages 277-291, Supplemen.
    3. Happe, Kathrin & Balmann, Alfons, 2008. "Doing Policy In The Lab! Options For The Future Use Of Model-Based Policy Analysis For Complex Decision-Making," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6588, European Association of Agricultural Economists.
    4. David Colander, 2004. "The Art of Teaching Economics," International Review of Economic Education, Economics Network, University of Bristol, vol. 3(1), pages 63-76.
    5. Stuart Birks, 2014. "Rethinking Economics: Downs with Traction," World Economic Review, World Economics Association, vol. 2014(3), pages 1-37, February.

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