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Policy Design and Execution in a Complex World: Can We Learn from the Financial Crisis?

In: Studies in Austrian Macroeconomics

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  • Peter Lewin

Abstract

We repeat the mistakes of history because of the neglect of history, the imperfections of memory, and the complexity of social situations. I begin with a discussion of the first two and then turn to the third. After discussing the meaning and significance of complexity, I discuss the causal ambiguity surrounding economic policies and what this implies for the burden of proof in policy espousal and design. I consider the role of social institutions, their function and origins, and how they are able to facilitate human action in an economic environment of accelerating change. Institutions like markets, monetary systems, systems of common law, languages are all networks. So are groups of believers in the efficacy of certain kinds of economic policy. I consider the role of networks in general and in regard to economic cycles in particular. In the concluding section, I suggest that the implications of complexity for the occurrence of cycles, and the adoption of discretionary policies to deal with them, are likely not only to exacerbate the effects of the cycles, but also, more fundamentally, to subvert the fundamental institutional structure of our economy, what we may think of as our embedded constitutions, to the great long-term detriment of our economic health.

Suggested Citation

  • Peter Lewin, 2016. "Policy Design and Execution in a Complex World: Can We Learn from the Financial Crisis?," Advances in Austrian Economics, in: Studies in Austrian Macroeconomics, volume 20, pages 265-283, Emerald Group Publishing Limited.
  • Handle: RePEc:eme:aaeczz:s1529-213420160000020012
    DOI: 10.1108/S1529-213420160000020012
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    References listed on IDEAS

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    1. Ricardo J. Caballero, 2010. "Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome," Journal of Economic Perspectives, American Economic Association, vol. 24(4), pages 85-102, Fall.
    2. S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
    3. Tatom, John A., 2014. "U.S. monetary policy in disarray," Journal of Financial Stability, Elsevier, vol. 12(C), pages 47-58.
    4. Roger Koppl, 2002. "Big Players and the Economic Theory of Expectations," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-62924-0, December.
    5. Koppl, Roger, 2010. "Some epistemological implications of economic complexity," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 859-872, December.
    6. Peter Lewin, 1997. "Hayekian equilibrium and change," Journal of Economic Methodology, Taylor & Francis Journals, vol. 4(2), pages 245-266.
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    Cited by:

    1. Hartwell, Christopher A., 2019. "Short waves in Hungary, 1923 and 1946: Persistence, chaos, and (lack of) control," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 532-550.

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    More about this item

    Keywords

    Causal ambiguity; complexity; network effects; institutions; E6; H1; D8;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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