[Abstract Review] Economics in Action: Ideas, Institutions, Policies

Economics in Action: Ideas, Institutions, Policies
The American Economic Review, Vol. 85, No. 2, Papers and Proceedings of the Hundredth and Seventh Annual Meeting of the American Economic Association Washington, DC, January 6-8, 1995. (May, 1995), pp. 1-8.
George P. Shultz

Shultz suggested that market mechanism and minimum government intervention will lead to economic golden age. He supported the ending of the Bretton Woods system in the Nixon administration and several tax reform acts in his cabinet jobs.

A economy that emphasis on resource allocation, market- and enterprise-base policu, and education create the private incentives necessary for economic growth. Quality education produces skilled and productive labor that is important for political change and open society. A society open to change is an innovative one.

Shultz’s backgrounds lead him to believe that a change in the exchange rate is crucial. Government intervention will do more harm than good because the global economy and the volume of exchange market is too big to manipulate. Moreover, asynchrony can lessen extremes and maintain the equilibrium as a whole. Besides, there is always new entrant and it is unlikely for any businessman to ignore a market that is full of opportunities. In short, Shultz concluded that “the market will win in the end anyway, and the cost of intervention can be high” (pg. 4).

In addition, he observed the inefficiency in BWI and suggested the two institutions to merge and set out missions to emphasize on encouraging private investment and open trade. Moreover, IMF no longer has a par-value exchange system to monitor, and ideas on development also shifted from public sector dominance towards private enterprise and free markets.

Finally, future investment depends on capital saving. To do so, government should reduce deficit, stabilize political condition, ban corruption, and allow privatization. Privatization is most important because it turns “nobody’s money” into “somebody’s money”.

In short, Shultz suggested that open market and freer trade is the key to society’s prosperity. But I argue that such system of openness and international trade may not be as beneficial or else the world is already in harmony. First, the transformation of society is costly if supporting policies are not well planned. International trade is also costly for the environment. Producing at a lower cost did not take account of the carbon dioxide emissions and global warming effects generated through transporting goods. It also forgoes the idea of energy waste and competition for resources. Although resources, in economics sense, cannot be scarce, but environmental damages is inevitable. Second, private incentives do not always coherent between parties. Government should intervene moderately providing the necessary environment, specifically law and orders. Finally, reviewing the past 5 years, the world economy is in chaos. The code of ethics in business world had vanished into the air. Corruption did not cease. I would think the problem is not in open trade and free market, the key is the ethics issue in capitalism that Marx had predicted. The economy is not at golden age, yet.


ECON 500500 Reading and Writing in Economics
Abstract review