Yin’s article misleading
Norman Yin’s (殷乃平) commentary calls for a response lest readers be misled (“Economic theory will need some rewriting,” July 5, page 8).
It is simply not true, as Yin said, that “academics have to admit that current economic theories are no longer capable of explaining what is really going on in the economy.”
On the contrary, academic economists who have been applying traditional Keynesian models to explain and predict current economic conditions have been doing quite well.
It is conservative business media, such as The Economist, which Yin relies on, and the Wall Street Journal, that have “egg on their face.”
In the US and Europe, monetary expansion bailed out the financial sector without causing runaway inflation as the conservative media predicted, and policies of austerity supported by such as Yin’s referenced Bank for International Settlements (BIS) have blocked economic recovery, costing trillions of dollars of lost output and much unnecessary suffering.
Taiwan has been fortunate to have weathered the storm with much less harm. Taiwan’s 3 percent growth and 4 percent unemployment fair well in comparison to Europe and the US over the past six years.
However, if the program endorsed by the BIS in its recent annual report is followed here, watch out. The BIS wants higher interest rates and opposes fiscal stimulus. This is not economics, it is politics favored by those opposed to public investment and expenditure.
As Yin said, there is a lot of academic economic research going on around the world, some of it interesting, and some of it may even turn out to be useful, but it will not solve the political question of who gets power and the benefits that go with power.
Yin said that the spread of high technologies and investment in emerging economies, along with “the bumper harvests of the 1990s” and stable prices and low interest rates caused the financial crisis of 2007 and 2008, and that over-investment and over-production in China has “disrupted markets around the globe.”
Does Yin have an economic model behind these assertions, or does he believe these are free standing facts that need no basis in theory? If the latter, he is clearly wrong.
He cannot define concepts like over-investment or disrupted markets without some kind of theory for the implicit comparison. Without an economic model Yin’s statement is incoherent.
The situation is this: events have not justified austerity or calls for higher interest rates. Supporters of these policies are reduced to calling for new economic theories, not to explain the world as it is, but to justify political policies that they favor no matter what.
Robert Dildine
Yilan County
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