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Roots of the country's economic problems.

TODAY'S headline-grabbing stories on money, inflation, debt, deficit-spending and borrowing, among others, have something to do with economics, a complex science with almost infinite variables affecting people from all walks of life and other organisms, both tangible and intangible, particularly its two important branches: macroeconomics and microeconomics.

In my more than 10 years of teaching postgraduate and undergraduate studies in economics at the International Academy of Management and Economics, I always emphasized the complexity of the subject, requiring an urgent need to understand the discipline with an open mind to shun biases, prejudices, fallacies and avoid the danger of being called a cynic, whom Oscar Wilde, the famous Irish writer-philosopher, described as: '... a man who knows the price of everything and the value of nothing.'

For example, the late American George Stigler, one of the respected neoclassical or classical economists and the 1982 Nobel laureate in economics for his research on deregulation and government control policies, called economics an 'imperial science.'

Another economist of the neoclassical variety, Francis Fukuyama, author of the book Trust, may have offended the sensibility of some pragmatic Americans and Filipinos who do not usually side with any doctrinaire political positions on economic issues.

'We can think,' Fukuyama said, 'of neoclassical economics as being, say, 80 percent correct: it has uncovered important truths about the nature of money and markets because its fundamental model of rational, self-interested human behavior is correct about 80 percent of the time.'

'But there is a missing 20 percent of human behavior about which neoclassical economics can give only a poor account,' Fukuyama added, obviously referring to some mercantilists as the missing 20 percent in human behavior.

Fukuyama's presumption is that believers of Mercantilism (protectionism) like James Fallows, Chalmers Johnson, Clyde Prestowitz, John Zysman, Karl van Wolfersen, Alice Amsden and Laura Tyson, then President Clinton's economic adviser, 'have strongly argued that the dynamic and fast-growing economies of East Asia have succeeded not by following but by violating the rules of neoclassical economics.'

The implication of his carefully crafted fallacy and prejudice, disguised as an objective analysis of cultural human behavior in economics, is that both the Mercantilists and the Classicists have the same economic rules and that the East Asian economies have become dynamic and fast-growing because they had violated these rules.

If we also follow Fukuyama's 80- to 20-percent ratio on economic human behavior in money and markets in favor of the Classicists, the fast-growing Mercantilist countries in East Asia, particularly Japan, South Korea, Taiwan, Hong Kong and Singapore, would have remained today the world's economic laggards and retardates.

Besides, these Classicists and Mercantilists, although both capitalists, have different set of economic rules, lifestyles, work ethics, business policies and frame of mind, just to cite a few, in the production, distribution and consumption of their limited resources.

Unlike the Classicists, the Mercantilists believed in government intervention on the behavior of money, market, inflation and taxes; have pursued a manufacturing and export-oriented economy; have put premium on research and technology; have ignored the free-trade economic policies of the IMF-World Bank; and are highly nationalistic.

By calling economics an 'imperial science,' Stigler may not have realized that he unnecessarily added another line to the leftist popular slogan 'American Imperialism' and thus created his own bias against some of the far-right libertarians.

Stigler should have known better that history is replete with people from both the left and the right who have used pompous slogans to advance their ideological cause. He was a bit luckier though because the Cold War had already ended and many people from the radical left may no longer have any use of his jargon.

Professor Paul A. Samuelson, another brilliant economist and the first American to receive the Nobel Prize in economics in 1970, described economics not an exact science but more of an art.

This writer mentioned him because his creativity and unbiased approach to the teaching of the discipline in his best-selling book Economics, particularly the 15th International Edition with Professor William D. Nordhaus, his coauthor, contrasted Stigler's and Fukuyama's line of thinking.

For instance, Samuelson and Nordhaus's excellent work was probably one of the few economic books that used the term market without the word free appended to it as an adjective or a qualifier to denote that the 'free-market,' 'free-enterprise' and 'free-trade' economic concepts are indeed those of the dogmatic neoclassicists.

As a backgrounder, classical or neoclassical economist was the forerunner of Physiocrat who originated from the school of physiocracy founded by Francois Quesny, a Frenchman who lived in France between 1694 and the later part of the 17th century. A surgeon by profession, Quesny was the personal doctor of Madame de Pompadour, the famous mistress of King Louis XVI.

Adam Smith became acquainted with Quesny and other powerful physiocrats who exerted much influence on his thinking while writing his book Wealth of Nations in France, which he completed and published in England in 1776, coincidentally the year of the American Declaration of Independence.

In fact, two of the commonly held important teachings of the physiocrats known as laissez faire or natural law and their adherence to economic growth through agriculture underlie Adam Smith's book and the economic policies of the Philippines. Smith devoted 220 pages, in eight chapters, attacking mercantilism, as having, in particular, evil effects on agriculture.

The physiocrats mounted a strong opposition against mercantilism, which was then rapidly transforming France and other European countries from feudal agrarian states into industrializing countries.

In their relentless campaign, the physiocrats held that the accumulation of wealth through commerce and industry, not agriculture, was contrary to laissez faire, causing confusion and dissatisfaction among the people and should be removed.

Jean Baptiste Colbert, the mercantilist, who served as the King's minister of finance for 25 years, just ignored the physiocrats and guided France with his policies to become a great power that rivaled England.
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Publication:Business Mirror (Makati City, Philippines)
Date:Feb 14, 2019
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