Economics, Ideology, and the World Economy

ECONOMICS, IDEOLOGY,____ AND THE WORLD ECONOMY Jahangir Amuzegar Arom its humble origins in the hands of the eighteenth-century French physiocrats to its present, highly elegant theoretical constructs, economics has always wished to present itself as a "science"—implying neutrality with respect to both politics and ethics. Most, although by no means all, economists still insist upon drawing a clear line between what government could and should do—leaving the latter decisions to preachers and politicians. This "value-free" character of the discipline has, through the years, been increasingly reflected in the analyses and presentation of economic phenomena in econometric models and mathematical symbols—presumably free from historical, institutional, and linguistic biases. For most of the post-World War II period, and largely up until Ronald Reagan's victory in 1980 and the return to power of British Tories under Margaret Thatcher's leadership, party platforms in almost all industrial democracies were not associated with any specific economic theory. With the advent of Reaganomics (called America's "conservative revolution")1 and Thatcherism (dubbed "property-owning democracy"), there has been a distinct trend toward the politicization of economics and economic theories. 1. Guy Sorman, The Conservative American Revolution, reviewed in Wall Street Journal, July 20, 1983. Jahangir Amuzegar is a professorial lecturer at SAIS and has taught previously at a number of prominent American universities. From 1973 to 1980 Mr. Amuzegar served as the executive director of the International Monetary Fund (imf). He has written extensively on Third World economic development and international trade matters. He is author of Comparative Economics: National Priorities, Policies, and Performance (Boston: Little, Brown, 1981). 169 170 SAIS REVIEW A direct manifestation of this economic politicization has been the association ofone group of economic theories with "neoconservatism" (or the New Right), and others with "neoliberalism" (or the New Left). Neoconservatism is the old Spencerian doctrine of individual sovereignty with a less austere face. The primacy of the individual over the state, inviolability of personal freedoms, and respect for "Judeo-Christian" values are still there; but these moral and political imperatives are now to be pursued in such a way as to ensure a "just and humane" society. The traditional blind faith in the optimal efficiency of the free market is also somewhat modified as is the characteristic hostility to a strong government . In a similar vein, neoliberalism is a modern version of the old orthodoxy. The rejection of moral absolutes, faith in the individual's ability to better his destiny through collective action, and the need for social justice are intact; but some of the old prejudices—such as enmity toward the private market, big corporations, and income inequality—are largely abandoned.2 As will be seen below, this marriage of the old conservative and liberal doctrines with classical and neoclassical economic theories has affected not only the conduct of domestic monetary and fiscal policies but, of equal significance, the mosaic of international economic relations. Under present ideological configurations, monetarism, supply-side economics, and a neoclassical doctrine called "rational expectations" are identified with neoconservatism. Keynesianism and selective intervention (the "new industrial policy"), on the other hand, are placed on the side of neoliberalism. Despite their different theoretical parentage and political patronage, the first three theories are expected, in the words of their advocates, to correct the "failure and obsolescence" of the old liberalism, and to offer an "affirmation of human and irrational qualities —faith, religion, ambition, innovation—against the type of mathematical -mechanical analysis offered by liberal rationalists and Keynesian demand-managers."3 Monetarism contends that changes in the growth rate of the money supply affect gross domestic product, employment, and the price level— with some lags. More specifically, changes in the money supply affect short-run output and interest rates and long-run price levels. The monetarist credo posits that inflation is always and everywhere a monetary phenomenon caused by a speedier rise in money supply than in 2.For example, Irving Kristol, Reflections of a Neo-Conservative (New York: Basic Books, 1983), and George Gilder, Wealth and Poverty (New York: Basic Books, 1980). See also " 'Liberal' and 'Conservative,' " U.S. News and World Report, November 2, 1981; Charles Peters, "A Neo-Liberal's...