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Economic Policy with and without Maximizing Rules
Author(s) -
Lipsey Richard G.
Publication year - 2017
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12222
Subject(s) - economics , status quo , divergence (linguistics) , context (archaeology) , argument (complex analysis) , welfare , nothing , neoclassical economics , value (mathematics) , criticism , positive economics , poverty , public economics , microeconomics , economic growth , law , market economy , political science , mathematics , paleontology , linguistics , philosophy , biochemistry , chemistry , epistemology , biology , statistics
This paper contrasts the static neoclassical and the evolutionary views of the economy and economic policy. It responds to Ng's comments on Lipsey's original criticism of third‐best theory. Under a relevant definition of informational poverty and Ng's other assumptions, the expected value of any policy‐created divergence from the status quo is negative: If there is not enough known to determine what to do, nothing should be done, rather than establishing first‐best conditions as Ng's analysis has it. It is argued that Ng's analysis of his two other information states adds little to what common sense suggests. To address Ng's argument that policies using context‐specific objective functions lack the required welfare basis, the present paper studies how economic policy is actually pursued absent guides provided by welfare economics. Policies that follow from evolutionary economic theory imply that many things that are seen as ‘distortions’ in welfare economics are actually desirable forces that drive economic growth.