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On Ideas and Economic Policy: A Survey of MENA Economists

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Rana Hendy - Doha Institute
Mahmoud Mohieldin - World Bank

ERF 25th Annual Conference
Knowledge, Research Networks & Development Policy

10-12 March, 2019
Kuwait City, Kuwait

Published in: Government & Nonprofit
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On Ideas and Economic Policy: A Survey of MENA Economists

  1. 1. On Ideas and Economic Policy: A Survey of MENA Economists Rana Hendy and Mahmoud Mohieldin with Joelle El Sawalhi & Rebecca Spriggs.
  2. 2. The findings, interpretations, and conclusions expressed in this paper and presentation do not necessarily reflect the views of the World Bank, the Executive Directors of the World Bank or the governments they represent. Disclaimer 2
  3. 3. 1. A quick journey on ideas. 2. The impact of ideas on the formulation of economic policy: - good ideas - bad ideas - catastrophes 3. On the disagreement of Economists. 4. A survey on MENA economists - The making of MENA economists - 13 question on economic policy - Challenges and solutions 5. Concluding remarks and suggestions. Outline of the Presentation 3
  4. 4. “… the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist… I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas… But, soon or later, it is ideas, not vested interests, which are dangerous for good or evil”. Keynes (1936) “To act on the belief that we possess the knowledge and the power which enables us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.” Frederich August (1974) On Ideas and Vested Interest
  5. 5. “Ideas when they are right and when they are wrong…” 5 Eugene Fama 2013 Nobel laureate in economic sciences Robert Shiller 2013 Nobel laureate in economic sciences James Tobin 1981 Nobel laureate in economic sciences Milton Friedman 1976 Nobel laureate in economic sciences Friedrich Hayek 1974 Nobel laureate in economic sciences John Maynard Keynes British Economist Adam Smith Scottish Economist Karl Marx German Philosopher
  6. 6. Constructive confusion to the public? 6
  7. 7. Ideas, schools of thought and economic policy Similarly, theory and policy, as noted by Skidelsky (2018), “are moulded by the conditions of the times” with one major exception of a topic. John Stuart Mill (1806-1873): “One of the most disputed questions both in political science and in practical statesmanship at this particular period relates to the proper limits of the function of the agency of government. At other times it has been a subject of controversy how governments should be constituted, and according to what principles and rules they should exercise their authority; but it is now almost equally a question to what departments of human affairs that authority should extend” Economists’ choice of study develop primarily from what John Hicks (1904-1989) called ‘concentration of attention’ 7
  8. 8. Arjo Klamer (1984) interviewed leading economists from different schools of economic thought. In the summary of these interviews he notes that “[they] are the very best the discipline has to offer. They nonetheless disagree fundamentally on theoretical and empirical questions, on policy proposals and on the ways economic issues should be studied and settled. At times, they even have difficulty understanding each other”. See Arjo Klamer’s book published in 1984 under the title: The New Classical Macroeconomics: Conversations with New Classical Economists and Their Opponents. He interviewed Robert Lucas Jr., Thomas Sargent and Robert Townsend from what he classified as New Classical economists. He also interviewed James Tobin, Franco Modigliani and Robert Solow from the older generation of the Neo-Keynsians and from the younger generation, Alan Blinder and John Taylor. From the Monetarists he interviewed Karl Brunner and from what he described as Nonconventional economists he interviewed David Gordon and Leonard Rapping. 8 Ideas, schools of thought and economic policy
  9. 9. Adapted from Stilwell (2012). Political economy: The contest of economic ideas. (p.384) Different political philosophies, competing schools of economic thought and influence 9 Institutional position Economic interest groups e.g. corporations Universities Public service Government ‘Think- tanks’ Media Professional authority Cognitive infrastructure and Hirschman & Popp Berham Humanism SocialismLiberalism Libertarianism (neo-liberalism) Liberal democracy Social democracy Revolutionary socialism (Marx)(Galbraith)(Keynes)(Friedman) Neoclassical economics Keynesian economics Institutional economics Marxian economics
  10. 10. Austrian Behaviouralist Classical Developmentalist Institutionalist Keynesian Marxist Neoclassical Schumpeterian On views of the viability of capitalism Conceptualizing the individual Theorizing groups- classes Understanding economic systems Exploring how individuals and society interact On defending the free market On the need of government intervention Beyond markets On technologies and productivity On the existence of corporations On unemployment and recession Adapted from Chang, H. (2015). Economics: The User’s Guide. 10 Better to have a portfolio of schools of thought and models
  11. 11. Benassy-Quere et al (2010) summarize the main tasks of economic policy makers in six categories: 1 Economic legislation and enforcing the rules of the economic system Budgetary decisions which include taxation and public expenditure (fiscal policy) Issuance of the currency and the choice of the monetary and exchange rate regime (monetary policy and central banking) Production of goods and services- primarily health and education services though some governments still own public enterprises Managing crises and fixing problems, including through trying to influence private decisions International negotiation and representation 2 3 4 5 6 11Source: Benassy-Quere et al (2010), Economic policy: Facts, theories and options. Main tasks of economic policy makers
  12. 12. Stages of economic policy formulation Max Hartwell’s five stages and the role of ideas, vested interests and interest groups: Identification of an issue and publicizing it by a thinker or moral entrepreneur preaching for reform.01 In a democracy, a politician or the government may persuade the parliament that the issue needs investigation or legislation after public inquiry and obtain a report about it. 02 The parliament debates and may accept the report and hence passes a legislation to be enforced by government bureaucracy or a regulatory agency.03 The concerned bureaucracy may provide feedback on the new legislation and a chain reaction is created.04 The legislation will have a life of its own with interactions with the concerned public and the legislation will have its impact through cumulative sequence depending on the dynamics of the sector or domain that it addresses. 05 12 Source: Hartwell et al (1989), Ideas, Interests & Consequences.
  13. 13. Impact of ideas of economists and political philosophers Source: Olson (1989), Barry (1989) 01 02 03 04 Karl Marx and the Soviet Union Keynes and Kennedy/Johnson tax cuts (US) Change in tides… Hayek and Thatcher (UK) 1970s stagflation and Friedman (US) 13 1970s/80s Singapore as an idea Lee Kwan Yew (China) 05
  14. 14. Ricardo and the Repeal of the Corn Laws 1846 Three sets of economic ideas in three different areas: Source: Mukand and Rodrik (2018), The Political Economy of Ideas: On Ideas Versus Interests in Policymaking The Laffer Curve and the Reagan Tax Cuts of 1981 The Great Recession of 2008: Austerity Economics and Keynesian Policies 14 Ideas vs. vested interests
  15. 15. Ideas, coincidence and/or conducive circumstances (luck?!) Keynes and White’s global economic system Three sets of economic ideas in three different areas: Source: Rodrik (2015), Economics rules: The rights and wrongs of the dismal science. Vickrey and congestion pricing Levy and the first Conditional Cash Transfer program 15
  16. 16. Bad ideas 63 2 41 8 Dealing with joblessness by relying on the civil service Underpaying civil servants compared to the private sector Cutting fiscal deficits by sacrificing public investment in infrastructure Subsidizing energy except for very limited subsidies to highly vulnerable sections of the population Open ended protection for specific sectors Imposing administrative price controls Banning exports Exchange rate misalignment Resisting urbanization/underinvesting in infrastructure Ignoring environmental implications Poorly regulating the Banking sector and excessive interference Measuring educational progress solely by higher enrollments and ignoring the quality of education 5 7 9 10 11 12 Sources: The Growth Report Strategies for Sustained Growth and Inclusive Development,2008 http://documents.worldbank.org/curated/en/1209 81468138262912/pdf/449860PUB0Box3101OFFICI AL0USE0ONLY1.pdf Post-Crisis Growth in Developing Countries A Special Report of the Commission on Growth and Development on the Implications of the 2008 Financial Crisis, 2010 https://openknowledge.worldbank.org/bitstream /handle/10986/13546/52462.pdf?sequence=1&is Allowed=y 16
  17. 17. Nine examples of economic catastrophes 17 How to Lose an Empire Without Really Trying: British Imperial Policy in North America Acts of the British were maintained because of the ideology of mercantilism that was so deeply engrained in the economic thought of policy makers who accepted business as usual, instead of being swayed by the arguments of ant mercantilists such as David Hume. Establish, Disestablish, Repeat: The First and Second Banks of the United States America’s fear of centralized monetary authority caused it to reject two central banks, condemning the US to three-quarters of a century punctuated by frequent financial crises. The Great Hunger: Famine in Ireland, 1845-1852 Britain’s commitment to free markets, rather than to assist the starving in Ireland, led to one of the worst humanitarian crises in history - the Irish famine. The Krauts Will Pay: German Reparations after World War I Although death and destruction afflict both sides in war, the vanquished typically suffer more than the victors. German reparations after World War I were an unmitigated disaster but policymakers seem to have learned after World War II. Shackled with Golden Fetters: Britain’s Return to the Gold Standard 1925-1931 Britain’s reestablishment of the gold standard after WWI helped to turn what would otherwise be an ordinary recession, into the Great Depression, the most severe economic crisis the industrial world has known. Trading Down: The Smoot-Hawley Tariff, 1930 A good example of a political party applying its “tried and true” recipe, relying on instincts rather than analysis. A commitment to out of date ideology was at the heart of this blunder. Why Didn’t Anyone Pull the Andon Cord? Japan’s Lost Decade Poorly timed deregulation that contributed to a massive asset bubble that ultimately ensued in suffering of both the financial and non-financial parts of the economy. Had Japan pulled on the Andon cord, the consequences would have been far less severe. The Worst Financial Crisis since the Great Depression: The Subprime Meltdown The economic boom that preceded the subprime crisis was fueled by wrongheaded economic policy, in particular fiscal and monetary expansion. Against rule-of-thumb monetary policy tightening, Greenspan maintained expansionary monetary policy for a longer period than was advisable. I’m OK. Euro Not OK? The European sovereign debt crisis was the result of a poorly conceived economic policy choice made for a distinctly ideological reason: the adoption of the euro. Source: Grossman (2013), Wrong: Nine Economic Policy Disasters and What We Can Learn from Them.
  18. 18. Proposition USA (1979) Austria (1984) France (1984) Germany (1984) Switz. (1984) Canada (1988) UK (1989) A minimum wage increases unemployment among young and unskilled workers Agree Disagree 80 10 64 35 38 60 69 30 66 32 85 15 76 24 A ceiling on rents reduces the quantity and quality of housing available Agree Disagree 96 2 89 11 52 44 93 6 79 20 95 5 85 14 'Consumer protection' laws generally reduce economic efficiency Agree Disagree 50 46 29 70 22 77 35 65 44 56 46 52 23 77 Tariffs and import quotas reduce general economic welfare Agree Disagree 95 3 86 13 70 27 94 6 87 10 96 4 84 15 Source: Adapted from Ricketts and Schoesmith 1990 and from the authors’ survey on MENA. Surveys of economists opinion 18
  19. 19. First, an online survey using both survey monkey and Qualtrics software was used. The questionnaire consisted of 29 questions and was sent to all 355 ERF affiliates and a number of other economists from the Middle East and North Africa (MENA) region. Data collection: October 1, 2018 to November 15, 2018. Second, to complement the quantitative datasets with further views and opinions, we also conducted 20 semi-structured interviews with leading economists from the region. This study relies on a dataset that was compiled from a variety of sources. A survey of MENA economists (2018) and semi-structured interviews (2018-2019) 19 20 Semi-Structured Interviews 50% of respondents are ERF affiliates
  20. 20. The Questionnaire on MENA Economists’ Opinion- 2018
  21. 21. Salient characteristics Note: The percentages are based on those who responded to the question. Sample Distribution by Gender Males 70% Females 30% Sample Distribution by Age Group Sample Distribution by Age-Group and Type of Employment 0 20 40 60 80 100 Non-Academic Academic Age >=71 Age 61-70 Age 51-60 Age 41-50 Age 31-40 Age 21-30 21 Academic 66% Other 34% Type of Affiliation Institution
  22. 22. 0 10 20 30 40 50 60 70 Main Reason for Studying Economics Types of Economists Mainly Qualitative 18% Mainly Quantitative 60% Theorist 4% Other 18% On becoming an economist: survey results Note: The percentages are based on those who responded to the question. 22
  23. 23. Teachers influence Prior Readings Math background Understanding society Proximity to other disciplines Interest in politics Coincidence Main reason for studying economics: interview results Country/Regional Situation Based on the authors’ semi-structured interviews 23
  24. 24. Influence of Schools of Economic thought Belong to a particular school 59% Belong to multiplt schools 16% Not belonging to any school 25% Influence of Schools of Economic Thought Classical 1% Neoclassical 3% New Classical 5% Keynesian 8% Monetarist 6% Marxist 1% New Keynesian 8% Multiple Schools 16% Institutionalist 1% Developmenta list 15% Behaviorist 4% Post Keynesian 3% New Institutionalist 4% Don’t Belong to Any 25% Note: The percentages are based on those who responded to the question. 24 On becoming an economist: survey results
  25. 25. Sample Distribution by Enjoying or Not Economics Yes 94% No 2% Indifferent 4% Age Distribution by whether Economists Enjoy Economics or Not Note: The percentages are based on those who responded to the question. 25 On becoming an economist: survey results
  26. 26. Country of Major Economics Institution Egypt 25% GCC 1% Other Arab 7% UK & Europe 21% US & Canada 29% Middle East Non-Arab 2% Other Countries 15% Age Distribution of Quantitative Economists Age Distribution by Schools of Economic Thought Note: The percentages are based on those who responded to the question. 26 On becoming an economist: survey results
  27. 27. 13 questions on economic policy Q1. Are Price Ceilings on Goods and Services Beneficial? Q2. Does Imposing a Minimum Wage Mean Lower Employment? Q3. Is Monetary Policy Dominated by Fiscal Conditions? Q4. Is Inflation Primarily a Monetary Phenomenon? Q5. Can Unemployment be Reduced at a Higher Inflation Rate? Q6. Are Cash Transfers More Effective Than In-Kind Subsidies? Q7: Are Consumer Protection and Anti-Trust Laws Needed? Q8. Does Corporate Social Responsibility Have a Critical Role to Play in Development? Q9: Do Public Enterprises Have a Significant Economic Role in Modern Economies? Q10: Is a Fixed Exchange Rate Regime Better than a Flexible one for the Purpose of Economic Stability and Development? Q11: Is a Large Budget Deficit Bad for Economic Development? Q12: Do Import Restrictions Through Tariffs and/or Quotas Have a Negative Economic Impact? Q13: Is the Service Sector, as Opposed to the Manufacturing Sector, the Best Route to Economic Development? 27
  28. 28. Consumer Protection and Anti-Trust Laws are Needed for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Consumer Protection and Anti-Trust Laws are Needed 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q7: Are Consumer Protection and Anti-Trust Laws Needed? 28 13 questions on economic policy: Strong Agreement
  29. 29. Corporate Social Responsibility has a Critical Role in Development for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Corporate Social Responsibility has a Critical Role in Development 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q8. Does Corporate Social Responsibility Have a Critical Role to Play in Development? 29 13 questions on economic policy: Strong Agreement
  30. 30. Cash Transfers are More Effective Than In-kind Subsidies for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Cash Transfers are More Effective Than In-kind Subsidies 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q6. Are Cash Transfers More Effective Than In-Kind Subsidies? 30 13 questions on economic policy: Moderate Agreement
  31. 31. Public Enterprises have a Significant Economic Role in Modern Economies for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Public Enterprises have a Significant Economic Role in Modern Economies 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q9: Do Public Enterprises Have a Significant Economic Role in Modern Economies? 31 13 questions on economic policy: Moderate Agreement
  32. 32. A fixed Exchange Rate Regime is Better than a Flexible one for the Purpose of Economic Stability and Development for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes A fixed Exchange Rate Regime is Better than a Flexible one for the Purpose of Economic Stability and Development 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q10: Is a Fixed Exchange Rate Regime Better than a Flexible one for the Purpose of Economic Stability and Development? 32 13 questions on economic policy: Moderate Agreement
  33. 33. A Large Budget Deficit is Bad for Economic Development for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes A Large Budget Deficit is Bad for Economic Development 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q11: Is a Large Budget Deficit Bad for Economic Development? 33 13 questions on economic policy: Moderate Agreement
  34. 34. Price Ceiling on Goods and Services is Beneficial for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Price Ceiling on Goods and Services is Beneficial 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Total Don’tBelongtoany… BelongtoMultiple… It depends No Yes Note: The percentages are based on those who responded to the question. Q1. Are Price Ceilings on Goods and Services Beneficial? 34 13 questions on economic policy: Disagreement
  35. 35. Minimum Wage Lowers Employment Rates for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Minimum Wage Lowers Employment Rates 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q2. Does Imposing a Minimum Wage Mean Lower Employment? 35 13 questions on economic policy: Disagreement
  36. 36. Monetary Policy is Dominated by Fiscal Conditions for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Monetary Policy is Dominated by Fiscal Conditions 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q3. Is Monetary Policy Dominated by Fiscal Conditions? 36 13 questions on economic policy: Disagreement
  37. 37. Inflation is Primarily a Monetary Phenomenon for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Inflation is Primarily a Monetary Phenomenon 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q4. Is Inflation Primarily a Monetary Phenomenon? 37 13 questions on economic policy: Disagreement
  38. 38. Unemployment Can be Reduced at a Higher Inflation Rate for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Unemployment Can be Reduced at a Higher Inflation Rate 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q5. Can Unemployment be Reduced at a Higher Inflation Rate? 38 13 questions on economic policy: Disagreement
  39. 39. Import Restrictions through Tariffs and/or Quotas have a Negative Economic Impact for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes Import Restrictions through Tariffs and/or Quotas have a Negative Economic Impact 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q12: Do Import Restrictions Through Tariffs and/or Quotas Have a Negative Economic Impact? 39 13 questions on economic policy: It Depends
  40. 40. The Service Sector, as Opposed to the Manufacturing Sector, is the Best Route to Economic Development for Academic versus Non-Academic Economists 0 10 20 30 40 50 60 70 80 90 100 It depends No Yes The Service Sector, as Opposed to the Manufacturing Sector, is the Best Route to Economic Development 0 10 20 30 40 50 60 70 80 90 100 Classical Neoclassical NewClassical Keynesian Monetarist Marxist NewKeynesian Institutionalist Developmentalist Behaviorist PostKeynesian NewInstitutionalist Other Total Don’tBelongtoany… BelongtoMultiple… It Depends No Yes Note: The percentages are based on those who responded to the question. Q13: Is the Service Sector, as Opposed to the Manufacturing Sector, the Best Route to Economic Development? 40 13 questions on economic policy: It Depends
  41. 41. Probit analysis 41 Type of employment (Academic vs. Non- Academic) ERF affiliation Country of studiesGenderAge 1 2 3 5 6 7 Schools of economic thought o Belonging to one o Belonging to multiple o Not belonging to any Country of residence in MENA 4 Controls Outputs questions of economic thought and influencing policies. 13 Results • No particular school of economic thought seems to shape the economists’ views. • Gender matters. • Studying Economics in the US and Canada seems to significantly affect view related to monetary policy, CSR and budget deficit. • Academic economists seem to more likely disagree with the role of CSR and more likely to agree that fiscal conditions dominate the monetary policy. • Senior economists are more likely to be involved in policy making. • ERF affiliates are more likely to be involved in policy making compared to non-ERF ones.
  42. 42. Main Challenges Facing the Region for Growth and Development Ressources 20% Demographi c Issues 9% Governance 34% Macroecon omic manageme nt 16% Institutional issues 21% Main challenges: survey results Note: The percentages are based on those who responded to the question. 42
  43. 43. Main Challenges Facing the Region by Type of Economists 0 20 40 60 80 100 Non-Academics Academics Institutional issues Macroeconomic management Governance Demographic issues and population growth Resources Main Challenges Facing the Region by Gender 0 20 40 60 80 100 Males Females Institutional issues Macroeconomic management Governance Demographic issues and population growth Resources Main Challenges Facing the Region by Schools of Economic Thought 0 20 40 60 80 100 Institutional issues Macroeconomic management Governance Demographic issues and population growth Resources Note: The percentages are based on those who responded to the question. 43 Main challenges: survey results
  44. 44. Demography Youth Unemployment Institutions Growth Natural Resources Governance Education Environment External Interferences Lack of desire for progress Freedom of expression Politics Poor Macroeconomic Policy Water Oil Agriculture Enabling private sector Underdeveloped Financial System Lack of understanding of economic legitimacy Low importance of research Adjusting to transformational economic changes Service delivery Informality Modernists vs conservatives Lack of tools Culture Markets Inclusiveness Development Main challenges: interview results 44
  45. 45. Potential solutions: survey results How Should Policymakers Deal with Economic Challenges? Institutional Reforms 38% Evidence- based approach at the microeconomi c level… Structural reforms 16% Fiscal and monetary policy 1% Investment in human capital 34% Infrastructural investment 3% How Should Policymakers Deal with Economic Challenges (Most Important Measure) by Gender? 0 10 20 30 40 50 60 70 80 90 100 Males Females Infrastructural investment Investment in human capital Fiscal and monetary policy Structural reforms Evidence-based approach at the microeconomic level Institutional Reforms How Should Policymakers Deal with Economic Challenges (Most Important Measure) for Academic versus Non-Academic Economists? 0 10 20 30 40 50 60 70 80 90 100 Non-Academic Academic Infrastructural investment Investment in human capital Fiscal and monetary policy Structural reforms Evidence-based approach at the microeconomic level Institutional Reforms 45
  46. 46. Potential solutions: interview results Flexible markets Regulation Education Governance Solve political problems Knowledge-based economy Stable and inclusive financial system and macroeconomic environment Invest in human capital Institutions Monitoring and evaluations Expectations within policy sphere Demography Increase productivity factor System distribution Fiscal policy adjustment Economic model that generates jobs Efficiency in resource allocation Diversification Invest in infrastructure Reduce public sector employment Countercyclical fiscal policy Beneficial migration channels Financial sector reforms New thinking on informality Mobilizing good economists Desire to change Incentives to raise government savings Priority to agriculture and manufacturing Reducing budget deficit Deadlines NGO contribution Promote democracy Long-term development strategy 46
  47. 47. Proposition USA (1979) Austria (1984) France (1984) Germany (1984) Switz. (1984) Canada (1988) UK (1989) MENA (2018) A minimum wage increases unemployment among young and unskilled workers Agree Disagree It depends 80 10 64 35 38 60 69 30 66 32 85 15 76 24 30 40 29 A ceiling on rents reduces the quantity and quality of housing available Agree Disagree It depends 96 2 89 11 52 44 93 6 79 20 95 5 85 14 46 17 38 'Consumer protection' laws generally reduce economic efficiency Agree Disagree It depends 50 46 29 70 22 77 35 65 44 56 46 52 23 77 89 5 6 Tariffs and import quotas reduce general economic welfare Agree Disagree It depends 95 3 86 13 70 27 94 6 87 10 96 4 84 15 34 19 47 Wage-price controls should be used to control inflation Agree Disagree It depends 28 71 47 52 54 43 7 92 39 61 26 73 39 60 42 43 15 Source: Adapted from Ricketts and Schoesmith 1990 and from the authors’ survey on MENA. International comparisons of economic opinion 47
  48. 48. “If economists could manage to get themselves thought of as humble competent people on a level with dentists, that would be splendid”. Keynes (1931) “In spite of my profound disagreement with the authoritarian political system of Chile, I do not consider it as evil for an economist to render technical economic advice to the Chilean Government, any more than I would regard it as evil for a physician to give technical advice to the Chilean Government to help end a medical plague”. Friedman (1976) Dentists, scientists, carpenters, engineers or social scientists 48 “The economist- plumber stands on the shoulder of scientists and engineers, but does not have the safety net of a bounded set of assumptions. She is more concerned about “how” to do things than about “what” to do. In the pursuit of good implementation of public policy, she is willing to tinker. Field experimentation is her tool of choice.” Duflo (2017) Economists have lately been called upon not only to analyze markets, but to design them. Market design involves a responsibility for detail, a need to deal with all of a mar- ket's complications, not just its principle features. Designers therefore cannot work only with the simple conceptual models used for theoretical insights into the general working of markets. Instead, market design calls for an engineering approach. Roth (2002) the field has evolved through the efforts of two types of macroeconomist— those who understand the field as a type of engineering and those who would like it to be more of a science. While the early macroeconomists were engineers trying to solve practical problems, macroeconomists have more recently focused on developing analytic tools and establishing theoretical principles. These tools and principles, however, have been slow to find their way into applications. As the field of macroeconomics has evolved, one recurrent theme is the interaction—sometimes productive and sometimes not— between the scientists and the engineers. Mankiw (2006)
  49. 49. Recommendations Recommendations 2 1 5 3 Interdisciplinary economic education is needed: More liberal arts education. Do more meta-evaluations. Acknowledge the interconnectedness of methods. Importance of big data and AI* 49*MIT announces $1bn artificial intelligence and computing initiative https://www.ft.com/content/06d44278-d07d-11e8-a9f2-7574db66bcd5 Policy and Real World Orientation: Economics and economists would benefit from incorporating social, economic and ethical perspectives into their policies. Follow the six rules of Alfred Marshall’s rules on the use of mathematics in economic analysis: “To inform not to impress” 1. use math as a shorthand rather than an engine of inquiry. 2. keep to them till you have done. 3. translate into English. 4. illustrate by examples that are important in real life. 5. burn in mathematics. 6. if you can’t succeed in 4 burn 3.
  50. 50. Rodrik’s 20 commandments Ten commandments for non-economists 1. Economics is a collection of models with no predetermined conclusions; do not let anyone tell you otherwise. 2. Do not criticize an economist’s model because of its assumptions; ask how the results would be changed if the assumptions that seem problematic were more realistic. 3. Analysis requires simplicity; beware of incoherence that passes itself off as complexity. 4. Do not be put off by the math; remember economists use math not because they are smart, but because they are not smart enough. 5. When an economist makes a recommendation, ask what makes him/her sure the underlying model applies to the case at hand. 6. When an economists uses the term “economic welfare,” ask what s/he means by it. 7. Do not assume what an economist says in public is the same as what he says in the seminar room. 8. Economists don’t (all) worship markets; if they seem like they do, it’s probably because they know better how they work than you do. 9. If you think all economists think alike, do attend one of their seminars. 10. If you think economists are especially rude to non-economists, do attend one of their seminars. Ten commandments for economists 1. Economics is a collection of models; cherish the diversity. 2. Remember: it’s a model, not the model. 3. Make your model simple enough to isolate how specific causes work, but not so simple as to leave out key interactions among causes. 4. Unrealistic assumptions are OK; unrealistic critical assumptions are not OK. 5. The world is (almost) always second-best; ignore it at your peril. 6. Mapping models to real-world settings requires explicit empirical diagnostics, which is more craft than science. 7. Do not confuse agreement among economists for certainty about how the world works. 8. It’s OK to say “I don't know” or express range of views when asked about the economy or policy 9. Do not forget that efficiency is not everything. 10. Do not abuse your expertise by substituting your values for the public’s. Source: Rodrik (2015), Economics rules: The rights and wrongs of the dismal science 50
  51. 51. Concluding remarks Many responses from our MENA sample are those influenced by multiple economic schools of thought, with consideration for specific contexts and shaped by international education 01 Those who influence policy are more likely to be older and non-academics Economics is increasingly influenced by data and the evolution of technology 02 03 04 Vested interest influences public policy
  52. 52. Q1: Are the 12 ‘bad ideas’ stated in the growth report really bad? Yes No It depends Q2: The economist and the ‘prince’” should economists operate/behave like 1. Scientists 2. Engineers 3. Carpenters 4. Dentists/physicians 5. Social scientists 6. …? Q3: In your opinion, the economists’ role in formulating public policy in the ERF/ MENA region is significant Yes No It depends 3 Questions
  53. 53. The authors are very grateful to the following distinguished economists and scholars for their acceptance to be interviewed as part of this study: Gouda Abdel-Khalek, Raja Almarzoqi Albqami, Hassan Aly, Rabah Arezki, Rym Ayadi, Sami Ben Naceur, Adel Beshai, Shanta Devarajan, Ibrahim El Badawi, Hazem El Beblawi, Ibrahim El Eissawy, Alia El Mahdi, Hadi Esfahani, Ahmed Galal, Ayhan Kose, Hanan Morsy, Mustapha Nabli, Nasser Saidi, Ismail Serageldine and Shakour Shaalan. The usual disclaimers apply. The authors also acknowledge the Economic Research Forum and the Middle East Economic Association for the support they provided in diffusing the online questionnaire. Special thanks to Mariam Hoda El Maghrabi for excellent research assistance. Acknowledgments 53
  54. 54. THANK YOU
  55. 55. Megatrends Shifts in the global economy Climate Change Urbanization Demographic Transitions Renewed debate about globalization Technological changes Fragility and violence Market volatility and commodity cycles Opportunities and Challenges Source: Forward Look 2016 55

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