The main point of Rodrik’s book is that economics leaves a lot of slack for policy prescriptions. As I see it, this may be true for two distinct reasons. One is that economic knowledge is not sufficiently robust in general to indicate appropriate policies. Another is that it is inherently incomplete, specifically, that it cannot and does not consider all the factors that may matter in the particular situations to which policies are applied. Rodrik emphasizes the second reason but first I want to comment on the title.
To put it in a nutshell, is it “One Economics, Many Recipes” or “Many Economics, …”? In what sense do we have “one economics”? Economics is a science that derives conclusions about states of collectivities (“the economy” but also “the polity,” since the same methods are now applied to politics) from assumptions about preferences of individuals and the constraints they face. What unifies economics are the methods for making such inferences. The assumptions vary: they are at best disciplined by “stylized facts” and often at variance with more direct, psychological, evidence. Moreover, these assumptions often reflect ideological priors. One example that jumps to my mind is an article, published in a leading journal of political economy, that went like this: assume that tax revenues do not finance inputs into production, assume that they do not subsidize consumption, write a growth model, and — surprise — taxes are bad for growth! But almost the same year, another article, published in an equally reputable journal, assumed that public inputs are complementary to private ones and that tax revenues are used to finance public productive services, only to find that growth is maximized at a positive, indeed sizeable, tax rate. [click to continue…]