Matt Berkley (not verified)

December 08, 2012

Kaushik Basu wrote,

"Suppose a political leader implements a policy that results in an economic crisis in the sense that, had he not implemented the policy in this instance, the crisis would not have occurred. In such a situation we are inclined to come down heavily on the leader’s policy and castigate the decision. This would however be a mistake."

Is it not more accurate to say that it may be a mistake, depending on the information available to the leader in the first place?

In the case of the financial crisis, the vast majority of macroeconomists failed to take account in their inferences from spending to prosperity the, to some, obvious fact that spending was to a highly significant extent financed by debt, not prosperity.

Kaushik Basu wrote,

"The role that risk management plays in development and poverty reduction has not been studied adequately at the World Bank and maybe everywhere. Many people tend to focus on specific risks like financial crises, droughts or natural disasters when they arise, rather than on the process of risk management."

Yes - and many people warned economists before the financial crisis that there was something wrong with the concept of "growth".

And there is still a risk from using spending statistics to infer prosperity for the "extremely poor" without looking at needs - which is why I have asked both you and Dr Ravallion questions that so far have, in Dr Ravallion's case after several inquiries, failed to yield answers:………