Economic sciences are discussed in debates that are rarely resolved. In the past decades, as computer science and statistics have advanced significantly, a trend has overwhelmingly prevailed: empiricism. Reliance on increasingly reliable and disaggregated statistics has allowed the development of robust data series. Computing has added modeling and simulation capabilities that were not available before.
Empirical research has placed a focus on microeconomics with a heavy emphasis on measures of impact. The systematic observation of measurable facts is the dominant course in economic research. As for the macro in front of the queen of economic reversal, it was limited to investigation teams in central banks and ministries of economy.
But the movement of the pendulum is always inevitable. Periodically, political economy passes its achievement account on to empiricism. Recent years have witnessed various phenomena where events that have nothing to do with statistics or observations on the ground have far-reaching economic consequences.
The pandemic was a perfect example. The economic response from all countries has been of a macroeconomic nature. Massive injections of subsidies prevented quarantine and productive paralysis from having devastating social effects, as they did during the Great Depression. Governments, guided largely by their sense of urgency and political sensitivity, were able to implement hasty measures that mitigated some of their effects. The fact is that in those critical moments, common sense was more important than the availability of cutting-edge models.
Another economic-political revenge is the conflict between Ukraine and Russia. Its nature is geopolitical and its interpretation is rooted in the turbulent history of Eastern Europe, which has always been dominated by Russia’s desire to have access to the sea and not be condemned to be a continental country as its neighbors wanted. The impact on the supply of grain, agrochemicals, minerals and energy has reinforced the inflationary trend caused by the production disruptions caused by the pandemic. Central banks raised interest rates, leading us into a period of slow growth and possible global recession.
Closer is the absurd issue of the US debt ceiling and risk of default. The debate is purely political and electoral. Republicans and Democrats do not think about the dangers of a global economic meltdown. They only think of gaining strength. Nothing empiricism can help us understand. Pure politics.
Addendum: The cost of institutions choosing a controller in violation of the rules is high. They should pass the bill to irresponsible politicians.
Miguel Gomez Martinez
Dean of Economics and Finance