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Don’t Throw the Baby with the Bathwater!

Zahid Hussain's picture

Paul Krugman’s September 6 article in the New York Times (How Did Economists Get It So Wrong?) is a humbling warning to the economics profession against the pitfalls of intellectual complacence. It challenges the profession to re-examine the validity of its existing knowledge particularly in relation to globalization and the workings of local and global financial markets.

Granted that economists have to face up to the unpalatable fact that our theoretical apparatus falls far short both as descriptions of how economies function and as prescriptions of how they can be made to function better. The crisis has exposed the limits of economic knowledge. According to Krugman: “The vision that emerge as the profession rethinks its foundations may not be all that clear; it certainly won’t be neat; but one can hope that it will have the virtue of being at least partly right.”

In this process of reappraising existing economic knowledge, there is a real risk of going overboard and wrong the right knowledge. Using the global economic crisis as an excuse, there are emerging tendencies to reject tested economic wisdoms in areas such as the role of foreign capital and trade policy in economic development.

One school of thought that is attempting to rise from the ashes is known as (old) Structural Economics.

World Bank Provides Four Loans Worth Over $4.3 Billion to India

Joe Qian's picture

The World Bank approved four loans worth $4.345 billion dollars yesterday, which is the second largest volume of lending to a single country in a year.

The goal of the four projects is to contribute to improving India's infrastructure and help bolster the country's response to the global economic and financial crisis and lay the foundations for stronger growth in the future.

The financial package consists of:

-Banking Sector Support: $2 billion
-Support for India Infrastructure Finance Company Limited: $1.195 billion
-The Fifth Power Sector Support Project: $1 billion
-The Andhra Pradesh Rural Water Supply and Sanitation Project: $150 million

For more information and to watch an interview with India's Country Director Roberto Zagha, please check out the feature story.