Modern macroeconomics reflects a strong proclivity to use targets to guide policy action. Two of the most well-known are low, single digit inflation targets and fiscal rules, most notably pertaining to debt-to-GDP ratios. Here is a thoughtful piece by non-economists on how a preoccupation with numerical targets leads to unintended consequences. Using a variety of examples, the authors show how targets might motivate agents to move in the wrong direction and thus distort the evolution of complex systems (of which a modern market economy is a solid exemplar). This does not mean that one should not have targets. It does mean that a lot of care needs to be taken when setting targets, especially when they pertain to macroeconomic aggregates. The current tendency to aim for point estimates entails a degree of confidence in such estimates that are not warranted. Given the uncertainty surrounding quantitative targets, one should aim for ranges (think of them as quasi-confidence intervals) rather than fixed numbers with their inflated sense of precision.
Month: December 2016
The ‘Doing Business’ (DB) surveys are among the World Bank’s most downloaded documents. One of the latest reports, based on the DB surveys, claims that “economies with more business-friendly regulations tend to have lower levels of income inequality”? Critics have questioned that claim.
Through its annual Doing Business Report the World Bank always seeks new angles to justify its promotion of reduced regulation on business. A closer look at the 2017 report, subtitled: ‘Equal Opportunity for All’, reveals its deceptions and naked ideological bias. – See more at: http://www.newagebd.net/article/3857/deceptions-of-wb-doing-business-report-2017#sthash.AFCQolL9.dpuf
Reflections on development and governance 