fatvegan

Some economists, like the idea of economic changes coming with quick, sharp shocks. Jeffery Sachs was one of them, but it's a fairly popular idea. That's all very well. It doesn't seem to have worked very effectively at all, but I don't really understand the process well enough to criticise it from an economic perspective.

But what really frustrates me when economists try to justify shocks by using the analogy of pulling off a bandaid. Supposedly, you have economies that have a lot of bandaid solutions, and they need to "reform" themselves to grow. On the other hand you have a kid with a bandaid on a cut, and the bandaid needs to come off because it's doing more harm than good. There's a nice friendly analogy here, and everyone's nodding and starting to understand that a broken poor-world economy has a lot in common with a kid's cut. And everyone knows that with bandaids you have to pull them off quickly. It's better to get it over and done with. So obviously, if economies have so much in common with cuts, economic reforms need to be just as quick.

Or this is how the reasoning goes. Maybe there's more sophisticated thinking behind it, and the bandaid analogy is reserved for the non-economists. But no one, however little they understand about economics, should be convinced by an argument like that. And I find it incredibly depressing that people responsible for persuading leaders and changing economies will actually put this sort of idea forward.

Anecdotally, it appears that the main reason for human success is our ability to adapt and form institutions. But those things happen slowly. With "shocks" you're tearing down institutions and making existing social adaptations virtually useless. These shockers are just hoping that better institutions and adaptations form quickly once they've dismantled the old ones. Because those are the building blocks of society, not Reserve Bank policy or the export-GDP ratio.

An economy is not like a cut with a bandaid. And even if it were, how often have I ripped of a bandaid too early and quickly and knocked off the scab. It starts bleeding everywhere and you have this raw, vulnerable wound that usually looks worse than the original. That bleeding mess is perhaps a good metaphor for the "post-shock" economies that I've heard about.