The Obama administration is going to be rebuilding and reconstructing five major sectors of the American economy. It has no choice--there is no other option. It has to remake:
* Autos
* Housing finance
* High finance
* Energy
* And the big one—health care
On what principles and through what procedures is this extraordinary exercise in structural economic reform policy going to be accomplished? I get how to do the macroeconomics of Obama administration economic policy. I don’t get how to do the structural side…
He might add that we have nettlesome questions about the amount of subordination needed for mezzanine debt in the CDO's for Alt-A mortgages, what price--or is it 'level of price growth'--to set for housing, and how much chromium should be the standard dosage in weight loss supplements.
For me, the key principle in economics is that it studies the unplanned effects of individuals acting in their self interest. Like evolution it appears to be a product of design. Yet, many esteemed economists think that if we do not come up with a 'plan', all the key decisions in the economy won't be made anywhere near optimally, just as a bridge can't be built without a designer. Thus, its hard to say that learning more formal economics is a good idea, because clearly, there are no 'first principles' in this field, it still is merely a field for organizing and articulating your prejudices.
Margaret Thatcher famously told President Gorbachev that capitalism was superior to socialism because unlike Gorbachev, she didn't have to decide how many refrigerators to make this year--the market does that. Faith in the relative superiority of decentralized decisionmaking, by individuals who are not elected, is just as non-intuitive as it ever has been.
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