Take North’s definition of “institution” – ‘to reduce uncertainty by establishing a stable (but not necessarily efficient) structure to human interaction’. Take also his social conflict approach – institutions emerge as a result of economic agents’ conflicting preferences. A political institution on the time t, then, defines who is legitimated to do what according to the explicit rules of the system (de jure power). In that same moment, the given distribution of resources determines the creation of dynamics surrounding de facto power, that is, who has the capacity to mobilize resources in order to achieve X goals. Those power struggles are part of the factors that produce new political institutions (t+1), but also the economic ones, such as property rights and contracting modes. Of course, is within this economic institution frame where economic performance and new distribution of resources occur.

This is, of course, a pretty simple circular once explained. But I see this sort of basic schemes as a point you always return to when you get yourself into trouble while building theoretical frameworks.

We might call this approach “Inceptiononmics“. Or how the expectations over policy-making affects to the real economic performance even before the decisions are taken.

In other words: European leaders, wake up!

Jeffrey Sachs is the economics profession’s leading advocate of mega-reform. Whether it is stabilization of hyperinflation in Bolivia, shock therapy to leap from Communism to capitalism in Poland and Russia, or a “Big Push” to end world poverty, Sachs’ recommendation throughout his career has been to do it fast, do it big, do it comprehensively, and do it with lots of Western money.

William Easterly: A Review of Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time.

So, Sachs would be the equivalent to Daft Punk in Economics.

Essentially, the capitalist economy is seen as a construct of imperfectly informed individuals, imperfectly coordinated through the market place. It is far from parody to claim that because more or less any outcome can be explained in principle on this basis – the real world is after all an information-theoretic market imperfection – it is not necessary to incorporate any other analytical principles. Indeed, it is simply a matter of identifying in practice the wide variety of informational imperfections and how they are handled in particular contexts. Policy is concerned with handling them better than leaving them to the market.

Ben Fine, SOAS. Not right. Maybe in both senses.

And now Asia is striking back.