1. 2. Some conceptual clarification  economic policy as a process with several steps  what is an economic doctrine (vs analysis or theory)?  what is meant by economic thought, analysis, ideas…?  analysis versus policy recommendations  the problem of ideological bias  the lack of the counterfactual  what is economic policy?  what is an economic crisis? 1

2. Economic policy as a process THE POLICY PROCESS Recommendations Decisions Execution Evaluation Economic doctrine Structure of economy and external environment Power of vested interests Institutional circumstances 2

3. Concepts An economic doctrine = a set of beliefs about the appropriate role of economic policies (a ’policy model) = ”an exposition of a comprehensive set of policies that its authors advocate on the strength of certain unifiying (normative) principles” (Joseph Schumpeter) A school of thought = a common view of the functioning of the economic system (and of the effects of economic policy) Economic thought = all opinions/perceptions of the economy in society at a time Economic analysis = the strictly scientific part of economic thought, the tool box (which is, largely protected from ideological influences by restpect for certain rules & procedures) 3

4. On the pervasive influence of ideology Friedring Nietsche: We all look at the world through a window of our own and interpret what we see differently James Buchanan:”Each one of us exists within a set of parameters (the parameters of existence), which locate us in four-dimensional space-time. But each of us brings to this state-of-being, this here and now, a unique history that is unalterable by the fact that it has happened. This history shapes our perceptions and our cognition of that which we observer, interpret and evaluate.” Gunnar Myrdal:“Questions must be asked before answers can be given; questions give expression to what we are interested in, they basically constitute valuations.” (that is, values are involved already in the process of observation and interpretation as well as in the process of formulating theoretical propositions). NB: The difficulties caused by the lack of the counterfactual (controlled experiments) 4

5. Economic policy and crisis (the concepts) Economic policy = action undertaken by public authorities with a view to affecting the economy and its consequences for citizens in one way or another - including decisions on the institutiona set-up - including overall policies such as stabilization policies or monetary and fiscal (macroeconomic or demand management) policies - including also specific action to change, for instance, a particular tax rate Economic crisis = a discontinity in development, a sudden change for the worse with regard to the development of overall production or employment or price developments (typically triggered by a banking crisis, a government debt crisis or a foreign exchange crisis) 5