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The Economist: “The hole at the heart of economics”

Free Exchange, November 22, 2016, by R.A.

“Institutions are organisations or patterns of behaviour built by societies to help solve social or economic problems which the law or private markets cannot fully address. Economists have not entirely ignored them. […] Yet for many of the most important questions within economics, economists have chosen to act like institutions simply do not exist. […] It is understandable why these sorts of macroinstitutional questions might be ignored. It is very hard to say what exactly they are, for one thing. It is very hard to say what exactly they are, for one thing. […] But lacking the tools or theory to think through something does not mean that something isn’t important. It certainly doesn’t mean that academic economists should pour massively more effort into research describing the smallest details of models which assume macroinstitutions aren’t important, than into an effort to figure out how they function. There has been some work done on these issues in recent years: such as the line of research investigating the political consequences of financial crises. Big-picture books by Daron Acemoglu and James Robinson, Thomas Piketty, and Branko Milanovic move gingerly in the right direction. Much more is needed.”

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