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March 2009 - NEWSLETTER 35
INTERNATIONAL ECONOMIC ASSOCIATION March 2009
ASSOCIATION INTERNATIONALE DES SCIENCES ECONOMIQUES
ASOCIACION INTERNACIONAL DE ECONOMIA
Letter from Masahiko Aoki
2008-2011 IEA President
Stanford, USA
It is a great honour for me to have been appointed as the President of the International Economic Association
(IEA), for which I am very grateful to the Council and to the Member Associations. I am deeply aware of the
responsibilities, as well as the many exciting opportunities, associated with the office.
The 15th World Congress of the IEA was successfully held in Istanbul, Turkey, in June 2008 under the
intellectual leadership of my predecessor, Professor Guillermo Calvo, and the excellent organization led by
Professor Ercan Uygur. Professor Calvo chose, with timely insight, the topic of “Globalization Debate”, that
is, the light and shadow of globalization so to speak, as the major theme of the Congress. Within only a few
months the world economy began to be dramatically shaken by the financial shock triggered by the sub prime
loan problem in the United States and failures of some giant financial corporations. Now some economists
suggest that the seriousness of the present economic setback may be even comparable to that of the Great
Depression in certain respects, and that recovery from it may take years to come. This situation undoubtedly
poses a tremendous challenge for economists. We are forced to realize that the existing rules of the global
economic game are quite inadequate, even though there have been, and will be, tremendous benefits from the
globalization of markets, information, production networks, and so on. We in the economic profession are
certainly obliged to be engaged in an earnest search for better rules and governance of the global economic
game consistent with stability, equity, sustainability, and innovative opportunities in the world economy.
Such a thematic challenge also indicates the need for a re-examination of the methodology, approach, and
philosophy that economists have been accustomed to. Professor Robert Solow, President of IEA between
1999 and 2002, rightly pointed out in his newsletter that economists had come to speak and think
homogenously all over the world and that an idea of national schools of economics had become definitely
obsolete. In spite of the setback of market globalization, or shall I say rather because of it, dialogue among
economists all over the world is becoming ever more crucial. However, at the same time we may also need
to broaden our methodological perspective. Indeed, in the last decade or so, experimental economics,
behavioural economics, psychological and epistemic game theory and so on has started to re-examine some
of fundamental premises that economists have traditionally accepted regarding human behaviour,
motivations, cognitive competences, and so on in their economic choices and transactions. Also increasing
attention is being placed on the roles of various social categories, such as belief systems, social information,
norms, laws and institutions and the like in the workings and performance of the economy. These emergent
trends in economics seem to imply, in my view, two important methodological points.
First, as Professor Janos Kornai emphasized in his 2005 IEA Presidential Address, there is a growing need
and opportunity for a trans-disciplinary (or a multidisciplinary) approach to various economic problems we
face. I intentionally use the term trans-disciplinary, rather than inter-disciplinary, to suggest that dialogues
among different disciplines ought to be more integrative and substantive rather than just chatting and
listening with each other. After all, political scientists, sociologists, jurists, (social) cognitive scientists, are
all dealing with social situations where actors behave on the basis of certain expectations regarding others’
behaviours (and/or those crystallized in societal rules and laws).
Thus all the social sciences may benefit more by communications between economics (as dealing with
human rationality) and other social sciences (as conceived otherwise). Economists can do so without
abandoning the refined analytical apparatus and insights that economics and game theory have been
accumulating, on one hand, and on the other without asserting the “economics imperialism” based on the
narrowly conceived “methodological individualism.” It is the methodology which attempts to understand
complex economic and social phenomena solely in terms of market-mediated aggregates of individual
choices as derived from a priori given tastes, beliefs and the like. As mentioned above, economics are
increasing aware of the importance of various social categories as mentioned above with its unique insights
into their sources and roles.
Secondly, I would like to submit that the above mentioned thematic and methodological agenda may also
call for the growing need of comparative approach. By saying so I do not mean, as I have already indicated,
that there ought to be different methodological approach, theory, and language for describing, diagnosing,
and prescribing for each national economy. There can be tendency toward convergence in certain aspects of
economic structure and institutions among national/regional economies on one hand, while differences may
remain robust in other respects. Policy and rule-setting for economic games need to carefully take into
consideration historical and emergent conditions that would make convergence/diversity feasible and/or
desirable. This can be one of the important lessons that we may draw from the current crisis.
I understand that one of the important functions of the IEA is to set a clear theme of the World Congress of
common interests among economists from all over the world and to promote fruitful communications and
discussions, so that a better understanding of the world economy is achieved and better solutions are
explored for its problems. I am very much looking forward to cooperating with the member associations of
IEA and individual economists from all over the world for that purpose during the next three years.
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Farewell letter from Guillermo Calvo
Past President (2005-2008)
I would like to thank the IEA for giving me the opportunity to serve as its President during the period 2005-
2008. Especially, I would like to express my gratitude to the IEA Secretariat, headed by Professor Jean-Paul
Fitoussi, for providing invaluable administrative and, no doubt, moral support. The period 2005-2008
witnessed the beginning of a major financial crisis that is shaking up conventional wisdom and challenging
us to come up with new proposals to address issues like financial regulation and the role of international
financial institutions. We are still at the start of a likely wrenching process. It is, therefore, quite remarkable
that the 2008 IEA Istanbul World Congress’ central theme was The Challenge of Globalization. I mention
this because the theme was chosen by the Executive Committee long before the start of the crisis, showing
that the Association does not dwell in an ivory tower and has a clear sense of relevant policy issues. The
theme made it possible to attract to the Congress a considerable number of papers that focused on the
financial sector, an issue that was also covered in several keynote speeches, thus placing the IEA clearly
“ahead of the game.” But luck was also on our side. The IEA was extremely fortunate to collaborate with
the Turkish Economic Association and, especially, its President, Professor Ercan Uygur. Professor Uygur
was extremely generous with his time and coordinated, together with his equally dynamic and efficient
colleagues, all the aspects of the World Congress – an event of major proportions given the number of
participants and the sizable funding needs that it entails – in a seamless fashion. My heartfelt thanks to all of
them!
The present crisis is launching the world into uncharted territory. There is little chance that the world can
quickly go back to the Great Moderation years and that the current episode is remembered largely as a “bad
dream.” It would take an inveterate optimist to rule out the possibility of a long-winded recession that will
seriously question the desirability of the present global economic system. I don’t think the world will
abandon capitalism in a clean sweep but it is very likely that the private sector will be subject to much closer
public scrutiny. For, it is hard to imagine a new regime willing to give free rein to a sector that would already
have seriously unraveled, had it not received extensive official assistance. Thus, in all probability new
policies will be implemented that change the rules of the game. Some of these policies will contribute to
establishing a more stable and peaceful global system. But there is no assurance that the interaction of
politics and vested interests will result in a better world organization. We are already seeing the surge of
protectionism and nationalism in different parts of the world, even at the very center of the world economy.
We have not faced such a major challenge since the Great Depression, and the lessons from that period are
extremely worrisome. I want to believe that the world has changed for the better. Globalization has brought
a more fluid interaction among different players in the world. G20 statements reassure us that the powers
that be are conscious of the risks of unilateral action. However, as noted, dissonant sounds are heard in
different parts of the world. This reinforces, in my mind, the relevance of the IEA. The IEA is a global
academic institution which harbors a variety of different points of view. Peace is in its DNA: a prominent
motivation behind its creation was to help to establish a bridge between East and West after the Second
World War. The major problem I see going forward is funding. The association operates on a shoestring. Its
existence on a daily basis crucially depends on the motivation and enthusiasm of a handful of people, mostly
housed at the Secretariat. Thus, a first order of business should be, in my opinion, fundraising. This may
look especially unpromising in the current situation. However, it may well not be so. Risk aversion and the
lack of trust in the private sector have resulted in investors rushing to buy US Treasury Bills and Bonds, for
example. Thus, there are some governments that have ample access to finance. To the extent that these
governments are eager to reestablish a peaceful and efficient globalized system, the IEA should be seen by
them as a natural partner. I am not implying that getting their support will be easy, but I believe that it would
be a mistake to conclude that IEA funding will necessarily become more difficult. Actually, the publicprivate
partnership that I envision between IEA and some financially strong public sectors was difficult, if
not impossible, prior to the current crisis, because of the strong prevalence of laissez-faire ideology. In that
environment, the IEA fundraising tended to fall on deaf ears.
Let me end by once again thanking the IEA for the honor of serving as its President and offering my
commitment to contribute to the success of future IEA’s projects and consolidation.
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