Example of DGI, Economists fooled by the Asian myth

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Here are some excerpts from an article titled "Why the Experts were fooled by the Asian Myth"

I think some of the faulty thinking can apply to both DGIs and maybe GIs too. Beware of only looking for evidence to support your own theories or beliefs.

When the Asian economic crisis exploded in July 1997, the region's investors and creditors were not the only ones caught off guard. Many economists in international organizations and in academe had believed that the rapid growth of East Asian economies, as noted by the British journal, The Economist, proved that these economies were market-friendly and emphasized free trade, exports, low taxes, and modest government spending. These economists often contrasted the wise behavior of Asian economies with the reckless and wasteful policies of Latin American ones.

As a Latin Americna specilist UIUC economics professor Werner Baer was particularly interested in how differently his fellow economists viewed the growing economies of Asia from those of Latin America. Baer looked into the reasons behind the overoptimism of a large segment of the economics profession about the Asian "tigers." They wanted to establish whether the many professionals who misdiagnosed the strength of East Asian economies may have placed too great a dependence on the deductive methods that dominate the economics profession--and lead many to search for evidence to back up theories rather than for objective evidence of how economies really function.

.....Although high domestic savings and investment were held up as an example to other developing regions, many Asian countries also relied on an inflow of foreign capital made cheap by a policy of managed exchange rates that overvalued their currencies. However, with such a large pool of funds to invest at low costs, there were too few viable projects to finance. Therefore, investment went nto real estate and into poor projects such as initiatives to start state-owned airplane, and other heavy-industries. Perhaps because of their reputations as economic dynamos, the tigers were able to engage in such practices for a long time without arousing investor suspicions. The result was an asset-priced boom that created vulnerability to external shock.

Thus, for all their reputation for small government, prudent regulation, and overall economic probity, the Asian tigers suffered from many of the same problems of excessive intervention, cronyism, and bad governance as many other economies. Because economic analysts concentrated on the statistical trees that indicated vigorous leafy growth, they missed the signs of structural weakness that threatened the economic forests of East Asia.

-- c (buerkle@uiuc.edu), February 05, 1999


Good insight!

-- Watchful (seethesea@msn.com), February 05, 1999.

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