I identify the word ‘policy’ as an intense word; I define it as to rein a scope of complex problem. The first thing that a policy maker must do is to characterize the complexity of the problem, whether it is to find the ‘causal factors’, the ‘common factors’, or the ‘scenarios’ between factors. In addition , the attempt to know is also including each factor’s magnitude to intensively affect the complex problem and the timing of each factor’s impact; thus, there are two very important words of policy making ‘timing’ and ‘significance’…
Yes, even the act of knowing is a very hard thing to do….
I tried to metaphor policy making as cooking. I have to know the food’s ingredients, the composition, and the process to make the dish. However with a non-analogous condition, in cooking I can try as many times as possible to make the same dish until it tastes good, but in policy making, policies should be implemented as effectively as possible with the best result possible.
Ok now let’s cook….
Do research on the dish: which ingredients are the best, where I can found it, and the composition of the factors. One thing that I believe is best practice not always bring the best result. So, different cook put diverse ingredient depends on, for instance, the climate condition and consumer’s cultural background. After deciding the best composition, then let’s start….timing is very important! If I put the ingredient earlier the dish will be raw, the taste of each ingredient won’t be so delicious (not optimal). Moreover, as an inexperienced cooker, most of the time I put the items too late thus making the dish too cooked. Again, like the early trial the ingredients won’t be tasteful….the effectiveness of the factors is reduced…
Policy making is also an art of knowing and timing…whether we are behind or ahead the curve, we cannot be sure yet…
Associating it with Bank Indonesia’s job, it has to guide public expectation inflation; therefore, Bank Indonesia must implement policy ahead the business cycle, identify the turning point, and choosing the most effective tool to affect the market…Currently, inflation is predicted to be in a downward trend until the third quarter and slightly increased in the last quarter until next year. So, when is the right timing for BI rate drop to stop? Will it be ahead or behind the curve? We will see…
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Instead of spending most of his/her time on researching the basic ingredients, an expert chef would improvise by just start cooking & utilizing any ingredients available.
Whoa, you make this sounds so complicated. Btw, I'd like to try your cooking sometime...
One thing about making policy in economic field. They say economic is a gloomy subject because there is always a dark side in an economic policy. You cannot satisfy everyone.
Policy can also be wrong. The problem is, as you mentioned in the article, there is no way you could put a policy into "experimental environment".
As Alan Greenspan once said, devising a monetary policy is like fixing a car while the engine running.
Policymakers need to acknowledge these issues and be prepared to defend their position. That is what we call "leadership"
Greg Mankiw wrote that "the principles of macroeconomics do not change from decade to decade, but the macroeconomist must apply these principles with flexibility and creativity to meet changing circumstances". It may imply that using appropriate "extra spices" in policy cooking is essential to meet policy objective, because theories or even robust empirical simulations cannot predict the future with zero disturbance. Instead fully-predictable like a machine, economy affected by human behaviors, sentiments, and accumulated response of billions of exogenous decisions. In recent research, we see that in 2009-2010, the economic indicators are harder to be predicted than normal, as confidence bounds are wider.
As predicted, people is amazed on sharp drop of inflation which announced by statistics body today, If we take a closer look to the data, it is affected more by mtm deflation on early 2009, sharp rise of commodity prices on early 2008, and several colleagues suggest that it is related to base year change. So, the sharp drop is purely a technical issue, not economic. On the other hand, BI rate is forward-looking to stabilize inflation, and consider current condition to maintain desired capital flows. As discussed, “the fake downward trend of May-June inflation” will continue to minimum on Q3-09. future inflation (6mo to 1 year), will be slightly higher as economic recovers, cyclical effect, and a technical issue (again). Capital flows, depends on world markets that back to carry trade, but still, sensitive and sentimental. Presidential election also has to taken to account regarding economic stability. So, what is appropriate policy? My personal opinion suggests zero change, or only 25 bps cut.
I guess that it will be better if we use medical surgeon as the subject for analogy, we called it 'clinical economics'.
Recently I read "The End of Poverty", you should read this one.
http://en.wikipedia.org/wiki/The_End_of_Poverty
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