Norwegian society will do better. The economy will experience fewer shocks, and it will function just as well.
Blindren economists set the interest rate, and it affects all of us. But do economists have enough relevant insights into society, commodity flows, and geopolitics to determine the interest rate alone?
Insights into economics from other disciplines in the social sciences will make economics better for citizens and businesses in Norway.
Central views are missing
Social economists can answer important questions. They convince Norway’s political elite that the questions worth asking are the economists themselves best suited to answer.
The problem is only that economists give partial or partial answers. Central views are missing. This limitation is serious, but it is rarely taken up in public discussion.
It has been a long time since most of Norway’s business schools and internationally recruited sociologists, philosophers, and other social scientists gained a more comprehensive understanding of economic conditions. Perhaps it is time to allow other disciplines to influence economic policy more?
Interest rate increases are the wrong medicine
Norges Bank’s response to the strong price hike in Norway is based on basic macroeconomic thinking: When prices rise more than 2 percent, the interest rate should be increased. Norwegians have heard this eight times in the past year.
The Bank of Norway’s interest rate policy stops new projects and prevents innovative business and new value creation. Interest rate policy is bringing business to a halt in the housing market and elsewhere.
A large part of the reason for the price hike lies on the supply side of the economy: the coronavirus pandemic has caused stagnation in global supply chains. The invasion of Ukraine created sanctions from the West. Prices in Norway and elsewhere increase dramatically because the supply of goods has been greatly reduced or failed. When the supply is low, those who should have the goods will bid more to buy them.
The Bank of Norway should not raise interest rates as it did.
No matter how high the interest rate is, it never solves the problems with the supply side of the economy. Interest rate increases are the wrong medicine for some of the problems in the economy.
Economists have a very narrow view
The typical economist thinks of a job as an exchange of labor for money.
Social research, for example, shows how work relates to meaning, identity, and other social conditions. These terms were never present in the syllabus of today’s leading economic advisers at the Ministry of Finance, Statistics Norway, and the Bank of Norway. Many of them studied at the Institute of Social Economics in Blinder in the 1980s.
One problem is that the economists at Norges Bank do not see things like meaning and identity as the background to how people act in financial behaviour. But the fact that they do not see the unnecessary economic consequences of setting the interest rate shows that their view is too narrow. They focus on the demand side of the economy.
Society will do better
What if the Norwegian Bank was left to professionals not working with it?
What if social scientists set the interest rate with or instead of Blinder’s social economists?
Norwegian society will do better. The economy will experience fewer shocks, and it will function just as well.
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