Summary and Open Issues
After the vital critiques moved to its two pillars, economic policy as an autonomous discipline has been rehabilitated by setting it in a new, strategic context. The possibility of constructing a democratic social ordering had been restated starting in 1970, with the important innovation that ways to do this were tied to values and conceptions of justice.
More recently, the implementation theory developed in a strategic setting has enlarged the set of possible social-welfare orderings or social ordering functions.The effectiveness of policy action required a longer process of reflection on the theoretical and empirical foundations of the various critiques moved to it. However, it was not complete until the possibility of effective policy action in an environment of REs was demonstrated. This has finally been done rather recently, after reflecting on the intrinsic nature of strategic reasoning and making appeal to the equivalence of REs with games. The strategic theory of economic policy also has added theoretical results of relevance for practical policy application. In particular, conditions for not only
controllability of the economy but also existence or multiplicity of equilibria have been stated similar to those set by the classical theory of economic policy in a static and dynamic context. In addition, some roles of announcements as a policy tool have been clarified. In fact, these can let policymakers and other players converge on an equilibrium when there are many as an outcome of a game. In a dynamic setting, announcements about future action can also make this effective and eliminate time inconsistency if they allow conditions for controllability to be satisfied.
The theory of economic policy in a strategic setting has been of great help in the theoretical debate on policy effectiveness, leading to a critique of the leading conviction of policy neutrality.
We have criticised the literature that is sceptical of government intervention by repeating the same analytical setting as that assumed by this theory. Our models can be useful for serving as a compass for real policy action. However, some relevant assumptions underlying both this theory and the strategic theory of economic policy (i.e. symmetric information about the model of the economy) should be relaxed. In fact, in practice, this is not the case, since the model of the economy differs as between the private and public sectors. Here the government has an important role in convincing the private sector of their superior knowledge. However, until and to the extent that this is not so, the effectiveness of public action, including announcements as to future policy, ought to be assessed in a more realistic framework.The importance of the new theory as far as not only current policies but also institutions should be underlined. In fact, it has important implications for the theory of institutions owing to the fact that it can suggest whether a unique equilibrium, multiple equilibria or no equilibrium at all can be reached, which impinges on choice of a democratic institutional setting within a country and also has implications for international institutions.
Some issues are still to be settled in terms of the strategic theory of economic policy. First, the issue of coalitions and residual conflicts among players needs to be further investigated. In addition, the concept of decisiveness, as a way to generalise the concept of controllability, should be studied further, especially in its dynamic aspects for its possible impact on stabilisability. Finally, the whole theory, while being useful for crucial theoretical implications of policy action and debates on it, should be specified in a way to further serve this action in practical cases. The next two chapters will do this.