Don't Misread Economists

I am not an economist. Therefore, I try to understand economic debates in a simple way: do not use one theory to answer all questions.

In Indonesia, discussions often quickly turn into a choice between the market and the state. If inequality rises, the free market is blamed. If businesses struggle to grow, the government is blamed for having too many rules. Yet the problem is not that simple.

John Maynard Keynes is important when we discuss demand, unemployment, and how the government responds to crises. Ben Bernanke is very important when we discuss banks, credit, and how damage to the financial system can deepen a crisis.

However, neither of them automatically becomes the main framework for answering another question: why are some countries able to keep creating technology, new companies, and high productivity?

For that question, I find Paul Romer easier to understand. Romer reminds us that long-term growth does not only come from adding capital, labour, or factories.

Growth also comes from ideas, knowledge, research, and innovation. This means we must ask whether the economic system provides enough room and incentives for people to create something new.

Daron Acemoglu takes that question to a more fundamental level: how do the rules of the game shape those incentives? This is where the term institutions is often misread. Institutions are not merely the government, ministries, or the number of regulations.

Institutions are the rules of the game: whether property rights are protected, contracts can be enforced, new firms can enter, incumbents can be challenged, and people profit more from innovating than from rent-seeking. Therefore, saying ‘institutions matter’ is not the same as saying ‘the less government, the better’.

The government can indeed damage the economy through bad bureaucracy, corruption, protectionism, and nonsensical rules. But the state is also needed for education, basic research, infrastructure, legal certainty, and maintaining competition. The market itself does not live without rules.

Joseph Schumpeter offers another lesson. Innovation means creative destruction: new technology replaces old technology, new companies challenge old companies, and some incumbents lose their position. A country that wants to be innovative must dare to make room for this process.

So, for Indonesia, the question should not only be: is the government too big or the market too free? The more important question is: do our rules make people profit more from creating value than from seeking connections? Can productive companies grow? Can new players enter?

Can knowledge from universities and laboratories turn into technology, companies, and jobs? We do not need to be economists to understand this difference. We only need to be careful when reading economists.

Keynes, Bernanke, Romer, Acemoglu, and Schumpeter talk about different mechanisms. Do not turn their names into slogans to justify a political position we have already chosen beforehand.

For me, a healthy economy is not simply more market or more state. The main thing is rules that make innovation more profitable than rent-seeking, competition stronger than privilege, and productivity the main path to prosperity.

Misreading theory can produce wrong policies. The president, ministers, businesspeople, academics, and the public actually need the same question: which rules encourage productive work and which rules actually reward rent-seekers?

Only from there do we assess the role of the state, the market, taxes, subsidies, regulation, education, and investment. The order matters, because good policy must follow the right problem, not merely follow the big name of an economist.