Wrong Theories - Huge Impact

The wrong theories had huge impact. Studying the interwar period, Mundell (2000) said if economic theories had been correct then there would have been no Great Depression. Great Depression was not the natural causality as it is preventable if economist had a right theory. Right now Pakistan is suffering from huge economic losses because we are using the wrong theories and accepting the wrong theories so, carrying wrong policies on the basis of wrong theories. For example, privatization was thought to be a great thing but historical record shows that it had been great failure wherever it has been applied in general. Mundell said if right theories had been followed then there would have been no Great Depression, no Nazi revolution and no WWII as all of these were the results of wrong economic theories being applied and due to lack of understanding. So it is important to have an understanding of economic theory.

Now the question is how we can understand theories. One very important clue is to look at who benefits from these theories. If we look at that then it becomes very easy to understand the theory but if we look at the theory only with the bi-polar lenses of true or false then we cannot find the true essence of these theories and it will not lead to any understanding. What we have to do is if this theory is applied who will benefit and who will lose.