LIsten to an economist!

There is an important intersection between economic theory and implementing economic results by influencing policy making. Many economists with experience working for government or on the Council of Economics Advisers serve up their economic policy recommendations with a side of “what will it take to make this policy politically feasible?” (Here’s one from Greg Mankiw, just as an example.) Naturally, this process implies the translation from perfect-world economic policy to actually-implemented economic policy is a murky one. Many economists attribute the underwhelming impact of the Obama stimulus bill to a failure in the numbers game: economists who believed in the plan recommended a much larger stimulus package, but the actual size ($800 billion) was a fraction of this recommendation. Fears of political failure reduced the size, and ultimately, dulled the impact overall.

Chris Dillow says that while economists do have some potential to influence policymakers, there is a much larger constituency which would benefit from listening to economists: everyone else. Here’s Dillow on economists and policy makers:

To whom should economists offer advice? Traditionally, the answer has been: politicians. But I’m not sure this should be so.

This isn’t just because economists can’t foresee the future and so a lot of advice on monetary and fiscal policy is pointless.It’s because policy is shaped not by what is the right thing to do, but by what politicians can sell to inattentive and sub-rational voters. Whatever else informs immigration policy, for example, it is not economic research.

Of course, economists do sometimes influence policy for the better – auction theory being a good example – but this happens only when economic ideas don’t rub too harshly against prejudice and vested interest. Otherwise giving policy advice is, to paraphrase Robert Heinlein, like teaching a pig to sing: it wastes your time and it annoys the pig.

Where can economists help?

[…]  there is a role for economists in helping people make everyday decisions. This role is enhanced by the fact that a lot of the best recent research in economics has been in precisely how individuals’ decisions often do fall short of rational maximization. It’s rather sad that many economists’ reaction to the cognitive biases research programme has been: how can we use this to give policy advice (eg nudge)? when it could equally be: we can use this to help people improve their everyday decision-making.

I wholeheartedly agree with his sentiment. Books like Thnking, Fast and Slow, The Undercover Economist, and Nudge offer concrete ways to re-evaluate our approaches to decision making, like recognizing a status quo bias, learning to neglect sunk costs, or respecting when our actions generate negative externalities. Economics is often at its best when it relies on simple heuristics or basic principles to demonstrate its ubiquity in the world around us – and how simple some solutions can truly be. Who knows – perhaps a more economically-informed citizenry can have greater influence on policy makers than economists do.

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