Thursday, July 16, 2015

Economics And Public Policy

This discussion between two philosophers about economics, and its use in public public policy, does a good job in describing the use and misuse of economic science.  In the first place it is important to understand that economies are much more complex than the phenomena studied in the natural sciences.  Physicists did not attempt to study gravity by observing the behavior of falling leaves on a windy day.  The effect of gravity is small relative to other factors that determine the behavior of the falling leaf.  The laws of gravity are very powerful even though they may not be very useful in predicting the flight of falling leaves.  It is more difficult for economists to discover natural economic laws in the complex environment is which they work.  That does not mean that they have not found anything useful; but it is more difficult to build a consensus in economics.  Public policy issues are not only very complex, but they involve values that are excluded from economic analysis.  Much of the disagreement about pubic policies goes well beyond what can be determined by economic analysis.  The debate over the minimum wage law provides a good example.  Increasing the cost of labor by raising the minimum wage might decrease the demand for labor.  However, it is not possible to determine whether that will actually happen in the wide variety of situations that arise in the real economy.  Conservative economists claim that jobs will be lost by raising the minimum wage but in many cases employers have no alternative to the use of unskilled labor even at a higher price.  There is no convincing experiment available which provides a clear answer about the impact of the minimum wage on employment.

There is little debate among climate scientists about the complex interaction between carbon emissions and global warming.  On the other hand, it has been possible to confuse much of the public about this issue. Many have been led to believe that there is no consensus on this issue because of claims made by a small number of dissenters.  It should not be surprising that the same kind of thing happens when economic analysis is applied to public policy issues.  Even when most economists agree about an issue it is possible for a handful of dissenters to convince the public about the implications of policy decisions.

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