Why Economists' Advice Is Not Always Followed ?
Any economist who advises presidents or other elected leaders knows that his recommendations are not always heeded. Frustrating as this can be, it is easy to understand. The process by which economic policy is actually made differs in many ways from the idealized policy process assumed in economics textbooks.
Throughout this text, whenever we discuss economic policy, we often focus on one question:
What is the best policy for the government to pursue?
We act as if policy were set by a benevolent king: Once the king figures out the right policy, he has no trouble putting his ideas into action. In the real world, figuring out the right policy is only, part of a leader's job, sometimes the easiest part. After a president hears from his economic advisers
about what policy is best from their perspective, he turns to other advisers for related input. His communications advisers will tell him how best to explain the proposed policy to the public, and they will try to anticipate any misunderstandings that might make the challenge more difficult. His press advisers will tell him how the news media will report on his proposal and what opinions will likely be expressed on the nation's editorial pages. His legislative affairs advisers will tell him how Congress will view the proposal, what amendments members of congress will suggest, and the likelihood that Congress will pass some version of the president's proposal into law. His political advisers will tell him which groups
will organize to support or oppose the proposed policy, how this proposal will
affect his standing among different groups in the electorate, and whether it will change support for any of the president's other policy initiatives. After hearing and weighing all this advice, the president then decides how to proceed. Making economic policy in a representative democracy is a messy affair and there are often good reasons why presidents (and other politicians) do not advance the policies that economists advocate. Economists offer crucial input to the policy process, but their advice is only one ingredient of a complex recipe.
The Economist as Policy Adviser:
Often, economists are asked to explain the causes of economic events. Why,
for example, is unemployment higher for teenagers than for older workers?
Sometimes, economists are asked to recommend policies to improve economic outcomes. What, for instance, should the government do to improve the economic well-being of teenagers? When economists are trying to explain the world, they are scientists. When they are trying to help improve it, they are policy advisers.
Positive versus Normative Analysis:
To help clarify the two roles that economists play, let's examine the use of language. Because scientists and policy advisers have different goals, they use language in different ways
For example, suppose that two people are discussing minimum-wage laws.
Here are two statements you might hear.
PORTIA :Minimum-wage laws cause unemployment.
NOAH: The government should raise the minimum wage
Ignoring norming for now whether you agree with these statements, notice that Portia and Noah differ in what they are trying to do. Portia is speaking like a scientist: She is making a claim about how the world works. Noah is speaking like a policy adviser: He is making a claim about how he would like to change the world
In general, statements about the world come in two types. One type, such as
Portia's, is positive. Positive statements are descriptive. They make a claim about how the world is. A second type of statement, such as Noah's, is normative. Normative statements are prescriptive. They make a claim about how the world thought to be. A key difference between positive and normative statements is how we judge
their validity. We can, in principle, confirm or refute positive statements.by ex's mining evidence. An economist might evaluate Portia's statement by analyzing data on changes in minimum wages and changes in unemployment over time. By contrast, evaluating normative statements involves values as well as facts. Noah's statement cannot be judged using data alone. Deciding what is good or bad policy is not just a matter of science. It also involves our views on ethics, religion, and Positive and normative statements are fundamentally different, but within a political philosophy. person's set of beliefs, they are often intertwined. In particular, positive views about how the world works affect normative views about what policies are desirable. Portia's claim that the minimum wage causes unemployment, it true, might lead her to reject Noah's conclusion that the government should raise the minimum wage. Yet normative conclusions cannot come from positive analysis alone they involve value judgments as well,
As you study economics, keep in mind the distinction between positive and
normative statements because it will help you stay focused on the task at hand. Much of economics is positive: It just tries to explain how the economy works. Yet those who use economics often have normative goals: They want to learn how to improve the economy. When you hear economists making normative statements, you know they are speaking not as scientists but as policy advisers.
Economists in Washington
President Harry Truman once said that he wanted to find a one-armed economist. When he asked his economists for advice, they always answered, "On the one
hand, On the other hand.
Truman was right in realizing that economists' advice is not always straight forward. This tendency is rooted in one of the Ten Principles of Economics: People face trade-offs. Economists are aware that trade-offs are involved in most policy
decisions. A policy might increase efficiency at the cost of equality. It might help future generations but hurt current generations. An economist who says that all policy decisions are easy or clear-cut is an economist not to be trusted. Truman was not the only president who relied on the advice of economists. Since 1946, the president of the United States has received guidance from the Council of Economic Advisers, which consists of three members and a staff of
a few dozen economists. The council, whose offices are just a few steps from the White House, has no duty other than to advise the president and to write the annual Economic Report of the President, which discusses recent developments in the economy and presents the council's analysis of current policy issues. The president also receives input from economists in many administrative departments. Economists at the Office of Management and Budget help formulate spending plans and regulatory policies. Economists at the Department of the Treasury help design tax policy. Economists at the Department of Labor analyze data on workers and those looking for work to help formulate labor-market policies.
Economists at the Department of Justice help enforce the nation's antitrust laws.
Economists are also found outside the administrative branch of government.
To obtain independent evaluations of policy proposals, Congress relies on the advice of the Congressional Budget Office, which is staffed by economists. Federal Reserve, the institution that sets the nation's monetary policy, employ hundreds of economists to analyze economic developments in the United States and throughout the world.
The influence of economists on policy goes beyond their role as advisers: Their. research and writings often affect policy indirectly. Economist John Maynard Keynes offered this observation:
The ideas of economists and political philosophers, both when they are right
and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt front intellectual 'influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. These words were written in 1935, but they remain true today. Indeed, the "aca dermic scribbler" now influencing public policy is often Keynes himself.
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