Against Politics

Toward a depoliticized society

Assumptions in economic science

Posted on | January 12, 2009 | Comments Off by Aschwin de Wolf

Economists are often taken to task for creating models that employ assumptions that are not consistent with reality. Such reality checks are important and can protect economists from making policy recommendations that may follow from their models but not from empirical observation.

A good example is the private provision of public goods. Most orthodox economic theories predict such goods will not be produced in sufficient quantity, or not at all. Aside from the objection that the case for government provision of public goods is self-contradictory because it attributes the task of supplying public goods to an entity (the state) that itself is a public good, actual case studies about private provision of public goods do not warrant the pessimism of orthodox economics.

Despite the advance of public choice theory, there remains a persistent tendency of economists and the general public to attribute assumptions to government that are not attributed to markets (or vice versa). The classic example, of course, is to contrast “market failure” with ideal government policies. A more subtle example is mentioned by Bryan Caplan in his post The Sophistry of the Balanced Budget Multiplier:

The standard Keynesian analysis essentially compares a conditional effect of government spending to an unconditional effect of tax cuts.  Even within the confines of the textbook Keynesian model, this is a clear case of stacking the deck in favor of spending.

There needs to be a healthy balance between talking about methodology and actually doing science but the  recent panic-driven embrace of activist economics  is overshadowing the need for more skepticism about the science of (macro)economics, and its use in public policy in particular.

Category: Economics, Voting
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