Recently I've read a comment from a post asking about why developed countries make poor economic decisions
Because good politics is bad economics.
To win an election with rationally ignorant voters, you need to serve special interests by providing rent-seekers with protection. The logic of concentrated benefits and dispersed costs.
The key is that politicians don't win elections by promoting economic development. They win elections by providing benefits to special interests who will help them win reelection. The voters are too ignorant to vote for a politician who promises genuinely good policies.
And once you've set up a system of protection for rent-seekers, few politicians can afford to lose political support by abolishing the system.
And this got me thinking, how much of what you guys say actually get implemented? I imagine things like interest rates would be closely followed (most of the time) but what about other policies that aren't properly implemented because of politics.
How much of what economists advice actually get implemented by politicians?
byu/Dangerous_Switch_716 inAskEconomics
Posted by Dangerous_Switch_716
1 Comment
I’ll repost an old answer of mine:
the old joke with the council of economic advisors was that most of what they did was shoot down all the really bad ideas that the president had. since trump has largely sidelined economists in his administration, you can get a sense of all the dumb shit that gets proposed.*
To be more specific, I think you can bin economists’ influence into three seperate categories (with overlap because the world isn’t always very neat).
In some places, they have an active role in shaping policy. Monetary policy and central banking is the most obvious. There are some other somewhat smaller stories. Boston public schools (and other school districts) run their assignment mechanisms based on designs from economists. Medical residency programs and organ transplants are also designed based on economists’ research (and active advice).
Auctions are another area where economists are very involved in the design and implementation. The old nobel prize lectures are good places to look for this sort of thing.
– https://www.nobelprize.org/prizes/economic-sciences/2020/popular-information/
Two, they have some role in shaping how other policymakers think about an issue, either through research or persuasion or advising or … I’ll take antitrust as an example.
In the past, like the 1960s, lawyers (and some economists, particularly ones from harvard in the 1930s) believed in what was called the “structure, conduct, performance” paradigm. Loosely, if you knew the structure of an industry (how many firms, what’s the market concentration, barriers to entry, etc) and the conduct (how are they competing), then you knew performance (is there substantial market power). In practice, nobody observed conduct — it’s very difficult to tell if firms are colluding, for instance — so, instead, what you got were size thresholds like “if a company has more than 30% market share they should be considered a monopoly and regulated accordingly”.
This falls apart, however, under simple econ theory. If I tell you there’s a firm with a large market share (or high profits, or high markups), that could be because they’re a monopolist and harming consumers, or it could be that they’re a really good firm who sells a high quality product at a surprisingly low cost. You’d want to regulate the first one and not touch the second one, even if both firms look like “monopolies”.
This is largely a negative result, though, and more in line with the CEA joke; it’s economists saying don’t do this, rather than economists getting to actually shape policy.
Then, there are policy-arenas where economists are largely ignored. Housing, particularly at a local or regional level, is a good example of this. Another example would be public subsidies for sports stadiums. economists despise them and are largely ignored.
* With caveat that trump’s policies are particularly dumb.