How Should Economics Shape Public Policy?

This is a good video. Lars Hansen is a Nobel Prize Winner. He did a lot of the early work in econometrics. Kevin Murphy is a Bates Medal award winner and is following in the footsteps of Gary Becker using economics to look at a lot of non-traditional things. Becker famously used economics to explain discrimination, families, and immigration.

There are lots of great points made in the video, but Kevin Murphy said, ” As economists, we want to broaden the set of evidence, but temper our predictions. Most of the time, when we predict a response, if it’s plus or minus 50 percent, that’s not a terrible prediction. Economists have had a big effect, for example, in improving macroeconomic policy around the world. A lot of that involved learning that we didn’t know as much as we thought. Probably the greatest improvement in macroeconomic policy has been the recognition that our ability to understand and manipulate the economy is a lot weaker than we thought. We’ve responded accordingly, with largely positive results. So, often, less message can actually be helpful because it discourages people from doing things that are out-and-out harmful.”

As they say in the video, you have to understand how an economist is framing the problem and the data inputs they are using before you can analyze the outcome or solution they are proposing. That requires a lot of nuances and critical thought. Unfortunately, we don’t have that in the mainstream media or social media today. This is why Paul Krugman can still be a great economist but can be wildly wrong about assertions or predictions he makes.

Murphy concludes, ” Economics is fundamentally about concepts and principles and data combined, usefully, together. If you want to know how to do that, go read Milton Friedman. He was one of the best at combining data and empirical evidence