The purpose of this blog post is to discuss the scientific aspects of economics, both positive and normative, in regards to the realm of policy. The first two sections are an explanation of economics as a positive science and then economics as a normative science. I then go into a brief digression into “evidence-based policy” a la Neil DeGrasse Tyson as well and why the attainment of such a goal is impossible. The fourth section is a discussion on the role of the economist in regards to policy discussions. The fifth section is a summation of this post. The final section is a list of readings on this same topic for someone who would like a more detailed, and likely better, explanation of this discussion. This is far more wonky than many of my other blog posts, but I have tried to keep it fairly simple to read, a la Milton Friedman or Jim Buchanan (both of whom served as major inspirations and guides for this post). I hope, dear reader, that you will read though this post carefully and give thought to these words despite its length. With that, let’s begin:
In the world of politics, things are black or white. Minimum wage either has no job loss (or even creates jobs!) or it is extreme job loss.
The reality, however, is much more subtle. Moderate rise in minimum wage causes moderate job loss (estimates are around -0.1 to -0.3, and it varies among different racial, gender, and age groups). Pretty much all economists accept this. Likewise, the research shows minimum wage does tend to raise wages of those who keep their jobs and can even reduce the poverty rate (for example, see Arin Dube’s work on the matter).
These are all positive (that is, objective) outcomes. This deals with a discussion of what is. We may dispute the robustness of these findings, but they are there.
However, where economics (and indeed any science) gets more squishy is its application to policy. In the above conversation regarding minimum wage, the reader will notice no discussion of value judgments. Whether or not the outcomes of minimum wage are “good” or “bad” is a conversation above and beyond the scope of positive economics. For some, the judgement that the reduced poverty rate is more valuable than the minimal loss in jobs. For others, the reduced jobs are not worth the reduction in the poverty rate. Both are valid, evidence-based propositions. It is at this point that the conversation turns from the positive to the normative. It becomes a discussion of what ought to be.
A Brief Digression
One’s value judgments will greatly alter one’s perceptions of various data as well as its application(s) to policy. Data does not exist in an ethical vacuum. That is why I argue there is no such thing as evidence-based policy, that no policy can be made “based upon the weight of evidence” alone. Policy will ultimately be dependent on the value judgments of those writing the policy. As James Buchanan said, cost-benefit analysis, and its subsequent outcomes, cannot be done on the collective level as they require individual judgments which will likely reflect or depend on the judgments of the analyst. Likewise, the desirability of those trade-offs will change from person to person. Referring back to the minimum wage example I opened with, whether or not increased unemployment with reduced poverty rate is desirable will depend from analyst to analyst and, more personally, from person affected to person affected (the man who keeps his job and gets the raise will likely be more in favor of the policy than the man who loses his job). All these judgments are based off the evidence. All are equally valid. All reflect the weight of the evidence. All are in conflict.
The Role of the Economist
So what does this mean for the economist in regard to policy? What is his role? First and foremost, his role is to discuss the positive: what is. His first job, as an economist, is to analyze the policy in light of the prevailing evidence, theory, and reasoning: What effects will minimum wage have on the labor market? How will tariffs change patterns of consumption? What impact will open borders have? Et cetera. In this role, he is no different from a biologist discussing what happens to ocean life when garbage is dumped or a chemist discussing the impact of a chemical on the human body.
His second, and marginally less-important job, is to discuss the normative: what ought to be. As discussed above, the normative relies upon value judgments. I will not pretend, nor advocate, that an economist (or, for that matter, any scientist whether natural or social) not be allowed to have professional and personal opinions. I have them. You have them. My colleagues here at George Mason University have them. My counterparts at BC, or Chicago, or MIT, or Princeton have them. These are what can guide our thinking, our research, and our writing. Conveying these opinions in a manner accessible to the layman is important for advancing personal goals (think, for example, how much weaker the pro-free market movement might be absent the writings of Milton Friedman or Paul Krugman in the 1990’s. Or, vice versa, how much weaker the Socialist movement might be absent the writings of Karl Marx). But this role is secondary to his first as a scientist (for example, I get paid to research. I receive no compensation, not even ad revenue, from this blog).
Economics, like any science, has two major components: positive economics (what is) and normative economics (what ought to be). In the world of policy-making, the economist has two major roles. The first is his role as a scientist: to discuss what is; what are the likely outcomes of a proposed policy. The second is his role as a writer: to discuss what ought to be; why he favors one policy over another. This second role, one must remember, is where the larger amount of conversation should (and likely will) occur, despite its relative less important job for the economist in the policy realm. This second role also represents the largest pitfall to the layman in understanding economic thought. The layman may misinterpret disagreement in the normative for disagreement in the positive, which can lead to decreased trust in the science as a whole.
- The Collected Works of James M. Buchanan, Vol. 12: Economic Inquiry and Its Logic (especially Chapters 1-3)
- Essays in Positive Economics by Milton Friedman