Monday, June 3, 2013

Bernanke on the True Role of Economics in Public Policy

"[L]et me wrap up economics while I'm at it. Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much. However, careful economic analysis does have one important benefit, which is that it can help kill ideas that are completely logically inconsistent or wildly at variance with the data. This insight covers at least 90 percent of proposed economic policies."

So says Ben Bernanke in his recent commencement address at Princeton University. Sure, his advice is a little tongue-in-cheek, but there's a serious edge to it.

I've sometimes tried to make a similar point, in a less elegant way: For any public policy problem, one can usually list a few dozen possible courses of action, ranging from passive inactivity to revolutionary change, with 50 shades of gray in between. Arguing over which choice is the "best" is often not all that productive, because our analytical tools often aren't sharp enough to be fully persuasive that, say, the #2 option is definitively better than the #4 option. But if our political system could reliably choose from, say, the top half-dozen options on the list, while avoiding the worst options in the bottom half of the list, it would be a genuine step forward for public policy.