With the possible exception of lawyers, economists are now the profession with the most influence on public policy. In the 1960s, when I began working at the US Bureau of the Budget, Charles Schultze, an economist and then-director of the bureau, tried to ensure that most of the public policy and program evaluation offices were headed by economists. Economic thinking still dominates the Office of Management and Budget, the Congressional Budget Office, and the General Accounting Office, and it is influential in policy and program evaluation offices across US agencies and departments. Moreover, economic thinking is at the forefront of most public policy schools at our leading universities. Intentional or not, economists now have a large say in forming the laws and regulations we make as a polity. The question that naturally arises is: what are the civic benefits that accrue from adopting the economist’s view of the world—and, in turn, what are the limitations?
No doubt, economists have a distinctive way of looking at the world—one that often runs counter to the views of noneconomists. Economists generally agree that, once distributional and equity issues have been sorted out, commercial, capitalist societies best allocate resources in a way that satisfies most people’s desires. Yet it is not intuitively obvious that an economic system in which everyone can work at whatever they want and wherever they want will work better than one that asks our smartest minds to plan the economy. As Nobel laureate Kenneth Arrow noted, to one unschooled in economics, an economy motivated by greed and controlled by no one brings to mind chaos.1 But, in fact, free markets with flexible prices coordinate the activities of millions of people in a remarkable and typically sensible way. Understanding both the principles that drive this outcome and how to apply them to new situations is what allows economists to see themselves as uniquely equipped to design sound public policies.
1. Kenneth Arrow and Frank Hahn, General Competitive Analysis (San Francisco: North-Holland, 1971), vii.