I was mulling over the exchange at the Festival of Economics described in yesterday’s post, between those saying economics had little to contribute to the debate about public services because it is simplistic and reductionist, and the economists pointing out that economics as applied to this area actually addresses the critics’ claims. Needless to say, I’m on the side of the economists, and indeed wrote a whole book (The Soulful Science) pointing out all the richness and sophistication of modern applied economics.
To check my views, I looked through Lee Friedman’s The Microeconomics of Public Policy Analysis, a recent textbook in this field. The issue of equity is brought in by Chapter 3 (after an introductory/overview chapter and one on cost-benefit principles). Distributional issues feature strongly throughout. Profit versus non-profit behaviour is discussed at length. The interaction of markets and policy is thoroughly covered and a whole section discusses the pervasive problems of asymmetric information and externalities. The book is full of examples (all American) illustrating the unavoidable trade-offs in policy decisions.
The Microeconomics of Public Policy Analysis
Yet of course the critics have a point. Because although economists are doing all this subtle work, the policy debate still draws on the caricature version of the economic debate, the ‘markets good, government bad’ or vice versa. This is partly the usual problem of the people in charge having learned their economics a long time ago. It’s also clear that economists should redouble their efforts to communicate their work. But I wonder if there are other barriers to the policy world embracing the subtler and evidence-based work that is taking place now in economic research into public services?