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Intermediate Microeconomic Theory. Thinking Like an Economist. Thinking like an Economist. Primary goals of this class were to get you all to think deeper about what prices reflect and how economic agents react to changes in their costs. To do so, we often relied on somewhat technical tools.

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Intermediate microeconomic theory

Intermediate Microeconomic Theory

Thinking Like an Economist

Thinking like an economist
Thinking like an Economist

  • Primary goals of this class were to get you all to think deeper about what prices reflect and how economic agents react to changes in their costs.

  • To do so, we often relied on somewhat technical tools.

    • The technical tools are there to force a logical discipline.

    • You start with some “reasonable” assumptions, and then see where the logic takes you as you work out a problem.

    • Often, this may lead to unexpected or even unwanted conclusions.

Unintended consequences
Unintended Consequences

  • Consider the Freakonomics article on Unintended consequences.

    • What was one consequence of the Americans with Disabilities Act?

    • What was one consequence of the Endangered Species Act?

Unintended consequences1
Unintended Consequences

  • Mandated Employer provided maternity benefits (Gruber, American Economic Review, 1994)

Unintended consequences2
Unintended Consequences

  • Other Examples:

    • Mandatory Minimum Sentencing Laws (Bjerk, Journal of Law and Economic, 2005)

Economists and policy
Economists and Policy

  • Economists certainly do have a lot of influence on policy.

    • Federal Reserve Bank/Board of Governors

    • Council of Economic Advisors

    • Office of the Treasury Secretary

  • However, it can be amazing how often economists are dismissed.

    • Consider the new “summer gas tax holiday” proposed by McCain and Clinton as a way of helping consumers avoid high fuel prices.

    • Why might economists think this is a dumb idea?

Economists and policy1
Economists and Policy

  • Stephanopoulos: Can you name an economist who thinks this (gas tax holiday) makes sense?

  • Clinton: Well, I'll tell you what, I'm not going to put my lot in with economists, because I know if we get it right, if we actually did it right, if we had a president who used all the tools of the presidency, we would design it in such a way that it would be implemented effectively.

Economists and policy2
Economists and Policy

  • People respect that energy cannot be produced from dirt because physicists say so.

  • People respect that cancer can’t be cured by leeching because medical researchers say so.

  • Why isn’t this the case with economics?

Economists and policy3
Economists and Policy

  • My sense is that economic questions are often conflated with questions of “what is just”, what is “right”.

    • Economics can rarely answer those questions.

    • Rather, if society determines “what is just”, economics is very useful for answering how best we should achieve that goal.

    • The difficulty is that the policy prescriptions are often more difficult than we want them to be (hence the moniker “The Dismal Science”).

      • This is especially true for politicians, who then in order to get elected, try to convince the public that there are easy solutions.

Economists and policy4
Economists and Policy

  • So what do I really want you to take away from this class?

    • No “free” lunch principle. There are no easy answers.

    • Almost every “solution” has a cost. Try to understand what that cost is, and if the potential benefit of the “solution” outweighs it.

    • This often might put you at odds with your peers, regardless of your political ideology. Stick to your guns though, and try to use reason not “religion”.

  • Consider the following quote from The Armchair Economist.