Ii-semester lesson 1

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Lesson 10

THE ROLE OF ECONOMISTS IN ECONOMIC TRANSITIONS

For economics to be relevant, it must have something to say about social policy. Good economists try to be objective and recommend policies that they believe would be good for society in general rather than for any particular group in society.

Deciding what is in society’s interest isn’t always easy. For economists, it requires interpreting what society wants and comparing different policies, using what economists believe is society’s preference. That often means proposing policies that will help some people but hurt others.
Adam Smith’s "invisible hand" argument for the free working of the market and against government intervention is a good example. Smith favored a laissez-faire policy, meaning the government should not interfere with the operation of the economy. In this argument Smith and other Classical economists found themselves aligned with the industrialists or manufacturers, who wanted the right to enter into markets as they saw fit, and against the guilds and independent artisans, who wanted government to control who did what. These two groups each had different reasons for supporting laissez-faire policy, however. Industrialists supported the policy because they believed it benefited them. Sometimes they claimed policies that helped themselves actually benefited society, but they only made this argument because it helped make their case more persuasive. Economists supported the laissez-faire policy because they believed it benefited society.
It’s not easy to decide which policies will benefit society when the policies you’re looking at will help some people and hurt other people. It’s hard to weigh a policy and decide whether the good that it will probably do outweighs the harm that it may cause. Modern economists have spent a long time struggling with this problem. Some have avoided the problem. They have refused to advocate any policy that might hurt anyone, which pretty much eliminates advocating any policy at all. Good policy-oriented economists make working judgments of what they believe is in society’s interest; these working judgments determine which policies they advocate.
In reality, economists’ (or anyone’s) arguments for the general good of society are unlikely to have much effect on the policies of any government unless their arguments coincide with the interest of one group or another. A policy of less government involvement favored manufacturers over craftspeople. That the policy favored manufacturers or industrialists isn’t the reason economists favored it (they argued that less government involvement would be good for society as a whole), but it is the reason industrialists supported laissez-faire, and the industrialists’ support of laissez-faire was critical in getting the policy adopted in Britain in the late 1700s.
Once markets were established, the terms of the debate changed. Many economists stopped advocating laissez-faire policies. Good economists recognize the advantages of markets, but they also recognize the problems of markets.

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