Economics interprets human behaviour as purposeful action. It views economic and social developments as the outcome of interactions among many agents, each pursuing their own objectives within their constraints. Accordingly, economic analysis emphasises the role of incentives, budget constraints, and scarce resources.
Economists work theoretically with mathematical models and empirically with statistical methods. Consistent models allow conclusions to be derived transparently from core assumptions. Statistical methods make it possible to compare these conclusions with data, allowing assessment of the quality and relevance of the models.
Economic analyses and explanations lead to policy recommendations. These come with qualifications: they depend on the underlying models and their assumptions, and they are contingent on the purpose of the recommended measures. A central goal in economic policy is efficiency, meaning the prevention of waste. But efficiency is not everything, and depending on circumstances, can conflict with other objectives, such as distributional fairness, giving rise to trade-offs. Dealing with these trade-offs requires weighing benefits and costs, and policy advice therefore ultimately involves value judgements.
Politics
Researchers are not activists or political advocates. They create transparency, highlight the full range of consequences of policy measures, and demand analytical rigour in reasoning. This entails questioning key assumptions that underlie specific conclusions, as well as assessing whether proposed measures are not only adequate but also superior to possible alternatives.
The insistence on transparency and analytical rigour is sometimes perceived negatively. Some criticise the contextual nature of economic conclusions and want economists to act as ambassadors for what they see as “the good cause.” Others view economists as grim realists or even cynics who “think too negatively” when emphasising resource constraints or questioning ostensibly idealistic motives.
Media
Only a small portion of economic research receives media coverage. Newspapers can give the impression that economists mainly forecast stock prices or exchange rates, even though most academically trained economists would regard such predictions as unfounded or misleading. Published commentaries by “chief economists” and other so-called experts often have little connection to academic economics. A useful indicator of the quality of such commentary is the consistency of the argument and the transparency with which any caveats are acknowledged. Recommendations presented without qualification or a clear line of reasoning hardly constitute scientific argumentation.
Dirk Niepelt
August 2024
