How Economics Is Useful in Government?

Article excerpt



It is a great pleasure to open this conference and to address teachers of economics about how economics can work in practice. I will concentrate on what I know something about. Economics in Government. But, first, what is economics?

When I was an undergraduate, I was taught that economics was what economists did. Not very helpful you might say - nor much of a guide to life.

A large number of successful men and women, trained in economics, now work in areas that involve some economics but cover finance, politics, business, administration, regulation, consultancy.... Some of them are advisers; many make decisions that, inevitably, include non-economic issues.

They think, however, that their training in economics is helpful to them in doing their jobs - and some of them, including me, try to keep up with (some parts) of the subject through the serious press, book reviews and periodicals such as the Journal of Economic Perspectives and the policy section of the Economic Journal.

There are two, perhaps overlapping, strands in economics as a discipline:

Its theoretical strand. The allocation of scarce resources to competing ends. The emphasis on decisions at the margin. The importance of opportunity cost. That bygones are bygones (most of the time). The role of comparative (not absolute) advantage.

Its empirical strand. The study of mankind's business activities. Economic organisation, Business History, Industry Studies, etc. The effect of taxes and subsidies on business operations. The effect of Government on the economy.

The two strands do not always take together well. Where they do, in the work of the great economists, the effect on the world is electric - Adam Smith, Karl Marx, Maynard Keynes, Milton Friedman. Where there is no overlap, we risk empty theorising or bare institutional facts. The economic adviser, the manager and the administrator may not be operating at the same high level as these great men, but he or she equally needs to twine the two strands together.

Knowledge in economics seems rarely to be cumulative. Economists tackle problems, but the problems twist and turn, reemerging in different guises. So a research programme arises to deal with a set of issues and dies when the issues shift. Keynes was a god to economists of the generation before mine; James Meade used that very word. We can still admire Keynes and still learn from him, there is little point now in asking economists whether they are Keynsians. In the 1980s, people used to claim to be Austrians - whether followers of Schumpeter or Hayek, I was never sure - but it is not much heard in the late 1990s. Are we now lost, looking for some elusive middle way? Or have we not yet recognised the leaders of our decade?


What are my credentials for talking about how economics can work in Government? I taught economics for seven years and acquired some communicable knowledge of the subject. Teaching can be an important preparation for practice. Ralph Turvey was once asked what was the difference between being a reader in economics at LSE and an economic adviser in the Treasury. In essence, not much, he said, except on the question of who wrote the essays.

I joined the Economic Section of the Treasury, for a two-year spell, half way through those seven years of teaching. I then went back to Government, first - for two years - in the Department of Education & Science (as it was then), next, for three years to the Ministry of Housing and Local Government, soon absorbed into the Department of the Environment (the first incarnation of the Department of the Environment, Transport and the Regions) and then back to the Treasury for a further spell of seventeen years. Six years were spent building up and running a Public Expenditure Economic Unit. …