Prof. Julian Jamison
Economists in utopia?
Assistant Professor of Managerial
Economics and Decision Sciences
markets for the common good: Economists, like engineers, are
using experimentation to build better models
to popular opinion, economics does concern itself with social
outcomes. The standard view of an economist, one I tend to
agree with, is that capitalist economics benefits society:
markets are simply an efficient mechanism for the distribution
this method with communism. Perhaps if the government knew
everything (individual preferences, all available production
technologies, etc.), and if it could control everything, and
if it had our best interests at heart, then a communist system
might be able to increase social welfare. But what are the
my Kellogg microeconomics students that government interventions
are often a bad idea, as in the case of steel tariffs recently
in the news. These tariffs are not bad because economists
worship some Platonic ideal of “free trade.” They’re
bad because they hurt people: workers in Brazil and Russia
who are deprived of the American market, as well as Americans
who pay more for a new car because of higher steel costs.
If you want to help U.S. steel workers (a concern I share),
then extend unemployment benefits and subsidize job training
— don’t support a troubled industry.
economics is good, but it’s not the complete story.
Markets don’t always work. One example of a public good
is the difficulty of keeping one citizen safe from refractory
countries without keeping her neighbors safe as well. So instead
of having private markets for defense, the government uses
taxes to provide defense for everyone. Something similar happens
with negative externalities such as pollution — one
factory’s waste harms all businesses and individuals
in the neighborhood, creating a rationale for government regulation.
way that economics affects society is by specifically studying
welfare in fields such as public health. How should foreign
aid be spent to improve physical welfare in developing countries?
One choice is to build modern hospitals in major cities, a
visible sign of progress. But it’s not the most cost-effective
option. Much better is to put dollars into preventive care
(e.g. vaccinations and education) in rural areas. In fact,
the most bang for your health buck is achieved by sending
girls to primary school! The girls grow up healthier and eventually
raise healthier children.
done some theoretical work on how to measure the global burden
of disease. For instance, which is worse: one death from tuberculosis
or two cases of blindness from polio? It’s an unpleasant
thought, but unfortunately resources are limited and policy-makers
must decide how to spend. I’m also currently considering
discount rates for the far future: Why and how much do people
care what happens after they die? This is an important question
for charitable giving and NPOs, as well as for environmental
economics. A final topic is microfinance, the concept of giving
small loans to individuals in developing countries to allow
them to start local businesses (e.g. buying a cell phone and
then selling telephone service). Economists are still studying
how beneficial and generalizable these programs are.
is changing rapidly, including the nascent field of “design
economics.” To truly help society, economists will have
to become more like engineers — not simply studying
markets, but building them. Economists now run laboratory
experiments; in fact the Nobel Prize was just awarded for
exactly this. I ran one experiment last year in South Africa
to study the perceived and actual value of information for
consumers. The more we know about how people behave under
different incentives, which is what economics is really concerned
with, the better will we be able to design institutions that
benefit society as a whole.