Economic analysis and political feasibility

It seems to me that economists are increasingly being called on to answer the world's problems. Can economists do more to make the world a better place? Does pressure from the public and government cause economists to over-promise and under-deliver?

I found three economists who explored this subject in 1972: Milton Friedman (“Have Monetary Policies Failed?”), John Gurley (“Have Fiscal and Monetary Policies Failed?”), and Arthur Okun (“Have Fiscal/Monetary Policies Failed?”). The trio hold distinctly different viewpoints.

Economic policies are tools used to meet the needs of the U.S. government's capitalist agenda, says Gurley. When the government is behind the wheel, capitalist objectives guide policy decisions, and “...other claims...are judged by the extent to which they are compatible with private profit making.” Gurley implies that as long as the government has control over economic policy, such policies will never be used with the direct attempt to improve social welfare, the environment, or anything else beyond corporate profits.

Okun agrees that the government chooses policies based on their ability to raise corporate profits. That is precisely the point, says Okun. Social welfare is not an ultimate objective to such policies. It is only through the regulation of aggregate demand that fiscal-monetary policy contributes to social welfare. Furthermore, Okun lamely adds that profits can never solve our “...lofty principles of equality....”

Neither Gurley nor Okun are ecstatic about the record left by fiscal-monetary policy. Okun believes that the policies are not fulfilling the needs of the government, while Gurley contends that these policies meet the needs of few else, save private firms.

Okun might say that it is not applicable to argue about a gap between social welfare and capitalistic objectives, but he admits that there is a “persistent gap between economic analysis and political feasibility.” Friedman would likely agree with Okun's latter point. He expresses that economists should work within their capabilities and ignore the pressures put on them by politicians.

Not only does Friedman admit that the government is a negative prescence hovering over monetary policy, but he concludes that it may be for good reason that the government's prescence exists. Partly due to political pressure, economists consistently over-promise and under-deliver, hurting the economy and the profession of economics. He implies that this is a cause and effect of political pressure. A vicious cycle, perhaps.

Friedman states that, like the pressure that exists from the government, pressure from the public might also exist for good reason. Again, economists spread false expectations; they over-promise and under-deliver. Friedman's advice to economists is that they should be honest about their capabilities and ignore the pressures from the government and the public that lead them to trumpet over-optimistic forecasts.

A counter-argument to Friedman's comment would be to say that pressure encourages responsibility. Surely Gurley would have thought so when he wrote his paper.

So, should economic policy be driven by more than just profits? Should economics be more than a quantitative science? We seem as indecisive as we were 34 years ago.

There are some good comments on this subject over at Economists' View.