The Need for Economists in Policy Making
Implementing effective policy is difficult. One of the most common issues with policy is the reliance on opinion-based policies in a world that is in desperate need for evidence-based policies.
When designing policies it is critical to keep the Law of Unintended Consequences in mind. The law describes a situation where intervention, whether it is policies or incentives, lead to unforeseen or unexpected outcomes. A more extreme example is when a policy is designed to solve a problem but the policy makes the problem even worse. We refer to the more extreme situation as the Cobra Effect.
In 2012, The Freakonomics podcast had an episode that introduces the cobra effect and provides examples of policies (listen to the 35 minute podcast). As economists, we advocate for the use of economics to evaluate policy proposals so that we can identify ways that the policy might impact behavior in the economy. No matter how well intended a policy is, it can have unintended consequences and, in some cases, lead to an even worse outcome.
No matter how well intended a policy is, it can have unintended consequences and, in some cases, lead to an even worse outcome.
Using economics to evaluate policy recommendations minimizes the potential of policy having adverse outcomes. We also recommend that policies are monitored and evaluated post implementation. Our approach becomes even more important as economies become more complex and as the changes in the economy become more dynamic.
In Oman, as we navigate the changes we are experiencing because of Covid19 and due to lower oil prices, we must rely on evidence-based policy. We also must communicate to stakeholders the intention of the policy and the process in which policy is evaluated post implementation.
Effective economic policy needs to be anchored in economic theory and analysis. As we propose solutions for complex problems, I urge that we rely on economists and experts to participate in the vetting and implementation of policy. Transparency of data, pre and post policy, is crucial to the evaluation of the policy and the communication of outcomes.
How to move to evidence-based policy
I think most of you know that I am supposed to be spending the academic year on sabbatical at University College of Dublin. I traveled to Oman to give a presentation on evidence-based policymaking when airports shut down, and I am grateful to be home during these unprecedented times.
Here are my recommendations to move towards evidence-based policy.
We need Applied Microeconomists. If you are an Omani student studying economics, do consider Microeconomics and econometrics areas of concentration. Most Omani economists are Macroeconomists. Policy analysis requires both micro and macro areas of speciality, and the market currently lacks Microeconomists.
We need Micro-level data. Most available data is macro level time series data. This type of data allows us to evaluate the impact of policy on the overall economy, but we would be difficult to measure heterogenous effects of policy across the population. Understanding how individuals behave or are impacted by policy allows us to better target policies in the future.
We need an appetite for evidence. We have seen improvements in this area recently and I hope that the demand for expertise and evidence continues to increase as we implement policies.
We need the infrastructure to communicate the research. Evaluating policy is important, and communicating the results is a vital part of the process.
If your institution is interested in using data or employing evidence-based policy, please reach out. You can contact me via email or via twitter, I would love to help.
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