Thu, May 03, 2012 - Page 8 News List

Economics is a social science, not just theory

By Lin Hsuan-chu 林軒竹

Recently, fuel, electricity and general price rises have been a source of much public discontent. In the face of this public anger, several senior government officials have gone out of their way to defend the government’s economic policy, coming out with a whole range of interpretations of market mechanisms that stretch credulity. At the same time, President Ma Ying-jeou (馬英九) has been complaining that the public do not understand economics. I have strong feelings about what he says, not least because it reminds me of two episodes that occurred during the years I was studying in the US.

The first was my discussion with an economist who holds a doctorate from the University of Chicago on healthcare policy. During our discussion, this well-educated academic took me quite by surprise by claiming that it was wrong for physicians to obtain licenses in order to practice medicine, because it completely violates the free-market mechanism.

He believed that, through a process of elimination and equilibrium, as patients made the wrong choices, that the market itself would regulate the situation, retaining the good doctors and eliminating the bad ones. He backed up his argument with graphs and illustrations.

A little taken aback, I asked him: “How about human lives? What if someone dies?”

His answer was that a few lives do not matter and that the promotion of market efficiency is far more important.

The second episode took place in a macroeconomics policy class. The professor asked one of the students in the class to imagine for a minute that he were the government finance minister. He handed him some unemployment figures and asked him to interpret them.

The student proceeded to talk at length about the figures, comparing them with those of the previous year. He then went on to discuss changes in structural and non-structural unemployment in terms of the figures. When he was finished, the student was fully expecting the professor to offer praise for his brilliant analysis. His classmates were certainly suitably impressed.

To my surprise, the professor said that, when discussing the unemployment rate, a finance minister should first offer sympathy to the tens of thousands of people who have lost their jobs and dignity, and are struggling to make ends meet, then explain what he was going to do to get the rate down.

Economics is a social science and as such it has to start from the welfare of the general public. If it does not, it is little more than dry theories and formulae and those who implement policy are mere bureaucrats and bean counters.

Ma and senior government officials are supposed to be highly educated and should know what they are talking about. If they ignore what people are going through and even go as far as to complain that they do not understand economics, it is time they go back to school and learn what economics is really about.

Lin Hsuan-chu is an associate professor at National Cheng Kung University’s department of accountancy.

Translated by Eddy Chang

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