The Economist Thought Process: Policy Advisor & Scientist

Instructor: Martin Gibbs

Martin has 16 years experience in Human Resources Information Systems and has a PhD in Information Technology Management. He is an adjunct professor of computer science and computer programming.

How does an economist think? Are they a scientist or an advisor? This lesson will cover the two faces of an economist, the scientist and policy advisor, providing examples of each.

What is an Economist?

An economist is not necessarily someone wearing a smart outfit and poring over supply-demand curves all day. True, economics involves a great deal of science, but an economist must also be able to translate his or her numbers into recommendations and policy.

The Scientist

While you will not see an economist hunched over a boiling beaker or running atoms through an accelerator, their field does rely on the scientific method. It is not a hard science, but it is a social science. After all, not only are we working with numbers, but with people. Unfortunately, we can't conduct experiments in economics. It's unethical to set up a large-scale test that winds up harming a large set of the population, just to prove a hypothesis.

As a result of the scientific approach, an economist describes things as they are. These statements are called positive statements. For example, as an economist, you may state that inflation has risen by 3% in the past fiscal year.

The Scientific Method

The economist must rely on data and develop data models to form a picture of the way things are. They can use the scientific method to do the following:

  • Observe
  • Collect Data
  • Use the data to evaluate hypotheses

Assumptions

Because large-scale experiments are out of the question, economists will have to make certain assumptions about things, based on the data they have. And, since there is a TON of economic data available, it makes sense to start small and work up to larger problems.

Let's say you want to understand global unemployment. You may select one large country, and one small country and compare them. You make the assumption that these are the only two countries with unemployment. It may seem unrealistic, but this approach can help an economist break down a large issue and work with something more manageable. Yes, the model can include assumptions!

Models

Remember that there is a HUGE amount of data available to economists. They can collect data, make assumptions, and generate models. Models are a great tool to break down a complex issue and present the data in a graphical form.

This is an example of a model an economist might create.


Circular flow model


For now, we don't need to worry about the details. The idea is that an economist should be able to take data and assumptions and construct a model. The purpose of any data collection or data model is to describe things as they are. If inflation was 3% in Kenya from 1993 to 1994, that is a hard fact and cannot be disputed. Knowing how things are can also help us determine where we want them to go, or how we think they should go.

The Policy Advisor

The government uses economists as policy advisors for many issues. There is definitely a reason that the president and other elected officials will have economic advisors at the ready. As a scientist, the positive statements made by economists cannot be countered. It's hard to argue with facts.

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