First Principles of Economic Policy

William Beach / July 19, 2010

There simply is no way to avoid thinking and, perhaps, even starting the analysis of economic policy except from a set of principles.  Whether it be labor, investment, trade, or a host of other pieces of our national economic policy; analysts only will be able to understand policy change if they have a foundation of guiding principles. No one would see a physician who was untrained in the mechanics and chemistry of the human body. It would be somewhat disconcerting if physicians were surprised by the presence of body temperature each time we saw them.

Of course, the principles an analyst chooses in studying policy change make all the difference in the analytical conclusions they draw. Two analysts can look at the same facts…say, growth in the overall profitability of businesses…and see two different processes at work. One analyst who believes that profits are extracted from the wages of workers will see worker exploitation and class warfare. Another who believes profits stem from successfully meeting the needs of consumers will see the growth of social well being and expanding wealth of all. (more…)