CHAPTER: THINKING LIKE AN ECONOMIST



CHAPTER: THINKING LIKE AN ECONOMIST

Economists can take on two different roles: Sometimes they are scientists, and sometimes they are policy advisors.

You may wonder if one role is more important than the other. In actuality, both roles are important, and they are complementary. While the scientist toils to increase our understanding of how the world works, the policy advisor uses this understanding to try to make society a better place.

Here’s an example: the work of Adam Smith and David Ricardo, two of history’s most important economic scientists, provides the foundation for one of the Ten Principles discussed in Chapter 1: trade can make everyone better off. Today, more than two hundred years after Smith wrote, economic policy advisors use this principle as a guide when formulating trade policy and when conducting trade negotiations with other countries.

The work of economists as scientists and policy advisors affects our daily lives--from the air we breathe to the messages we send over the Internet. Economists have helped develop cost-effective ways to reduce sulfur dioxide emissions and other pollution. They have also helped design auctions to allocate the electromagnetic spectrum efficiently, enhancing our ability to communicate over wireless networks on cell phones and computers.

An economist doesn’t have to choose one role or the other. In fact, over the past 50 years, many of the top economic advisors to U.S. Presidents have made important contributions to economic science. One example is James Tobin, who in 1981 received the Nobel Prize for Economics for his research on portfolio diversification. Twenty years earlier, he had served as one of President Kennedy’s economic advisors. In that role, he was one of the architects of an historic tax cut, which helped to get a lackluster economy moving again.

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