The Economist Thought Process: Policy Advisor & Scientist

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.

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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.
Statements that describe how things should be are normative statements. Normative statements
are what if's, or should be's and you can probably get an economist to agree with you if you keep
looking for one who shares your agenda. While the data may be immutable, economists (scientists)
disagree on what the numbers and models mean. Remember that we can't create a massive
experiment and suddenly raise taxes by 75% and inflation by 20%. This is where the economist
thinks in terms of how the world could or should be.

Let's say you've created and examined a model of economic data. You have made some assumptions
based on the data and your knowledge of history. As a policy advisor, you will need to translate your
theories into guidance and advice for leaders and decision-makers. An honest approach is
recommended. In other words, let the data guide you to the decision, not a political viewpoint. An
important point to remember is this. Economists use positive statements to describe the economy
as it is and how it functions. They can then generate normative statements to try to guide policy. The
ultimate goal is to benefit the economy and make things better.

Lesson Summary

An economist is both a scientist and a policy advisor. Economists do not conduct experiments, but
they still work with data and generate positive statements, using facts that cannot be refuted and
normative statements about how the world should be. Because we work with people, emotions, and
the unknown future, policy makers may rely on many economic advisors, especially those who agree
with their political viewpoint.