Italy is about to run an interesting experiment as its new leader is an economist. I have argued before that relative to lawyers that economists are vastly under-represented in the U.S Congress. I have claimed that this discrimination against economists has efficiency and equity consequences. If Larry Summers was elected our President in 2012, would the U.S be in better shape in the short run and long run? After reading most of Run Suskind's "Confidence Men", I know that he would say "yes" and I agree.
Now, I realize that most economists are not electable. Ben Stein is the most charismatic among us. But, suppose we managed to achieve power through some trick such as when Kevin Kline seized power in that epic "Dave". What would we do if Paul Krugman and Robert Barro jointly served as "co-presidents"?
Here are my guesses:
1. pursue international free trade in goods and labor (i.e immigration restrictions would ease sharply).
2. credible short term and medium term budget targets would be announced and rules would be introduced to meet these targets.
3. early life investments in children would be increased.
4. A series of field experiments would launched to create an "evidence based" government who only intervenes in the free market after a serious cost/benefit analysis has been conducted.
5. The government would commit that no government funds would be used in "picking winners" or "subsidizing industries" unless large positive externality effects are demonstrated to exist by a group of blue ribbon economists.
6. Health care would be reformed to offer all Americans a basic package of services and citizens will be allowed to augment that care through private competitive markets. A group of health economists would agree to what services and procedures would be bundled into the "basic package". For example, nose jobs would unlikely be part of this list.
7. Retirement benefits will be adjusted to reflect life expectancy tables based on your birth year, age and sex. If you are part of a demographic group with a shorter life expectancy (i.e African Americans), then you can receive benefits earlier. To give people time to plan for this transition, anyone who is over the age of 52 would not be affected by these new rules.
8. The U.S Military would be given a fixed budget that is tied to the growth of the U.S economy. The Military can save any budget allocation that it does not spend in any fiscal year.
9. The U.S would enter an exchange program with China so that its leaders can travel in the U.S and vice-versa. Such an international exchange program would facilitate trust and mutual understanding.
10. The U.S government would take a close look at the unintended consequences of many of its policies. If these consequences are large and bad, then this would be used as a reason to end such programs. For example, as Casey Mulligan has argued --- many of the Obama Administration's well meaning policies regarding student loans and housing loans discourage work.
Here is some survey evidence that backs up some of my claims.
11. A vast majority of economists would support serious fossil fuel taxes and using this revenue to lower labor and capital taxes.
My "big" point is that in a world where deficits are high and economic growth is low, it is time to take a close look at the incentives embedded in our current rules.
I say; "give the economists a chance!". During this time of economic crisis, I predict that more democracies will hand the economists the ball. While there is a lot we don't know about macroeconomics, the case for the power of microeconomics to explain and predict human behavior is pretty strong.