After 47 years working in the area, I have learned that economics is both more and less powerful than people think. It is more powerful because it provides an indispensable set of tools for understanding human behavior. Whether we are talking about an individual's decision about how much education to get, a firm's decision about how much to invest, or a society's decision about how best to tackle global warming, economics can provide an invaluable perspective. In the context of the current prize my co-laureate and I have shown that economics can throw light on whether teachers should be rewarded according to their students' test scores; or whether prisons should be run by private companies or by the government.And I would add that it is only part of the answer but it is the part that seems to be ignored in those very cases where it is most powerful and useful.
This is the good news about economics. It can help us to understand many things. The bad news is that it is not the whole story. For understanding many questions other things matter too: psychology, history, sociology, politics. This is the sense in which economics is less powerful than people think. It provides only part of the answer.
Sunday, 11 December 2016
Oliver Hart on the good and bad in economics
From Hart's speech at the Nobel Banquet, 10 December 2016