How public servants can make economics work for them

Image of 2 professionals sitting in front of charts printed on paper
  • Published Date: 11 October 2021

The language of economics is still the dominant language used in discourse around public policy, and almost all policies are evaluated through an economic lens.

That means public servants who understand economic thinking are better able to evaluate policies and choose between alternatives, and to make the case for their preferred policy option.

Griffith University Professor Ross Guest leads a new ANZSOG online course Making better decisions with economic thinking: public sector economics for managers aimed at giving public servants a better understanding of how economics shapes their world and how to make better choices, allocate scarce resources more effectively, and spot the flaws in economic arguments used by others.

Professor Guest says that public sector economics provides a “framework and a powerful set of tools that can help you make good decisions in allocating resources”.

“I want participants to be able to make the economic case for the programs and policies, and to understand the tools and frameworks that we use to design government interventions,” he said.

Professor Guest said economics is often misused and/or misunderstood and the course would help participants understand what economics could and could not do.

“The first thing to learn is that economics is not an entirely settled science. When a politician starts a sentence with ‘any economist will tell you’, they’re often wrong – there are many issues on which good economists disagree,” he said.

“For example, economists disagree on the costs of COVID lockdown restrictions and how to measure them, they disagree on how to reduce carbon emissions and whether putting a price on carbon is the best way to do that.

“So why can’t economics be like physics? Often the data is unclear and not timely, and our understanding of how the economy works is not perfect. Often policy prescriptions begin in a value judgement or an ethical position, and good people can disagree on this.

“Economics is a 200-year-old discipline with a well-established knowledge of precepts and ideas that can be adapted to some situations and not others. It is valuable to understand this, and for public servants it is better to critique economic arguments from the inside, and accurately understand the economic arguments for and against policies than to make false statements.”

Using economics to make better choices

Professor Guest said that economics was highly relevant to the work of the public sector, because economics is the science of choices and most public sector decisions involved choice.

“Some people see economics as a dry science, about money and maximising profits and not about the broader wellbeing of society, or of the planet. But economics has a lot to say about fairness and equality and how to deal with disadvantage in society.”

He said that economics had to look to politics to set the broader goals of government, based on ethical and moral concerns, but had a role to play in determining how goals should be achieved.

“There are some debates where economics is silent, especially around equity and fairness. But economics has a focus on efficiency. Economics says: if this is your ethical position of judgment then this is the most efficient and effective way to get there,” he said.

“Economic analysis allows you to look at costs and benefits from choices and weigh them up. Economics can be explicit about what you can put a cost on and what you can’t, and also about the assumptions you need to make in the process. This may involve weighing up benefits in the distant future versus today and allows us to evaluate policies over time.”

He said that economic solutions would not always be about markets or reducing government intervention.

“The free market fails in a lot of areas where private markets produce an undersupply of key goods – an example would be COVID vaccines, which are being provided free by governments.

“In fact, most government agencies are there to deal with market failures of some kind. Although addressing market failures is a prima facie case for government intervention, there are costs of government intervention that need to be worked out, and we need to be sure that the cure is not worse than the disease.”

Spotting the dodgy arguments

Professor Guest said that economic methods and language were often misused to promote policy positions, and public servants needed to be able to see through those arguments.

“We often see claims about the alleged economic benefit of things like major events, whether it is the Commonwealth Games or having the NRL Grand Final in Brisbane, and how many jobs they’ll create, when the reality is that the return on these events is not great.

“We also hear about costs to the economy. For example, people might say that the National Disability Insurance Scheme is a $40 billion cost to the economy. It’s not, it’s a $40 billion transfer from government to a group of people with disability. The real costs would depend on whether there is a more effective way of spending that money to achieve the goals of the NDIS, as well as the cost of tax, which is that it discourages saving and economic activity.

“Terms like ‘productivity’ are not used in the right way. It is production per worker per hour, nothing to do with overall output or production. Also, we hear of anything provided by governments, such as the ABC, described as a public good, but ‘public good’ refers to services and goods that would be under-produced by the private sector if government did not provide it.

“When you can recognise when economics is being misused it puts you in a stronger position to understand the arguments for and against a policy or program.”

Professor Guest said that public servants who understood key economics concepts such as ‘sunk costs’ and ‘opportunity costs’ would be better able to make informed decisions on the potential costs and benefits of programs.

“Sunk costs are the cost that you can’t get back, and they need to be ignored for decision-making purposes. Opportunity costs are thinking about whether there are better ways to get the same outcome. A key lesson of this course will be getting an understanding of and the ability to apply a cost-benefit analysis to programs, regulations and policies, and include all valid costs and benefits.

“There are other areas where an economic understanding can help with policy, such as working out different ways to price and deliver services, and how to tax most effectively so we can redistribute across society in a fair and efficient way.

“In the end, most public sector decisions are about allocating resources and participants will learn a rigorous framework to help them make those decisions as effectively as possible.”

Making better decisions with economic thinking: public sector economics for managers will be taught in eight sessions over four weeks from 22 November to 16 December. The course will explore public sector interventions, regulations and programs in a broad range of portfolio areas including public health, the environment, infrastructure, energy, economic development, education, housing, labour regulation and social justice.

ANZSOG is offering this post-graduate level micro-credential workshop in two modes – accredited and non-accredited. Grading will be equivalent to comparable master’s level subject units at Griffith University.

Register for Making better decisions with economic thinking: public sector economics for managers here.