The Marginal Utility of Marginal Analysis in Public Policy Formulation

Abstract

In times past, neither the development of economic theory nor the activity of economists took place in an environment where there was a direct involvement in the formulation of economic policies by government and business. For the most part, economists and their theories stood outside the real world of practical decision making as exogenous observers and descriptions of economic behavior. However, over the past generation or so, both economists and their theories have become increasingly involved-for better or worse-in the economic policy decisions of government and business. The involvement has been most obvious and direct in macroeconomics and the formulation of aggregate economic policies by national governments. The Keynesian revolution virtually required involvement, and economists have been placed in positions where they are responsible, and sometimes held accountable, for the development and application of economic policies. At the microeconomic level, there has been no Keynesian revolution that has thrust microeconomics into an equivalent role in the formulation of real world economic policies. Nevertheless, a marked increase in the involvement of the profession in the microeconomic decisions of government and business has occurred, either by means of direct