Monday, November 12, 2012

Macroeocnomic policy choices - Are we FUQed?

There is a nice terms that explains one of the key problems with answering policy choices for complex problems, FUQed, Fundamentally Unidentified Questions. These are the questions that we do have have any simple answers like, how do we stop global warming. We do not have the ability to test alternatiev ideas and identify solutions.

I would argue that any of the key policy issues that we face today cannot be easy answered because we are FUQed. We do have the ability to run experiments and isolate the impact of our choices. Take the example of tax policy. We have had limited number of tax changes so it hard to measure what will be the reaction to a change in policy given that its is unknown whether it is perm,ant or temporary and we cannot control for other variables. 

Economics is more difficult than any other science because it is hard to run experiments. The most successful and pioneering work in economics is trying to develop testing methods to solve this identification problem.  If we cannot run experiments, we are FUQed.

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