Some economists, like John Stuart Mill or Leon Walras, have maintained that the production of wealth should not be tied to its distribution. The former is in the field of "applied economics" while the latter belongs to "social economics" and is largely a matter of power and politics.
In The Wealth of Nations, Adam Smith addressed many issues that are currently also the subject of debate and dispute. Smith repeatedly attacks groups of politically aligned individuals who attempt to use their collective influence to manipulate a government into doing their bidding. In Smith's day, these were referred to as factions, but are now more commonly called special interests, a term which can comprise international bankers, corporate conglomerations, outright oligopolies, monopolies, trade unions and other groups.
Economics per se, as a social science, is independent of the political acts of any government or other decision-making organization, however, many policymakers or individuals holding highly ranked positions that can influence other people's lives are known for arbitrarily using a plethora of economic concepts and rhetoric as vehicles to legitimize agendas and value systems, and do not limit their remarks to matters relevant to their responsibilities.[citation needed] The close relation of economic theory and practice with politics is a focus of contention that may shade or distort the most unpretentious original tenets of economics, and is often confused with specific social agendas and value systems.Notwithstanding, economics legitimately has a role in informing government policy. It is, indeed, in some ways an outgrowth of the older field of political economy. Some academic economic journals are currently focusing increased efforts on gauging the consensus of economists regarding certain policy issues in hopes of effecting a more informed political environment. Currently, there exists a low approval rate from professional economists regarding many public policies. Policy issues featured in a recent survey of AEA economists include trade restrictions, social insurance for those put out of work by international competition, genetically modified foods, curbside recycling, health insurance (several questions), medical malpractice, barriers to entering the medical profession, organ donations, unhealthy foods, mortgage deductions, taxing internet sales, Wal-Mart, casinos, ethanol subsidies, and inflation targeting.
In Steady State Economics 1977, Herman Daly argues that there exist logical inconsistencies between the emphasis placed on economic growth and the limited availability of natural resources
Issues like central bank independence, central bank policies and rhetoric in central bank governors discourse or the premises of macroeconomic policies (monetary and fiscal policy) of the state, are focus of contention and criticism.
Deirdre McCloskey has argued that many empirical economic studies are poorly reported, and while her critique has been well-received, she and Stephen Ziliak argue that practice has not improved. This latter contention is controversial.
A 2002 International Monetary Fund study looked at “consensus forecasts” (the forecasts of large groups of economists) that were made in advance of 60 different national recessions in the ’90s: in 97% of the cases the economists did not predict the contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated their severity.
Criticism of assumptions
Economics has been subject to criticism that it relies on unrealistic, unverifiable, or highly simplified assumptions, in some cases because these assumptions lend themselves to elegant mathematics. Examples include perfect information, profit maximization and rational choices. Some contemporary economic theory has focused on addressing these problems through the emerging subdisciplines of information economics, behavioral economics, and complexity economics, with Geoffrey Hodgson forecasting a major shift in the mainstream approach to economics. Nevertheless, prominent mainstream economists such as Keynes and Joskow, along with heterodox economists, have observed that much of economics is conceptual rather than quantitative, and difficult to model and formalize quantitatively. In a discussion on oligopoly research, Paul Joskow pointed out in 1975 that in practice, serious students of actual economies tended to use "informal models" based upon qualitative factors specific to particular industries. Joskow had a strong feeling that the important work in oligopoly was done through informal observations while formal models were "trotted out ex post". He argued that formal models were largely not important in the empirical work, either, and that the fundamental factor behind the theory of the firm, behavior, was neglected.
Despite these concerns, mainstream graduate programs have become increasingly technical and mathematical. Although much of the most groundbreaking conomic research in history involved concepts rather than math, today it is nearly impossible to publish a non-mathematical paper in top economic journals. Disillusionment on the part of some students with the abstract and technical focus of economics led to the post-autistic economics movement, which began in France in 2000.
David Colander, an advocate of complexity economics, has also commented critically on the mathematical methods of economics, which he associates with the MIT approach to economics, as opposed to the Chicago approach (although he also states that the Chicago school can no longer be called intuitive). He believes that the policy recommendations following from Chicago's intuitive approach had something to do with the decline of intuitive economics. He notes that he has encountere colleagues who have outright refused to discuss interesting economics without a formal model, and he believes that the models can sometimes restrict intuition. More recently, however, he has written that heterodox economics, which generally takes a more intuitive approach, needs to ally with mathematicians and become more mathematical. "Mainstream economics is a formal modeling field", he writes, and what is needed is not less math but higher levels of math. He notes that some of the topics highlighted by heterodox economists, such as the importance of institutions or uncertainty, are now being studied in the mainstream through mathematical models without mention of the work done by the heterodox economists. New institutional economics, for example, examines institutions mathematically without much relation to the largely heterodox field of institutional economics.
In his 1974 Nobel Prize lecture, Friedrich Hayek, known for his close association to the heterodox school of Austrian economics, attributed policy failures in economic advising to an uncritical and unscientific propensity to imitate mathematical procedures used in the physical sciences. He argued that even much-studied economic phenomena, such as labor-market unemployment, are inherently more complex than their counterparts in the physical sciences where such methods were earlier formed. Similarly, theory and data are often very imprecise and lend themselves only to the direction of a change needed, not its size. In part because of criticism, economics has undergone a thorough cumulative formalization and elaboration of concepts and methods since the 1940s, some of which have been toward application of the hypothetico-deductive method to explain real-world phenomena.
My issue is that he keeps saying 'sin taxes' are not Pigovian. I've disagreed on this point, and I disagree continually. A basic definition of a Pigovian tax is: a tax levied on a particular behavior in the market that is generating negative externalities. The idea is the tax re-aligns the real social cost with the benefits of the activity. Mankiw distorts this defintion and implies that negative externalities can only occur as an action by one group negatively affects another... The externality is there - it's not external of self at that time, it's external of self OVER time. It's correcting behavior that, if a person had complete foresight and 20/20 clarity of the totality of their life, one likely would do less of. ...And this is ignoring the very real argument that many 'sins' DO have real negative external consequences at a given point in time - consequences on family and relationships that, while often non-pecuniary, cannot be ignored.
My issue is that he keeps saying 'sin taxes' are not Pigovian. I've disagreed on this point, and I disagree continually. A basic definition of a Pigovian tax is: a tax levied on a particular behavior in the market that is generating negative externalities. The idea is the tax re-aligns the real social cost with the benefits of the activity. Mankiw distorts this defintion and implies that negative externalities can only occur as an action by one group negatively affects another... The externality is there - it's not external of self at that time, it's external of self OVER time. It's correcting behavior that, if a person had complete foresight and 20/20 clarity of the totality of their life, one likely would do less of. ...And this is ignoring the very real argument that many 'sins' DO have real negative external consequences at a given point in time - consequences on family and relationships that, while often non-pecuniary, cannot be ignored.
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel
In 1968, Sveriges Riksbank (Sweden's central bank) established the Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize. The Prize is based on a donation received by the Foundation in 1968 from Sveriges Riksbank on the occasion of the Bank's 300th anniversary. The first Prize in Economic Sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969.
The Prize in Economic Sciences in Memory of Alfred Nobel is awarded by the Royal Swedish Academy of Sciences according to the same principles as for the Nobel Prizes that have been awarded since 1901.