Goveconomics?

Microeconomic analyses apply well to the study and understanding of the private sector but poorly for government operations. Should Goveconomics become a subdomain in the study of Economics?

Microeconomics is a major subdomain of Economics.

The definition of Microeconomics shown below in italics was copied from the Investopedia website. As you will see, the study of Microeconomics pertains primarily to businesses (producers/sellers)  and individuals (consumers) operating under competitive forces driven by innovation and productivity improvements. It also explains the supply and demand dynamics of free markets. Incentives, such as prices, matter greatly in the market exchanges between these two groups. Such incentives, however, are very different, or absent altogether, in the sphere of government operations.

Votes are the primary incentive of politicians.

Spending other peoples money (ie taxes and public debt) is a proven way to “buy” more votes. Politicians generally package these bribes into big spending promises of “free” public goods during election campaigns. Those parties on the political ‘left’ are especially notorious for competing with each other as to which one will offer the biggest bribes.

All government services are offered only in a monopoly basis. Consequently, the incentive to reduce operating costs in their operations is negligible at best. The absence of competition inevitably weakens all incentives to innovate or increase productivity.

If buying votes with progressively more public spending under conditions of low accountability is a dominant incentive in politics, then can the methods and analytical tools of Microeconomics help us to better understand the incentives and performance outcomes relating to the planning and delivery of public sector services?

I will pose the same question about Macroeconomics, the other major subdomain,  in a later essay.

What is Microeconomics?

Microeconomics is the study of what is likely to happen (tendencies) when individuals make choices in response to changes in incentives, prices, resources, and/or methods of production. Individual actors are often grouped into microeconomic subgroups, such as buyers, sellers, and business owners. These groups create the supply and demand for resources, using money and interest rates as a pricing mechanism for coordination.

KEY TAKEAWAYS

• Microeconomics studies the decisions of individuals and firms to allocate resources of production, exchange, and consumption.

• Microeconomics deals with prices and production in single markets and the interaction between different markets but leaves the study of economy-wide aggregates to macroeconomics.

• Micro-economist’s formulate various types of models based on logic and observed human behaviour and test the models against real-world observations.

https://www.investopedia.com/terms/m/microeconomics.asp

Goveconomics?

If Microeconomics doesn’t apply well to the public sector, then should there be a comparable subdomain (let’s call it Goveconomics) in Economics to study and better understand the incentives and consequences of government operations?

In the era of very large governments run by leaders who favour the fiscal and monetary policy ideas of Keynesian and ‘Chicago School’ economists, does it not seem a gross oversight that Goveconomics does not exist? Is there a reason that our government leaders do not consider such a field of study to be an important inclusion in our publicly-funded Education system? Do they have something to hide?