This week, we will be looking at a branch of modern economics often referred to as public economics. Public economics studies government interventions and their economic efficiency. Specifically, much of this research analyzes the role of government in the improvement of social welfare. To take this perspective to its extreme, public economists argue that people are often more efficient in solving collective action problems than a centralized government.

Two of the major economists of this type are F.A. Hayek and Elinor Ostrom. Hayek was a contemporary of Keynes and a vocal critic of Keynesian economics. He was opposed to the government intervention that Keynesian economics argues is necessary to stabilize unemployment. People still argue about which person was correct: Keynes or Hayek. Whom you think is right then depends on your ideological preference. Ostrom is a Nobel Laureate and used experimental economics to show how social groups cooperate without the guidance of a centralized third party, but through the role of social norms. Her research has arguably led to the development of both experimental economics and environmental public choice theory.

Things to remember while reading:

• Another contemporary of Hayek, Milton Friedman and Hayek have some famous conversations regarding the role of government in issues like social welfare and monetary policy. Exploring their relationship may be an interesting paper topic for those who are struggling with a final paper topic. In particularly, their opinions on macroeconomics.
• Hayek was not an economist, but instead held degrees in political science and law. While grouped under the umbrella of public economics, Hayek was a proponent of Austrian economics, which argues, “economic science is incapable of generating universal principles and that scientific research should instead be focused on detailed historical examination.” In this way, Austrian economists reject the use of calculus and econometrics in modern economic analysis.
• Ostorm was also not an economist. Trained as a political scientist, Ostrom is most famous for her work on the “tragedy of the commons”, which she conceived as a problem of properly allocating property rights to protect common resources. Policymakers apply insights from her research to the protection of environmental rights and the development of climate change policy.

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