Economists and the Elected
Navigating the gap between optimal and popular.
“It's called political economy because it is has nothing to do with either politics or economy.”
Stephen Leacock (1869-1944), Canadian political scientist
Economics is fundamentally a formal science, grounded in mathematical models and empirical evidence. Its core mission is positive analysis: explaining how markets function, how incentives drive behavior, and how resources flow under constraints. Yet, inevitably, economics also offers normative guidance, proposing policies that maximize societal welfare if policymakers prioritize efficiency and equity.
This is where the collision occurs. In the realm of public policy, the economist’s carefully derived optimum rarely prevails. Politicians operate by a different calculus: securing support, consolidating power, and accumulating "political capital." Their choices reflect electoral feasibility and coalition management, not impartial efficiency. The chasm between economic rigor and political reality stems from this fundamental misalignment of objectives — science seeks understanding and optimality; politics seeks power and survival.
The consequences are corrosive. To advance ideological agendas, politicians and their advocates routinely weaponize economic concepts. Established models like the Laffer curve or Phillips curve are stripped of nuance and context, twisted into simplistic slogans that mislead the public. Entirely new theories — such as Universal Basic Income (UBI) or Modern Monetary Theory (MMT) — are sometimes reverse-engineered to justify predetermined policy goals, bending logic to fit political desires. Sympathetic experts lend academic veneer to these shaky arguments, further blurring the lines between rigorous analysis and partisan propaganda.
This distortion is not merely academic. It erodes public trust in economics itself. When complex models are reduced to vote-catching soundbites, and when grand promises defy basic arithmetic, the entire discipline is tainted by association. Good economics gets conflated with bad politics.
This article dissects this perilous dynamic. First, we examine how technical economic models are routinely misrepresented for political gain. Second, we explore how heterodox schemes like UBI and MMT often prioritize ideology over empirical foundations. Third, we consider the role of prominent economists who enable this distortion. Finally, we argue that economics’ "credibility revolution" — its rigorous turn toward empirical testing — offers a potent antidote, enabling the discipline to confidently identify policies that, however politically alluring, are fundamentally unsound. Economics cannot promise perfection, but it can definitively warn when popular policies court failure.
Misleading Economic Models in Policy
Even the most rigorous economic model can mislead when detached from its assumptions or stretched into realms it never intended to cover. Take the Laffer curve, for example. In theory it shows that government revenue R as a function of the tax rate t must reach a peak somewhere between 0 percent and 100 percent — since at a 0 percent rate revenue is zero, and at a 100 percent rate no one works (or doesn’t report), revenue again collapses. Formally one writes
where B(t) is the taxable base — income or profits — which itself shrinks as t rises. Differentiating,
and setting this to zero yields a theoretical revenue‑maximizing rate t*. But that is all the model tells us: some peak exists in the abstract.
In practice, pinpointing where the peak lies is nearly impossible. Real economies have multiple rates, myriad deductions, complex avoidance behaviors and dynamic responses. Empirical studies of the United States, for instance, show that abolishing the corporate tax entirely would raise revenue by only a fraction of total collections — hardly the windfall implied by political slogans. When Reagan’s team claimed tax cuts would pay for themselves, they invoked the Laffer curve as gospel, disregarding that in advanced economies the taxable base is far less elastic than their rhetoric suggested. If dB/dt is small, then dR/dt = B remains positive for most practical t, meaning revenue still rises with rates well below any realistic t*. Simply put, knowing a maximum exists does not tell you you are past it.
The Phillips curve provides another cautionary tale. In its original incarnation it was an empirical observation of a negative correlation between wage inflation and unemployment. Policymakers in the 1960s treated this as a menu: trade higher inflation for lower unemployment at will. Yet when workers and firms began to expect inflation, the apparent trade‑off vanished. Attempts to hold unemployment below its “natural” level simply accelerated inflation, leaving unemployment no lower in the long run. The stagflation of the 1970s — jointly high inflation and unemployment — made this painfully clear. Nonetheless, politicians early this century still cited versions of the Phillips curve as if it offered a reliable shortcut to full employment, ignoring that expectations and credibility, not brute stimulus, determine the outcome in modern economies.
Other models suffer similar fates. “Trickle‑down economics,” the notion that cutting taxes on the rich inevitably spurs broad prosperity, assumes that wealthy individuals will channel windfalls into productive investments that raise wages and jobs. This chain of events relies on strong assumptions about capital markets, consumption patterns, and competitive responses —assumptions that routinely fail under real‑world frictions. Yet the rhetoric persists, reducing a complex general‑equilibrium problem to a feel‑good slogan.
The problem in each case is a familiar one: abstract models distilled into catchy takeaways, then deployed without regard for their delicate assumptions. A curve proven under highly stylized conditions becomes a political talisman, with no checks on whether those conditions hold. When the public hears “tax cuts always pay for themselves” or “inflation is the price we pay for low unemployment,” they are hearing a half‑truth at best. Rigorous economics demands that we test models against data, inspect elasticities, and confront dynamic responses. Without that diligence, policy grounded in over‑simplified theory risks being not only ineffective but demonstrably harmful.
Theories Invented To Legitimize Policy
Some policy ambitions spawn entire economic doctrines tailored to justify them. Universal Basic Income (UBI) and Modern Monetary Theory (MMT) epitomize this trend — policies conceived first, with theory reverse-engineered to fit. Both promise painless solutions but collapse under basic economic scrutiny.
UBI’s fatal flaw is inescapable math. For a population N receiving an annual stipend B, total cost is BN. Funding this via a flat labor tax t on wages W (with average work hours L) requires:
If B is set to meet basic needs, t becomes extremely large (approaching or exceeding 100% in harsh cases), a clearly unsustainable tax rate. In other words, a generous UBI requires draconian taxation.
In a calibrated model of the US economy, Luduvice (2024) finds that even a $1,000/month UBI requires a substantial increase in the tax rate on consumption, which in turn causes output to fall as labor supply drops. His result is intuitive: to pay for unconditional benefits, people must work less or be taxed more, shrinking aggregate production.
Moreover, the fiscal numbers involved are enormous. Johnson et al. (2021) note that in the UK context, a modest proposal — about £42/week to every person — would cost roughly £140 billion annually, whereas a “full” basic income (around £115/week for adults) costs about £427 billion per year. Even scaled to the US, similar orders of magnitude (10–20% of GDP) would be required. Such gigantic transfers either blow out deficits or force equally massive tax increases. Concretely, replacing current means-tested welfare with UBI leads to higher effective tax rates on working (and even non-working) people, eroding the labor base. One way or another, the simple math shows UBI can’t have it both ways: if it is truly “adequate,” it becomes unaffordable without deeply disruptive taxes.
MMT presents a similarly seductively simple proposition: sovereign governments issuing their own currency need never worry about deficits. They can finance any spending — whether social programs, infrastructure, or universal benefits — through money creation "without negative side effects such as inflation," constrained only by real resource availability. This notion effectively erases the government budget constraint, offering politicians an alluring escape from fiscal trade-offs. Yet this promise dissolves upon contact with economic reality. Any expansion of the money supply not matched by productive capacity must be absorbed through inflation, asset price bubbles, or currency depreciation — historical patterns no economy has sustainably avoided. The claim that inflation can be perfectly controlled through targeted taxes ignores the complex mechanics of price formation: policy lags, self-reinforcing wage-price spirals, and the political impossibility of imposing punitive taxes during economic expansions render such fine-tuning illusory.
Beneath the surface, MMT inadvertently confirms timeless principles it seeks to dismiss. Even within its own framework, Ricardian equivalence holds: rational actors anticipate future inflation or tax burdens triggered by deficits, leading them to increase savings, demand higher interest rates, or hedge into real assets. This behavioral response neutralizes stimulus and ensures the real fiscal burden persists — money cannot conjure away scarcity. Formal analysis reveals MMT not as innovation but as diluted Keynesianism stripped of institutional safeguards. When subjected to rigorous modeling, its prescriptions collapse back into conventional macroeconomic constraints. The theory relies on two fantastical assumptions — a permanent zero natural interest rate and perfectly anchored inflation expectations — that crumble under empirical scrutiny. In practice, the moment inflation accelerates, MMT proponents inevitably resort to the same austerity measures or interest rate hikes they previously scorned.
This reveals MMT’s core flaw: it is less an economic theory than a work of political wish fulfillment. By asserting that deficits are harmless and inflation is optional, it provides intellectual cover for policies untethered from resource constraints. Such magical thinking invites reckless experimentation with public finances, risking currency crises or destabilizing inflation that disproportionately harms the vulnerable. The sobering truth remains: governments face an inescapable budget identity where spending equals taxes plus debt issuance plus money creation. Ignoring this arithmetic reality— as MMT encourages — is not heterodox economics but dangerous negligence. Ultimately, theories that begin with desired conclusions and work backward to justify them sacrifice disciplinary rigor for ideological convenience, leaving policymakers unprepared for the inevitable collision with economic law.
False Prophets of Economics
Economists should be society’s foremost bulwark against economic fallacy, yet a subset consciously compromises methodological rigor to amplify political narratives. This represents not analytical ignorance but calculated choice — a strategic exchange of empirical discipline for media visibility, ideological tribalism, or influence within partisan ecosystems. When figures with formal training lend academic legitimacy to policies untethered from evidentiary foundations, they inflict dual corrosion: they sanitize intellectually bankrupt proposals while metastasizing public distrust in economics as a discipline. The damage transcends any single policy debate, crippling the profession’s capacity to steward societies through genuinely complex trade-offs.
Yanis Varoufakis epitomizes this paradox. His scholarly work in game theory reveals deep analytical competence, yet his public advocacy for state-administered digital payment systems and central bank digital currencies as democratizing utopias systematically ignores the principal-agent pathologies inherent in political control of finance. When governments operate banking infrastructure, incentives inevitably skew toward credit allocation favoring loyal constituencies, suppression of financial innovation to protect incumbents, and deferred maintenance of systemic stability for electoral advantage — dynamics empirically validated across nationalized industries from 20th-century Europe to contemporary developing economies. Varoufakis reduces these institutional realities to polemical broadsides against "neoliberalism," substituting mathematical pedigree for engagement with implementation trade-offs. The irony is profound: a theorist of strategic equilibrium promotes policies oblivious to the self-interested behaviors his own models predict.
Stephanie Kelton’s mainstreaming of Modern Monetary Theory exhibits parallel methodological abdication. Her rhetorical framing of MMT as "just Keynesian economics" constitutes a category error with consequential public misunderstandings. While Keynesian demand management operates within explicit medium-term fiscal constraints and embeds formal inflation anchors (e.g., NAIRU), MMT handwaves these through underspecified "inflation control via targeted taxation" — a mechanism requiring policy agility and prescience wholly alien to democratic governance structures. Kelton’s public discourse weaponizes superficial similarities: declaring "deficits are meaningless for currency issuers" with the declarative certainty Keynesians reserve for liquidity trap dynamics, while evading peer-reviewed scrutiny of MMT’s internal contradictions. This deliberate conflation — amplified through TED Talks and partisan media — grants veneers of academic respectability to propositions mainstream macroeconomics has rejected through decades of empirical falsification.
The ideological mirror appears in protectionist entrepreneurs like Scott Bessent. His "economic patriotism" framing of tariffs deliberately obscures their function as regressive consumption taxes transferring wealth from low-income households (via higher prices) to concentrated industries with lobbying power. Two centuries of evidence confirm that tariffs depress real wages, distort capital allocation toward politically connected sectors, and induce retaliatory cascades that shrink global welfare — yet Bessent repackages them as engines of national renewal. This isn’t intellectual innovation but the strategic repurposing of discredited mercantilist fallacies for audiences craving zero-sum economic narratives.
These three and many others converge on a potent market niche: the provision of intellectually sanitized simplicity. Varoufakis sells frictionless financial democracy; Kelton markets fiscal perpetual motion; Bessent peddles painless national advantage. Their viral soundbites ("Taxes fund nothing!" "Tariffs restore greatness!") thrive precisely because they obscure inconvenient trade-offs — but when reality reasserts itself through inflation spikes, banking crises, or trade wars, the resulting institutional carnage discredits not merely the peddlers but the entire discipline of economics. The epistemic tragedy unfolds predictably: public trust in expertise erodes, opening space for ever more extreme magical thinking.
Against this spectacle, economists like Raj Chetty demonstrate the discipline’s reparative capacity. His merging of IRS datasets with educational records to quantify neighborhood effects on intergenerational mobility — work demanding years of methodological refinement and peer interrogation — exemplifies economics as a cumulative empirical science. Similarly, Paul Krugman’s formalization of New Trade Theory didn’t emerge from ideological conviction but from reconciling scale economies with consumer preference diversity in computable general equilibrium frameworks. These practitioners thrive not through rhetorical charisma but through what philosopher of science Imre Lakatos termed "progressive research programmes": models generating novel predictions confirmed through stringent testing.
The imperative thus transcends individual cases. Economics’ social license depends on its guild enforcing boundary policing — publicly distinguishing models that withstand falsification attempts from those reverse-engineered to flatter political desires. When credentialed experts subvert this compact, they don’t merely mislead voters; they sabotage the very infrastructure of evidence-based governance. Rigor isn’t an academic fetish; it’s democracy’s immune system against policy quackery.
The Credibility Revolution
The discipline of economics has undergone a profound transformation in recent decades, moving decisively away from abstract theorizing toward empirical rigor. This "credibility revolution," recognized by the 2021 Nobel Prize awarded to Angrist and Imbens, represents a fundamental shift in how economic claims are evaluated. At its core lies an insistence on clear causal identification through rigorous methodologies including randomized experiments, instrumental variables, and difference-in-differences designs. The revolution's most significant achievement has been establishing that any economic proposition, regardless of how unconventional, must be formalized in testable models and subjected to empirical validation before gaining acceptance.
The rise of behavioral economics provides a compelling case study of this paradigm in action. When Kahneman and Tversky first presented prospect theory in their groundbreaking 1979 Econometrica paper, they challenged fundamental neoclassical assumptions about human decision-making. Their demonstration that people evaluate potential losses and gains asymmetrically was revolutionary not simply because of its conceptual innovation, but because of its methodological rigor. By combining carefully designed experiments with formal mathematical modeling, they set a new standard for how unconventional ideas could earn acceptance in mainstream economics. This approach established a template for integrating new perspectives into economic thought — one that requires both theoretical coherence and empirical verification.
Modern technological advancements have dramatically expanded the possibilities for rigorous economic testing. With powerful computing capabilities and unprecedented data availability, economists can now simulate complex general equilibrium effects, conduct large-scale policy trials, and track real-time behavioral responses to interventions. This empirical toolkit allows for rigorous evaluation of proposals ranging from universal basic income to carbon pricing schemes. The traditional distinction between "heterodox" and "mainstream" economics becomes increasingly irrelevant in this context, as all theories must ultimately meet the same standards of empirical validation. Much like string theory in physics maintains its credibility through mathematical consistency and indirect empirical support, economic ideas now stand or fall based on their ability to generate testable predictions that align with observed reality.
This empirical turn does not imply that economics has achieved complete understanding of complex systems. Rather, it provides the discipline with stronger tools to identify fundamental impossibilities and inconsistencies in policy proposals. Economic analysis can now state with confidence that certain political promises violate basic principles of budget constraints and market dynamics. Simultaneous large tax cuts and spending increases cannot be sustained without triggering inflation or debt crises. Permanent zero unemployment alongside stable low inflation contradicts established understandings of labor market behavior. The credibility revolution's true value lies in this ability to separate empirically grounded policy options from political fantasy, requiring all claims to demonstrate their validity through observable, testable implications rather than rhetorical appeal.
Conclusion
In the final analysis, economics provides rigorously derived insights grounded in observable human behavior, mathematical consistency, and empirical validation. The discipline's true value emerges not from absolute certainty, but from its ability to map trade-offs, expose impossibilities, and quantify consequences through testable frameworks. Yet this analytical power becomes dangerously diluted when co-opted as political theater. Misrepresented curves like Laffer's phantom revenue peaks or Phillips' unstable trade-offs, alongside invented doctrines like MMT's deficit denial and UBI's unconstrained generosity, represent more than academic errors — they constitute a high-stakes deception played with public resources. These intellectual shortcuts transform economics from a navigational tool into mere pretext, sacrificing long-term stability for short-term persuasion.
Conscientious economists bear a profound responsibility to expose such distortions not as partisan combatants, but as guardians of methodological integrity. When political narratives dress wishful thinking in economic language, the costs extend beyond misallocated budgets: they erode public trust in evidence-based governance itself. Stephen Leacock's sardonic observation that political economy belongs to "neither politics nor economy" ultimately warns of this existential divorce — when economic thinking surrenders to political incentives, it ceases to function as either science or prudent stewardship. The resulting policies aren't merely theoretically flawed; they become active engines of avoidable scarcity, instability, and collective disillusionment. Protecting economics from politicization isn't academic vanity — it's the defense of society's capacity to confront hard truths with clear-eyed rigor.
References
Luduvice, A. V. D. (2024). The macroeconomic effects of universal basic income programs. Journal of Monetary Economics, 148, 103615.
Johnson, M. T., Johnson, E. A., Webber, L., Friebel, R., Reed, H. R., Lansley, S., & Wildman, J. (2021). Modelling the size, cost and health impacts of universal basic income: What can be done in advance of a trial?. Health Services and Outcomes Research Methodology, 21(4), 459-476.