What difference does economic analysis make to the average citizen? Most people know very little formal economic theory, though economists contend that theory explains our market choices, drives economic policy, and profoundly influences our opinions on a whole range of issues from globalization to the environment. We may not even be aware of, or know, the theories behind our views.
Consider this empirical question for example: are high energy prices, or the money supply, responsible for inflation in our economy? Or is too much economic growth the cause of inflation? Your answer belies your underlying theoretical beliefs. How about unemployment? What is the minimum sustainable level of unemployment in the economy? Again, your answer reveals which theory of unemployment you buy—even if you don’t know what the competing theories are. You may be Friedmanite, a Keynesian, a Marxist, Hayekian, or Phelpsian without even knowing it.
How do different theories/notions gain prominence? Due to the Nobel prize, at least one economist’s work gains international recognition each year. There remains a filtering-down process to bring these ideas to the general audience.
One very significant way that economic theory enters the non-expert’s perception is through policy. If an economic treatise has been the guiding force behind a substantial economic policy, it will tend to become familiar to and accepted by the public. And because there are competing theories about how different areas of the economy relate to one another, economic theory and policy are frequently controversial. This is especially true in macroeconomic policy.