Framing the Economic Policy Debate

Economists' current market failure policy frame provides a powerful lens through which to view the world and organize one's thoughts about policy. It is not the only, or most natural, frame through which to view policy, and it evolved from a broader classical policy frame as the analytic technology changed to allow an exploration of Walrasian general equilibrium analysis with a unique equilibrium and simple dynamics. That analytic technology is changing, and new analytic technologies are allowing economists to explore multiple equilibria, complex dynamic general models, in which policy issues that the Walrasian general equilibrium model does not address can be addressed. These include issues such as toward which basin of attraction the economy will gravitate and how government policy might influence that gravitation. Similarly, new computational technology is allowing economists to explore pattern-matching data models, agent-based models, network models, and epistemic game-theoretical models in which multiple social dimensions can be analyzed simultaneously. This article discusses how this changing analytic technology is opening up the possibility for movement away from the market failure policy frame.