Whats the difference between theory economics and policy economics?

Question

I know theory economics is more math orientated, but is it really more difficult than policy economics? Which is more useful theory or policy, in terms of applying it the real world. Thanks.

Answer 1

Policy economics deals with government policies and their effects on the economy of the country (or part of it, or the world). It is much more directly relevant to what is going on in the real world because finance depts of govts are making and implementing policies all the time, both broad policies like their budget balances and detailed policies like (to give just one random example) taxes on or subsidies to business capital expenditure.

And, yes, civil servants in the Treasury use economic theory to predict the effects of policies and help them advise governments. So to be a policy economist in government or advising a political party you do pretty much need to have a working grasp of economic theory.

Yes the theory is mathematics based. Is that really more difficult than understanding the real world? Depends on you. For me, yes, I never could fathom the abstract math. But if you can find a good math teacher, perhaps you can do it just fine.

Answer 2

I thought that policy was based on economic theory - I wasn't aware of the distinction. However, I will say that there are some major problems with economic theory, particularly many of the neoclassical traditions. This paradigm assumes rational actors, perfect competition, and market equilibrium. When has that ever happened in real life? More importantly, such models are necessarily static. And yet this is still the favored paradigm, and neoclassical models are used for forecasting. In answer to your question, I would expect the main difference to be that policy economics would be short-term and require constant revisions in response to dynamic market conditions. Economic theory does not have such constraints because it doesn't take into account the real world.