Dr. Joseph C. Von Nessen
Research economist Dr. Joseph C. Von Nessen explored the science of incentives during Presbyterian College’s annual Koch Foundation Lecture on Jan. 26.
An economist in the division of research at the Darla Moore School of Business at the University of South Carolina, Von Nessen began with a little Economics 101 – that economics is the study of scarcity and incentives.
“When we’re talking about economics and we’re talking about scarce resources, the question we should always ask is, ‘What are the incentives?’” he said. “What are the incentives of a particular policy? What are the incentives for people to act in certain ways rather than in other ways? When you change a policy, how is that going to affect how people behave?”
Referencing the best-selling book, Freakonomics, Von Nessen noted that co-author Steven Levitt states that economics “strips away the moralism of the issues.”
“As scientists, we’re looking strictly at the incentives and how they affect behaviors,” he said.
While economics is an important issue, Von Nessen warned against making it an emotional or moral issue.
“How many of you have ever heard Albert Einstein criticized for E=MC2 because he was too liberal or because he’s too conservative?” he said. “That’s ridiculous right? It doesn’t make any sense. … Science tends to transcend politics. The same is true when you look at economics. You have economics science and you have economic opinion. We have to be very careful to separate the two of those.”
A great deal of opinion, for example, is expressed about the unemployment rate in South Carolina, which is higher than the national rate, Von Nessen said. While a high overall rate is a problem, Von Nessen said it also depends on geography. The unemployment rate in Upstate South Carolina and near Charleston is below the national rate, for example.
“It is important to interpret the unemployment rate properly,” he said, adding that it is statistically possible – even likely – that South Carolina can experience a stagnant unemployment rate in a growing economy. He said that South Carolina’s economy has stabilized and at its current rate of job growth, the economy should make a full recovery in late 2014.
Von Nessen also discussed “microeconomics,” which he described as the “study of individuals and consumers and businesses in smaller environments.”
Again referring to Levitt’s findings in Freakonomics, Von Nessen said “behavioral economics” is a trendy topic for economists and can be applied to predict behaviors such as cheating, global warming, abortion, and tax cuts. The same question – “What is the incentive?” – still applies, he said.