Economists design “optimal” interventions with caveats and disclaimers. Politicians treat them like irresistible big red buttons.

In Bill Cotter’s beloved children’s book series, Don’t Push the Button! a mischievous monster named Larry presents young readers with a tantalizing big red button, sternly warning them not to press it. Of course, the allure proves too strong for toddlers, who gleefully ignore the advice, unleashing a cascade of silly chaos – turning Larry into a polka-dotted elephant or summoning a horde of dancing bananas. The books’ humor lies in the predictable disobedience, but the underlying lesson is clear: some temptations are simply too powerful to resist.

This whimsical analogy holds a sobering truth for the world of economics. Far too many economists, in their policy recommendations, unwittingly craft similar “big red buttons” for policymakers. They design sophisticated interventions intended to fix specific market imperfections with the caveat that these tools should be used judiciously – only when necessary, and with precision. Yet, politicians, driven by electoral pressures, find these buttons irresistible in off-label uses and abuses. The result? Not playful pandemonium, but real-world economic distortions such as deficits, inflation, and moral hazard that often exacerbate the very problems the policy was prescribed to solve.

Economists often position themselves as impartial social scientists, perched in ivory towers far removed from the messy arena of politics. They deploy intricate models to pinpoint “optimal” policy response. For instance, during a recession, they might calculate the exact multiplier effect of a fiscal stimulus package, advocating for targeted government spending to boost aggregate demand. Or they may recommend an “optimal” tax rate or an exactly tailored tariff that can generate slight efficiency gains under rare conditions. In monetary policy, they endorse tools like quantitative easing or financial bailouts to stabilize banking systems. These recommendations stem from a genuine desire to mitigate harm and promote efficiency, rooted in the observation that markets aren’t perfect: externalities, information asymmetries, and behavioral biases can lead to suboptimal outcomes.

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