PM Lawrence Wong at the Economist Service’s Silver Jubilee Celebration

Chief Economist Yong Yik Wei
Distinguished Guests
Ladies and Gentlemen

I am very happy to join you this evening to celebrate the 25^th anniversary of the Economist Service.

And of course, I am especially delighted to see many familiar faces.

I want to mention Prof Tan Kong Yam – the government’s first chief economist.

I started work in MTI as a research economist in 1997 – then it was not called the Economic Division, it was called Research and Planning Division (RPD). And many of my colleagues then are here. Loh Khum Yean, my first boss. My colleagues Selina Ling, Chua Boon Loy, and others, all from RPD in those days.

And of course Peter Ong who was our Deputy Secretary then. And of course, we all know he later served as our Head of Civil Service.

We trace the start of the Economist Service to 25 years ago, but in fact there is an older history. Before the Economist Service was formed, there actually was already a research economist scheme back in the 1980s. Ching Yee would remember, she was part of it.

But sometime around the 1990s, the civil service rolled out the generalist Senior Officer scheme.

And the smaller schemes, including the research economist scheme, were folded into this broader scheme. And so over time, when we joined, we were all part of this generalist Senior Officer scheme.

But over time, we found that economists within the scheme tended to have a higher turnover. 

Their skills were in demand. At that time, the finance sector was doing well, so many left for the financial sector, where the salaries were far more attractive.

The few of us who stayed behind kept making the case for a dedicated economist scheme – one that would provide a clearer pathway for professional development and career progression.

And so of course we were delighted when the Economist Service was formally established in 2001.

We only had 5 economists then – I was one of them.  

So we had to double-hat.

I had to help with the marketing and recruitment efforts. 

That is why you see pictures of me in the promotional materials.

Today, there are more than 100 of you across over 20 government agencies and 2 international organisations.

So the Service has truly come a long way.

And I am very proud and happy to be here this evening – not only as Prime Minister, but as your alumnus.

Value of Economics

Over the decades, economics has grown considerably in influence and standing. Economists today play an important role in government, central banks, international organisations, and businesses around the world. But greater influence has also brought greater scrutiny, and the economics profession has taken its share of criticism.

One criticism is our ability to forecast. Whenever economists miss a recession, or when inflation turns out very differently from what was expected, someone will say: what are all these economists and their models good for?

But I think this asks more of economics than the profession can realistically deliver. 

Economics is not a crystal ball.

Models are simplifications of reality.

They help us organise our thinking, understand relationships and test our assumptions.

But we all know the real world is constantly changing – shocks occur, technology advances, and people and businesses adapt their behaviour. 

So prediction will always be difficult, especially when turning points are concerned.

No doubt, we should keep improving our models.

But we have to be realistic about their limits.

Poor forecasting is not the only reason why economists sometimes get a bad name.  

Another is the perception that the profession is divided into competing camps, each with strong views about how the economy works and what governments should do. And at times, it can become difficult to tell where objective analysis ends and advocacy begins.

And economics has always had its different tribes.

When I was in college, one of the big divides in macroeconomics then was between the so-called “saltwater” and “freshwater” schools. Maybe the younger ones have not heard of it, because we have moved on from those debates. But it was between those who advocated for more government interventions versus those who believed that markets could adjust.

At one time, the Washington Consensus gained prominence, with its emphasis on liberalisation, privatisation and open markets.

Today, the pendulum has swung again. And industrial policy is back in fashion.

There is nothing inherently wrong with these shifts. Economics should evolve as circumstances change and as we learn more.  

But we should be wary of treating whatever is currently fashionable as revealed truth.

Because sometimes economists become advocates for a particular idea or ideology – and they construct models to defend and justify the conclusions they already believe in, rather than to test whether those conclusions are right.

And when that happens, it can weaken confidence in the profession.  

Over the years, economics has also become far more quantitative, technical and data-driven. It was already the case when I was a student.  Since then, the models have become more sophisticated, the econometric techniques more powerful, and the datasets vastly richer.

These are important advances. But there is sometimes a tendency to equate technical sophistication with rigour – as though an argument becomes more credible simply because it has a more complicated model behind it. 

Then there is a risk of getting caught up in the technique. I know – I was there before as a student and when I started work. Every model I wanted to do had to have an error correction model in it, and then instrument variables became vogue. And then vector autoregression became vogue. And you get caught up in technique after technique.

Actually, if you work on data and models long enough, you will know that with enough data, with enough variables and enough specifications, you can often find something that supports whatever case you want to make. But that is when rigorous analysis can slip into data mining – when you start with the conclusion, search for the evidence to support it, rather than using the evidence to test whether the conclusion is right.

So we must guard against becoming captive to an ideology, or captive to the technique.  Because the most enduring value of economics lies not in any particular theory, model or technique.

It lies in a way of thinking. 

It is a discipline that forces us to confront scarcity, choices and trade-offs. 

To ask what something really costs, what incentives we are creating, how people will respond, and what consequences may follow. 

These basic principles of economic thinking have stood the test of time. They do not belong to the left or right of the political spectrum. Nor will they give us a single answer to every policy question. But they help us think more clearly about our choices – the trade-offs involved, the incentives we create, and the consequences that follow.

Let me briefly highlight three principles. 

Principles of Economic Thinking

First, prices matter. They influence what consumers buy, what businesses produce and where investors put their resources.

Economists are sometimes criticised for focussing too much on prices. There is that old jibe that economists know “the price of everything and the value of nothing”.

But that misses the point. Of course, price and value are not the same thing.  Many things we value deeply cannot be measured in dollars and cents.

But prices do matter because they are signals – signals of what is scarce, what people demand, and where resources are most needed. They shape behaviour and they influence how resources are allocated.  If we suppress or distort these price signals, we end up allocating scarce resources poorly – and creating bigger problems down the road.

Take water and electricity.

Here in Singapore, we let prices reflect the underlying cost and scarcity of these resources. And that encourages households and businesses to use them carefully, and to conserve where they can.

But we also recognise that these are essential services, and must remain affordable. And so rather than artificially holding down prices for everyone, we provide targeted support, like U-Save rebates, to help lower- and middle-income households.

So in this way, we preserve the price signal, while ensuring that essential services remain affordable.

Second, costs matter.

Every new policy can bring some benefits.

But every policy is likely to also come with cost.

And the true cost is not always what we pay in dollars and cents. It includes what we have to give up in making one choice over another.

Land is a good example. Whenever we use a piece of land for one purpose, we give up the opportunity to use it for something else.   

That does not mean allocating every piece of land to the use that can command the highest market price.

Because we first decide what Singapore needs and what Singaporeans value – homes and jobs, schools, nature and parks, community facilities and places of worship.

But whatever we decide, we must recognise that the land has value, and using it for one purpose means forgoing another. And so that ensures we use every parcel carefully, and make the most of our limited space.

That is the discipline in terms of thinking of opportunity cost. Every choice means giving up something else. And good policymaking requires us to recognise that trade-off – even when the cost is not immediately visible.

Third, incentives matter.

People respond to incentives.

Consumers change what they buy. Businesses change what they invest in and whom they employ.  Workers and families adjust their choices.

Take unemployment support.

For a long time, we were cautious about introducing unemployment insurance.

Because we have seen the experience elsewhere, where overly generous benefits could weaken the incentive to find a job and return to work.

But providing no support has consequences too. A worker who suddenly loses his job may face immediate financial pressures, and feel compelled to take the first job available – even if it is a poor fit for his skills and experience.

So the answer was not simply to choose between providing support and providing none. It was to design the support carefully, taking these different incentives into account.

And that is what we have tried to do with the SkillsFuture Jobseeker Support Scheme.

We provide temporary financial support to give displaced workers some breathing room. But the recipients also do their part – actively searching for work, going for career coaching and undergoing training.

And the aim is to provide enough assurance for workers to find a good job match, while maintaining a strong incentive to get back into employment.

So that is why policy design matters.

Because whenever Government changes the rules, people will respond.

Sometimes in ways we intend; sometimes in ways we do not. 

And good economics requires us to anticipate these responses – and design our policies accordingly.

Role of the Economist Service

None of these three ideas is especially complicated. Prices matter. Costs matter. Incentives matter.

Stated like this, they sound very obvious. Yet these basic principles can be surprisingly easy to ignore – especially when there is pressure to act quickly, or when a simple solution sounds more attractive.

And we have seen this around the world, where bad policies are introduced with the best of intentions. 

Prices are held artificially low.

Benefits are promised without accounting fully for how they will be paid for.

Industries are protected long after the original justification has passed.

The immediate effect can look attractive. But the costs often emerge only later.

For example, you hold prices artificially low, consumers may benefit at first.

But over time, suppliers will have less incentive to produce or invest. Supply will fall short of demand, shortages will emerge, and the original problem becomes even harder to solve.   

And we see so many instances of this happening – with rent controls that discourage the supply of rental units, or food price caps that lead to shortages. 

And the costs of poorly designed policies can show up in other ways too. Fiscal burdens can accumulate, investments can shift elsewhere, or people find ways to circumvent and adjust around the rules.

And by the time these consequences become clear, the policy may be difficult to unwind.

Singapore is not immune to pressures for easy solutions. In fact, we must expect these pressures to grow in the years ahead.

Because the global environment is becoming more uncertain.

And technology will disrupt industries and jobs.

Economists often talk about “creative destruction” as a good thing, because old activities give way to new ones, and this process of churn is essential for innovation and growth.

That is true for the economy as a whole. But for the individual whose job is being displaced and destroyed, there is nothing abstract about the disruption. The costs are immediate and personal.

And when livelihoods are affected and people feel anxious about their future, it is understandable that they will look to the Government for solutions.

So we must respond to these concerns. We must help those adversely affected by change, protect the vulnerable, and make sure the benefits of growth are broadly shared.

But we also have to be clear-eyed about what works and what does not.  Good intentions alone do not make good policies. Nor is the answer simply to leave everything to the market. Because markets can fail. And there are important things we care about as a society that markets alone cannot provide.

And that is why Singapore has never taken a laissez-faire approach. The government intervenes actively in many areas – we are not shy about intervening, and  we do so to correct market failures, pool risks and achieve important objectives.

But precisely because the Government intervenes, we need to intervene correctly.   

We have to diagnose the problem well.

Understand the incentives we are creating.

Recognise the costs and trade-offs.

And think through the second-order and third-order consequences.

This discipline has served Singapore well. And maintaining it is one of the most important responsibilities of the Economist Service.

Today, all of you have access to more advanced tools – high-frequency data, sophisticated empirical techniques, machine learning and AI. These are capabilities we could only have dreamt of when I started out.

So make full use of these tools.

Build better models. 

Test our policies more robustly and rigorously.

But never mistake better tools for better judgement. 

Policymaking takes place in the real world – with imperfect information and uncertainty.

What works neatly in theory may not always work as intended in practice.

So you must know the theory, you must develop good models, but you also must know its limits; master the tools, but also know when judgement is required.

Above all, continue to bring an economist’s discipline to policymaking across Government.

What problem are we trying to solve?

What are the trade-offs?

What incentives are we creating?

And what might happen next – including the consequences we did not intend?

Doing all this well takes more than technical competence. It takes judgement and intellectual honesty. It takes the professional conviction to speak up when the analysis points to an uncomfortable conclusion. And it takes the ability to explain complex issues simply and clearly – so that good analysis can translate into good policy. And these are the qualities I hope the Economist Service will continue to uphold in the years ahead.

Conclusion

Finally, let me close by once again thanking all our economists, past and present, for your many contributions over the past 25 years.

The Economist Service has truly come a long way since the five of us started out in 2001. But what matters is not how large the Service becomes. It is the quality of thinking you bring to Government, and the difference you make to Singapore.

So continue to sharpen our thinking, and strengthen our policymaking. Help Singapore navigate an uncertain world, make better choices, and build a brighter future for all. 

Thank you and happy 25^th anniversary!