I was thinking recently how economic theories (the stuff they teach you in college) affects real-life decisions. I found some examples (see below), but most of them are from the past and many of those theories are not "established"/respected today.
What are examples from the present or recent past, when an established economic theory affects real-life decisions, preferably on a large scale?
I'm interested in cases when some organization or individual decides what to do based on such theories and their decisions affect many people (e. g. it is known that the central bank of country X uses some monetary economics theory to decide what the interest rate should be). I'm looking for examples of established economic theories being widely used "in the wild" (in the real world).
Examples from the past:
- Vulgar liberalism: Economic reforms in the post-Soviet Russia in the 1990es.
- Marxism-Leninism: Soviet Russia
- In the late 1990es many people believed that free trade between the US and China would benefit both sides. This belief was based on the experience with trade between the US and European countries (Germany, France). The US helped China join the WTO in 2001. 17 years thereafter it turned out that free trade with China was harmful to the US economy because China is very different from Germany and France. The methodology used by those economists was wrong and the decisions based on it affected about 400 000 people in the American manufacturing sector (source, passage starting with "We would conservatively estimate...").
- Chicago school of economics: Milton Friedman's ideas influenced how Estonia's economy was reformed in post-Soviet times.
- Input-output models were used, among other things, in the Soviet planning economy.
- Linear programming/Operations research was used to optimize the output of factories (allegedly both in socialist and capitalist countries).
- Demurrage proposed by Silvio Gesell was used in, among other things, the Austrian city of Wörgl (German) in 1932.