Now I’m no economist, as Windypundit constantly reminds me, but even I can understand sound economic principals when properly explained.
H/T Devon Desai at Co-Op.
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Awesome find. I love it.
I thought of you as soon as I saw it.
My college major was economics, and I was downright angry when, after learning all the theory, it became clear that nearly every “assumption” economists said make free markets “work” was actually, demonstrably false. E.g., people have perfect information, make rational choices that maximize their self-interest, etc.. For such an important topic, there’s a lot of voodoo and crap in that discipline.
Too true, and true of so many other theoretical disciplines as well, ceteris paribus.
I’m only an amateur economist at best, but as someone who relies on economic arguments a lot, I now feel compelled to explain myself.
Despite its flaws, economics does proceed by fairly strong scientific means, which puts it ahead of a lot of other soft sciences.
Also, like any science, economics makes simplifying assumptions. Sometimes this leads to grave errors. But if the assumptions are carefully chosen—and the conditions of their use are understood and respected—the results are often good enough.
In my opinion, the theory of free markets is good enough in most cases, and the burden of proof of insufficiency should rest on those who wish to interfere with the free market.
Finally, I have to admit I’m emotionally attached to the assumption that people are rational utility maximizers. That bit of jargon is an economist’s way of saying that people know what makes them happy, and they will act intelligently to obtain that happiness, within the limits of their abilities and circumstances.
On an individual basis, this is obviously not true: We all screw up all the time and make ourselves miserable.
But here’s the thing: Despite any mistakes you may make, when it comes to making decisions about your life, you have more information than anyone else, and you are more motivated to make the right decision than anyone else.
So while people make bad decisions from time to time, they are less likely to screw up than any one else making decisions for them, including legislators, government bureaucrats, and cops.
Economics therefore leads to a principle of public policy that is breathtakingly respectful towards ordinary people: To the greatest extent possible, people should be allowed to control their own lives.
I like that a lot.
Windy I agree with you partially when you say:
“Despite its flaws, economics does proceed by fairly strong scientific means, which puts it ahead of a lot of other soft sciences.”
It proceeds using scientific means, but the basis for their use, the underlying assumptions of any given economist, is inherently ideologically driven.
There is no single economic theory, there are competing theories. Adam Smith created the “labor theory of value.” Marx picked up on it and corrected his math. Keynes re-invented both using calculus and applied a pragmatic, more adult politic. Then Friedman, et. al., said they were all pedants and the only thing that matters is monetary policy.
Those are the economics that matter – that and some business oriented portions of Micro. The laws of supply and demand are in all cases (except black markets) defined by the political system.
In my experience, economic theory doesn’t interact well with the real world, except for successfully predicting 9 of the last 5 recessions. Political economics, not the theoretical stuff, IMO, is where all the action is. best,
“economic theory doesn’t interact well with the real world”
I agree. And I think the real world suffers for it. Of course, just because I can make an economic argument against some policy doesn’t mean anyone will change it…which is, I guess, your point.
“the real world suffers for it”
That’s the problem, Windy. Everyone promoting some pet ideology (Marxism, classical econ, the religious right, etc.) thinks the real world would be better off if it just behaved like THEY want it to. That fallacy grows tiresome, after a while, and can even be dangerous. To me a true scientific process aims to describe what’s happening in the “real world,” not to impose this or that ideological approach or achieve a pre-determined outcome. I don’t find that very “scientific” at all, no matter how much math you dress it up with. best,
I agree that true science is the pursuit of (among other things) a concise description of the world.
But if we’re going to make or influence policy—or even just blog about it—we have to have some ideal of what “better” would look like. That ideal is, of course, a matter of personal values and morality, but in many cases there is broad agreement on general principles.
We may not all agree on what’s best, but to the extent that we do, it’s only reasonable to use the tools of science to test various policies against that ideal.