Having spent a few years studying economics now, I'm not nearly as impressed as I once was. I can't think of many ideas that I'd consider genuine, unambiguous contributions to the world. I thought I'd start a list of ideas I think qualify.
- Supply and demand (and markets).
- Opportunity cost.
- Theories of inflation.
- The meaning of money.
Even some of these have problematic aspects. Like application of supply and demand to labour markets. Some of the solutions to inflation are rather vague and a little too convenient for certain social classes. There are probably other ideas that are good too and you can argue that virtually of economics can be related to supply and demand, so listing it is kind of a cop out. But I'm kind of impressed by the pure theory as much as its application (although the theory can be applied really well to some real world markets).
My problem is that economy is an inherently real — if constructed by humans — thing, like carpentry, or traffic, so “pure theory” doesn’t seem to have much meaning.
It’s no use talking about The Ideal Block of Wood and writing papers about it, and it’s no use talking about the perfect engine or perfect road or perfect vehicle distribution.
Economy is, as far as I can tell, nothing to do with analyzing an existing system and producing models and theories. It’s about choosing which range of exceptions to your model you feel comfortable with.
Inflation, to me, is a symptom of economy being off-balance since its inception. Things seem to oscillate back and forth, but in reality they spiral out of control.
I bet you going to cut me off at the knees now by mentioning some paper or book on economy that describes those sentiments, filing it suquarely under just another economics insight. :)
Wil / 11:28pm / 17 September 2007
Yep. That’s been the problem with economics since the beginning. Or rather, the problem is that no matter how often the most brilliant economists remind the rest that economics is kinda flaky, they all keep forgetting.
But those unrealistic models have made people way better at guessing what will happen if we choose a particular policy. The ability to predict is not nearly as perfect as in the sciences proper, but it means (to me at least) that it’s more useful than just another arbitrary conceptualisation of the world.
Inflation is really an artefact of using paper or electronic money instead of something inherently scarce. I mostly agree with Milton Friedman on that (although it might be one of the few things). We seem to understand it well enough to prevent it without doing anything too nasty to anyone. Although the last 15 years of low inflation have also coincided with a period of low union power and low wage growth. That might be a coincidence, but since unions have been thought to “cause” inflation perhaps governments have forced workers to be the circuit breaker.
Ryan / 11:55pm / 17 September 2007
i believe that microeconomics predicts behavior, but macro is almost voodoo
Mike Fladlien / 11:39pm / 23 September 2007
Yep. I spent several semesters trying to find an appreciation for the value of macro, but I eventually gave up. The only thing more magical than the theory of macro, is the application of macro.
Ryan / 9:55am / 24 September 2007