Ritchie’s question we can answer

The most interesting contribution of the afternoon did, however, come from Prof Victoria Chick. Her question was a very simple one. “What is the economy for?” she asked.

I suggested an answer to that yesterday on this blog. But that is but a start: this is the hardest question of all, especially if, as I think and said at the meeting, we are at an inflexion point where the economy is between eras in its development. That means this is a question that has t be answered,

To maximise the utility of the populace. According, of course, to the populace’s estimation of their own utility.

It’s not actually a difficult question at all.

51 thoughts on “Ritchie’s question we can answer”

  1. I’m a natural optimist. I’ve been in some pretty tight spots in my life, and I never once thought I wouldn’t get out of them.

    But I do think this is developing a sort of fin de siecle feel to it – a perfect confluence of bad education, mass stupidity, entitlement, laziness of thought and action, demographic and cultural decline, and the ascendancy of stupid, stupid ideas on the left with no real fightback from the right.

    I genuinely think we are about to throw civilisation away.

  2. Honestly, Tim, I think you’ve got that one wrong by answering it at all. The very question “What is the economy for?” contains the assumption that the economy is a thing designed for a specific purpose. This is the base assumption of the central planners.

    A better answer is surely that “the economy” isn’t really a thing; it’s a convenient term we use to describe people interacting with each other as people. And, since every human has their own individual motivation for every interaction they engage in with other humans, it’s simply a nonsense to suggest that “the economy” is “for” anything.

    I think a large part of the problem with the Left is their conviction that markets are a system that someone set out to design and create, and that whoever-it-was had a choice of systems and picked the wrong one. Instead of humouring that, we should take every opportunity to point out that markets are merely a completely natural consequence of humans being allowed to cooperate freely.

    Asking what the economy is for is like asking what travel is for. Everyone travels for different reasons and different distances in different directions at different times. Travel is merely the consequence of people being free to move.

  3. come on Tim, even you don’t agree with that. Or at least, I haven’t seen you voice support for redistribution on the scale that a straight forward utility maximization objective would entail. Unless you want to invoke some really (IMO) implausible ideas about how the size of the economic pie would shrink if we raised taxes on the very rich (or came up with other policies that would result in more equitable distribution of economic goodies).

    ‘course you know economist have spent decades thinking about this stuff in form of social welfare theory, Ken Arrow and all that.

  4. “What is an economy for”.

    Journalists like to tell us there is such a thing as an economy, as if it is a thing in itself, variously comparing it to a storm (‘we’ve been hit by a recession, we need to sit it out’) or a machine (‘the economy has stalled’).

    Isn’t an economy just the aggregation of the billions of production, consumption and exchange decisions the 7 billion of us make every day? It is no thing in itself, & therefore has no specific purpose.

    There was a great South Park episode that made this point.

  5. @Squander 2
    Absolutely. When people start believing that markets are evil and that we have designed them that way, I despair.

    @Interested
    So you have that feeling too? I, too, am a bottle half-full type of guy. But right now I have the same creeping pessimism for the same reasons. It’s now ok to spit at the ‘other half’ of the political spectrum just because. I don’t need facts, I need feelings. Money grows on trees and I should have lots because..

    I’ll snap out of it once I get my fist around a beer this evening but, it is starting to get on top of me.

  6. A better answer is surely that “the economy” isn’t really a thing; it’s a convenient term we use to describe people interacting with each other as people.

    It’s not even that. It’s a convenient term we use to describe people interacting with each other as people while using the fiction we call “money” or what is deemed to be equivalent to “money”

    It’s like asking what politics is for. Or what religion is for. Or what sport is for. They aren’t “for” anything. They are a name we arbitrarily assign to relate behaviours.

  7. Not sure if that’s not a fair question.
    If you’re looking at the economy you actually have. Rather than the idealised “To maximise the utility of the populace. According, of course, to the populace’s estimation of their own utility.” It’s managed to address objectives like Luis waffles on about. Which is pretty well the opposite.
    I’d agree with Interested. It’s on the way to producing anything but maximum utility for all. Almost the reverse. It’s actually operating in direct opposition to any actual *economic* rationale. It can’t be long term stable.
    So good question. But can’t see the answer being popular.

  8. Squander Two said:

    Honestly, Tim, I think you’ve got that one wrong by answering it at all. The very question “What is the economy for?” contains the assumption that the economy is a thing designed for a specific purpose. This is the base assumption of the central planners.

    God knows what they teach during the E part of a PPE degree but we have far too many politicians, bureaucrats and economists who ignore or diminish the aggregate nature of the economy. It is the sum total of a load of individual choices.

    If Margaret Thatcher had been Chancellor she might well have said ‘There is no such thing as the economy. There is a living tapestry of buyers and sellers …’ and be misquoted ever since.

  9. > It’s not even that. It’s a convenient term we use to describe people interacting with each other as people while using the fiction we call “money” or what is deemed to be equivalent to “money”

    Nah, pretty sure there’d still be an economy of sorts with no common medium of exchange.

  10. So Much For Subtlety

    I don’t think asking what the economy is for is such a bad thing. We make choices to interfere or not to interfere based on essentially moral criteria – whether to allow people bought and sold for instance (not after they have been born, but it is fine, it seems, to sell the parts if they have been aborted, turns out to be what we have chosen).

    We could make other choices. The market economy we have is not morally justifiable. It just works. If it didn’t, we might have a case to make for some other system. If we could end poverty in Africa through socialism, that would be a strong argument for socialism. The problem is that socialism would only make things worse for everyone. So we should not try it.

    So basically the economy is for providing me with as many goods as possible, as conveniently as possible, with the minimum of interference from other people. In other words, it exists so I can down load weird Japanese porn while eating pizza I had delivered from Domino’s and drinking a nice Chilean white. In the security of my own home. Not because these are morally justifiable actions but because by doing so, I cure disease, end famine and make the world a better place.

  11. It is no surprise he thinks this is an interesting question, after all he is going to teach undergraduates about the normative assumptions in definitions in things like GDP. Things he thinks a level students aren’t taught and things he thinks is profound questions no one has thought of before.

    It’s all really depressing isn’t it, wat Hong a precocious 16 year old in a 55 year old body and beginning to realise people have come up with and thought these ordinary things before.

  12. Bilbao, Interested
    People have been feeling that way since at least the Augustans. Ancient Romans also had that fin de siècle angst. Of course, Rome did collapse, but only 3 or 4 hundred years later.

  13. Nah, pretty sure there’d still be an economy of sorts with no common medium of exchange

    S2 has it. An economy is the aggregation of lots of people exchanging value (and in the process often creating more value). Money just makes the process more efficient. The aggregation has emergent properties, which I suppose is what economists (real ones) are interested in studying.

  14. I think the question is most similar in analogy to asking what an ecosystem is for.

    Since an economy is nothing more than a financial ecosystem, and attains the same kind of spontaneous order and flux that an ecosystem does.

    Unless you’re an (economic) creationist, as many on the Left are. Then it makes sense to ask what an ecosystem/economy is for.

  15. @BiF

    ‘Bilbao, Interested
    People have been feeling that way since at least the Augustans. Ancient Romans also had that fin de siècle angst. Of course, Rome did collapse, but only 3 or 4 hundred years later.’

    Maybe so – though I don’t know that it always obtained here. Either way, doesn’t mean we aren’t going down the tubes.

    Maybe we’re not, but it’s going to take a very significant shock to the worldview of a lot of people if we’re not to, IMO.

  16. Luis

    Isn’t it interesting that someone can become a professor of public economics without seeming to be aware of any of the existing state of thought?

  17. “To maximise the utility of the populace.”

    That is the aim of all human endeavour. ‘The economy’ is a time machine, just ask Adam Smith.

  18. Squander Two has it absolutely right. The economy isn’t “for” anything. Like the weather, it’s something that simply is. And indeed, the idea that it is “for” something is the first error of the central planners.

    Just because most people tend towards seeking to maximise utility doesn’t make the economy “for” that.

  19. > I think the question is most similar in analogy to asking what an ecosystem is for.

    I like the ecosystem analogy; I use it quite a bit because it connects fairly well with people. It can get across ideas like dynamism, competition, co-operation, equilibrium, emergent behaviour and so on. Obviously it only goes so far, but you also have cornerstone species [1] and even unintended consequences of knocking out species you think are harmful. (Wolves in Yellowstone being the famous example.)

    [1] Keystone species, if you must. Blinking Americans.

  20. The economy only has a purpose for those people who seek to harness it to their particular ends. For the rest it’s merely an adjunct to existence.

  21. Abacab,

    > I think the question is most similar in analogy to asking what an ecosystem is for. … Unless you’re an (economic) creationist, as many on the Left are.

    Thank you. I was struggling to find the right analogy. That’s spot on.

  22. As a “thing” isn’t the economy whatever we design for allocation scarce resources? That’s what is for. Whatever the end game we want to achieve by doing so is a different question

  23. I thought that the economy was a description of the result of events and actions, not a thing in and of itself. It’s like asking “what is birthweight for?” or “what is the ambient temperature for?” It’s not *for* anything, it’s a result of the events and actions that lead up to it.

  24. @im

    No – outside of communist countries the economy isn’t designed. Bits of it might be for whatever reasons, but the totality is not designed.

    As soon as you have two hunter-gatherers cooperating and trading with each other (e.g. Ugg barters arrows for meat with Grrr) you have an economy. A small, simple one, but you have an economy. And Ugg and Grr didn’t set out to design it, they just did it spontaneously.

  25. Well, for a hint of Devil’s Advocaat, Ugg and Grr thought about how to exchange their goods so in that sense “designed” or “invented” trade. But one can also argue that they just “discovered” it (as children in the playground do, pretty much spontaneously) as the most effective strategy for exchanging goods without getting ripped off.

  26. @abacab

    Maybe a pendant will pull me up on my use of the word design but I did not mean it in the sense that we plan the economy and I get what you are saying. Just a poor choice of wording on my part.

    In light of that I would clarify my comment to say

    As a “thing” isn’t the economy whatever results from the actions we undertake (with a degree of design planning) to allocate scarce resources? That’s what is for. Whatever the end game we want to achieve by doing so is a different question.

  27. well don’t we all know that Murph will say that the economy is meant to deliver his version of social justice and that he will advise how to achieve his preferred outcome by maximising tax revenue at the expense of everything else.

  28. Bloke in Costa Rica

    There’s the urban legend about some luminary (popularly, Faraday) being asked what electricity is “for” and getting the response, I don’t know but I’m sure you’ll find some way to tax it. To Murphy and his ilk that’s exactly what the economy is “for”.

  29. Murph is a puritan, so for him the purpose of the economy- and indeed everything- is to generate his preferred moral outcomes. Which is why he wants it entirely controlled by the State.

  30. I agree that the economy is not “for” any purpose. It just is. The Murphatollah is posing a pseudo-question. However, we can ask meaningfully ‘what is our economic policy for?’ – i.e. what are our objectives in trying to manage the economy (whether from the libertarian right to the socialism, and all points in between)?

  31. Philip Scott Thomas

    @Ian B

    First of all, welcome back. It’s great to hear from you again.

    Second, no, Murphy is not a puritan; he is a Pietist in the purest nineteenth-century mould.

  32. Eco system, that’s it, a marvellous analogy.

    Depressing thing is, outside this blog most peolpe think it is more like a farm. And without the kind thiughtful intelligent farmer (political class), we won’t produce any eggs, milk, or god help us, meat.

    So interested has it. Don’t forget, chaps, that in historical terms, nowadays, everything happens quicker.

  33. A thought experiment.

    Murph takes power. People flee to Hampshire, build rafts to escape to France.

    He will claim that he was right.

  34. In order to do A level economics we had to submit an essay on what is economics, really it was to prove we at least figured out how to read the opening chapter of the course text that was kept in the library.
    Maybe this is really the opening piece of course work he has issued and now he’s trying to get some helping with marking

  35. PST-

    Thanks and, I take your point. But 99% of the population already know the word “puritan” and its negative connotations, whereas if you call someone a pietist you’ve got to give them a half hour talk on religious history. In my book, “snappy” beats “accurate”.

    Talking of books, Ritchie thinks that academic study is a neoliberal conspiracy and immediately realised at the start of his economics course that the professors were wrong and he was right, remember.

  36. Oiko (house, household) + nomos (law, rule): if you accept that the word ‘economy’ refers to a body of laws or a set of rules (applying to some distinct domain) then it is ‘for’ something, amd most overtly in a totalitarian state.

    Is there any significant economy in the world that is entirely laissez-faire or fay-ce-que-vouldras, where these laws are akin to the laws of physics or whatever: a non-prescriptive account of what happens to happen in the world?

    To maximise the utility of the populace (utility to whom?) according to the populace’s estimation of their own utility (is anybody asking them?)… TW’s definition seems to apply to an economy which is for something other than the creation of a Workers’ Paradise, Master Race &c.

  37. Chertiozhnik

    I think you’ve just invented Rabelaisian economics. Hooray.

    The Propos Torcheculatif is a paradigm for Venezuela today and, but for you, this might have gone unnoticed!

  38. Etymology isn’t meaning. “Sinister” doesn’t mean “left-handed”.

    Obviously spoken by one of those evil southpaws. :-p

    You probably use “decimate” to mean getting rid of far more than 10% of something, don’t you?

  39. Ian B

    Welcome back – spot on in your first comment. That is exactly Murphy’s purpose – although the goals are those of ‘Civil Society’ (acting as a figleaf) rather than his own personal goals. The fact his interests are apparently identical to those of ‘civil society’ is ‘detail’……

  40. Ritchie makes it into Cameron’s speech.

    “The Joy of Tax has 64 positions, and none of them work”

    Tee, Hee.

  41. I think a large part of the problem with the Left is their conviction that markets

    The conviction that drives the left is hatred of the people they hate, everything else follows from that. To be a leftie is a passion and a loyalty.

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