Now, microeconomics is where most economists think that economic truth is to be found, but microeconomics is an absurd study both in the way in which it’s undertaken and the way in which it is taught and the way in which it describes human behavior.
It assumes that we are maximizing human beings who are totally rational and, quite absurdly, that we know everything about our futures, on which we can, therefore, make totally informed decisions.
All of this is, of course, nonsense. And I know that many economists say that as they advance through their subject. They try to relax some of these assumptions to see whether they hold true or not in particular circumstances.
But the truth is, there is almost no major study in economics that is published these days that does not assume that we are rational, that does not assume that we try to maximize our incomes and well-being, which is almost always expressed in monetary terms, and there is almost no study that assumes that we have imperfect information about both our present and our future.
Ghastly tossery.
Further, absolutely no one assumes maximise incomes. It’s always utility. So, for example, a Galactic Sized economic brain willing to work for only £90k a year is maximising utility because it wasnt to be able to direct other peoples’ actions – power is the motivation, contributes to the GSB utility.
Economic rationality also usually refers to consistent in our preferences – if we like A more than B and B more than C then we like A more than C – not to pure calculating machines. As to imperfect information they’ve given out Nobels for exploring this – Ackerlof for example.#
Tossery.
And now we get to ignroance piled upon absurdity:
In other words, in macroeconomics, those things that microeconomics can completely ignore, like the externalities that our behaviour creates – things like pollution, things like the ill health created by many of the activities undertaken by a lot of companies producing things like alcohol, tobacco, and ultra-processed food, and so on – macroeconomics has to consider those consequences, even though microeconomics says it’s quite rational to ignore them. So, if we build macroeconomics on the basis of microeconomics, we compound the errors in microeconomics by pretending that it is somehow rational to continue to ignore all those externalities which microeconomics ignores. Those things that I’ve just described, the consequences of pollution, and alcohol, and tobacco, and ultra processed food, and whatever else you wish. My point is that, of course, we know that at a macro level, we can’t do those things, or rather, we now know that if we do those things, the consequences are extreme.
OK. ‘Baccy. Externalities. So, what do we to? We tax the snot out of baccy to discourage people from smoking it. Which really does rather rely on the microeconomic observation that people do less of what is more expensive as they attempt to maximise their utility.
The point is, microeconomics assumes that there is a world out there we can’t change. And in macroeconomics, there’s a world out there that very often can be changed by government.
This is the bloke who insists that one of the 6 reasons to tax is so as to be able to shape society, recall? How a tax will shape society being defined by the microeconomics of the response to the tax.
Have I pointed out the man’s a cretin yet?
“ignroance piled upon absurdity” Richards Murphy: a biography, by T Wrostall…
Of course, on the microeconomic level, I don’t WANT the government instead of me to run my world.
I mean its idiocy and we know that but I do think his proposal to ban Sugar, UPF and Alcohol is likely to run foul of the demos. He’s definitely angling for the Muslim Vote to give him a peerage on that basis.
TBF the idea of ‘utility’ in economics, which everyone is said to maximise, is a real get out of jail free clause, because its invisible and explains everything. Why did X do Y when Z did the opposite in exactly the same circumstances? They each maximised their utility of course! Well thats not very helpful in making a prediction as to what any given person will do then is it?
What if people don’t maximise their utility? What if they live lives they hate, because they lack the intelligence/character/psychological traits to do the things that would maximise their utility? Economics regards everyone as a interchangeable units of production/consumption, and they aren’t, they are all individuals (I’m not!) and make decisions varying from incredibly wise to staggering incompetence.
Its probably true that you can determine what a large enough group of people will do on average, but to declare thats because all of them maximised their utility is just a circular argument that explains what you’ve already seen happening. Its impossible to extrapolate from any given person’s activity to the group’s (because they may differ) and thus the idea that utility is maximised has no predictive powers. You may rightly declare that a rise in the price of something results in less purchases of it (and observe that in the real world) but some consumers may have actually increased their consumption (for some mad reason) so utility maximisation has to explain that as well. It explains everything, and nothing.
It’s pretty clear that this offering comes straight from the heart, Mr W, because it contains a few more typos and grammatical oddities than is usual.
May I restate the wisdom of the ages … “Verily, thou shouldst not hit “Publish” whilst thou suffereth still from a fit of the vapours”.
now we get to ignroance piled upon absurdity
@Geoffers: A fine example of both combined.
Surely, ignorance being the root cause it should be “absurdity piled upon ignorance”.
Let’s try a slightly different wording & see where it gets us, Jim.
An individual will seek to maximise what they perceive as their own utility
All individuals are individuals.
The utility of each individual is their perceived utility.
The way they seek to maximise it is their individual decision.
The information used to make decisions is unique to that individual because everyone perceives information in their own way.
Tim
His post on Kamala Harris – ‘The ethical pro-marketeer’ suggests he might be looking to the US for a future income. Whilst it might not be the De Beers roadshow of the ‘Microeconomics’ one it’s certainly got some rare gems you can pick up as well..
@Jim
People do on whole maximise their utility. They have to, so don’t dine at the Ritz when that that means no money for food for the rest of the week. And those that could afford to eat there every meal don’t do so as change and novelty have value too.
Andyf
I did eat at the local pub a few times last week. But that was because my sister and her husband were visiting, and they’d rather not eat my Rubbish Bin Stew.
Now I’m back to eating the stuff out of the stockpots. It’s easier, cheaper and more convenient. As you point out.
“An individual will seek to maximise what they perceive as their own utility”
I don’t think it ever gets to be that much of a conscious thing. If you asked lots of people why they did something they’d probably say ‘I dunno, I just did’. If the person doing the thing can’t give a rational reason why they did it its hardly the basis for an entire economic theory is it?
I might as well say that the reason everybody does what they do is Gods Will. Its about as much use as saying everyone maximises utility, when even what constitutes utility varies from one person to the next.
The point is, Jim, everybody is acting rationally. To them. Have you ever had a person claiming to be acting non-rationally? Note present tense. Even if they did, they must think it rational to be claiming it.
Think of a stock market. Every trade needs a buyer & a seller. So they must be two people think opposite about the stock. One of them incorrectly. It doesn’t mean you can’t get information from the aggregate. The list price rises or it falls.
“The point is, Jim, everybody is acting rationally.”
Are they? Is the 99 yo mother of a friend of mine acting rationally when she refuses to have a carer and/or cleaner in her house despite being unable to walk without a frame, cook her own meals, wash herself or do any housework, and being petrified every time the door bell rings? Ah, but she’s obviously going doolally, she doesn’t count. So if she doesn’t count how many people are slightly less irrational than her, do they count? Does her son, who is a schizophrenic, count? I mean if he’d not on his meds he thinks he’s King Arthur, which isn’t very rational.
My point is that people who are rational (presumably like those who read and post here) assume everyone is like them, and I really don’t think its true. Large proportions of the population act utterly bonkers for non-insignificant periods of time or parts of their lives. They are not maximising anything, except chaos.
“Well thats not very helpful in making a prediction as to what any given person will do then is it?”
It’s not meant to be.
“I don’t think it ever gets to be that much of a conscious thing.”
Who said it was?
Think of a stock market. Every trade needs a buyer & a seller. So they must be two people think opposite about the stock. One of them incorrectly.
Not necessarily. There are many reasons why people might sell stocks other than that they think they’re going to go down in value. They might be retired and sell some stock every month/quarter/whatever to live on. They might want to buy a new house, car or yacht. They might think that there are other stocks that are going to go up even more. They might be over-concentrated, especially if the stock has had significant recent gains.
Equally, a buyer might not care too much about any future increase in the price if it pays a reliable dividend.
A trade requires that one person believes the cash at the clearing price is worth more to them to spend, invest in something else, whatever… and the other party believes that the investment is worth more to them than the cash. Hence the exchange. It’s almost as if utility is personal.
Is the 99 yo mother of a friend of mine acting rationally … Does her son, who is a schizophrenic, count?
Aha! Now we get to the point. They’re acting rationally according to the information available to them. Their minds are, for want of a better word, broken: the 99-year old doesn’t believe she needs help. The schizoprenic sees a world in which he is King Arthur. So they act rationally on that flawed information.
Now yes, they’re extreme cases, and there’s a good argument to be made for making an exception for them. But the point is that we all act on flawed information to some extent, and none of us is able to perfectly discern which of the information we act on is correct and which isn’t. Or whether we’re missing some really important information like King Arthur being dead. But we act rationally on what we believe to be correct.
And, knowing this, we can aggregate over a large number of people with the information we do have and come to some conclusions about what most of them will do. As I said above, economics isn’t intended to predict the behaviour of individuals; it’s supposed to explain the behaviour of crowds.
Jim
You are overthinking “rationally”. It’s not the right word.
The general view doesn’t require people behaving rationally; it just requires that people act in their perceived best interests, whether strongly (they have perhaps thought about things and decided on the balance of their understanding that they should do X) or weakly (for whatever reason, they do X)
“But we act rationally on what we believe to be correct”
How do you know that? You don’t, because you only know whats going on in your mind. You don’t have a clue whats going on in other people’s brains. So you cannot declare that everyone is acting rationally (given the information available to them, as their brain perceives it, at a given moment in time) at all times. Because if they did the word ‘irrational’ wouldn’t exist would it?
“The general view doesn’t require people behaving rationally; it just requires that people act in their perceived best interests”
Thats not right either, people very frequently act in manners that are decidedly not in their best interests. Queers for Palestine anyone?
I studied economics at A Level, and thought I was going to be studying a science (my other A levels were maths and Chemistry) and I rapidly realised it was just another arts subject. As long as you could waffle vaguely coherently, quote a few writers and spew out a few buzz words, you’d do OK. And I managed an A in it (in the days when that meant a bit more than today) and even won the economics prize for my year. So I could obviously BS on economics, back then at least. But thats what it is, BS.
“economics isn’t intended to predict the behaviour of individuals; it’s supposed to explain the behaviour of crowds”.
Sam Duncan, I like that turn of phrase !
@Matt
It’s not whether the decision to buy or sell is correct overall. As you say. there may be reasons. It’s simply whether to accept that price at the instant of the trade. The next price may be higher or lower. They’re decisions made by individuals.
Thats not right either, people very frequently act in manners that are decidedly not in their best interests. Queers for Palestine anyone?
But they must believe it’s in their best interests or they wouldn’t do it. Maybe going to a Queers for Palestine rally is a good place for a shirtlifter to meet the shirtlifter of his dreams. They are their motivations, not yours.
I’d go as far as to say that understanding this is the way to make a success in dealing with people. To understand other people’s motivations are different from ones own & trying to work out what they are, rather than presuming they’re the same as your own. It”s something the subject of Tim’s post is either spectacularly bad at or remarkably good at. I’ve never been able to decide which. Depends on whether he’s a gig or actually the real thing, doesn’t it? It maybe only 90k/year but it’s 90k he’s making. What are the other opportunities for not very good book-keepers.?
I too think that “utility” is tautological. People act to maximise their utility is true only because utility is defined to be that which people maximise.
“Velocity of money” is tautological too, as far as I can see. It’s certainly a misnomer since velocity has dimensions of distance divided by time and velocity of money doesn’t. A cynic might suspect that economists chatter about “velocity of money” because they think it makes them sound as scientific as physicists. Or as physicists used to be, at least.
It’s used in MV = PQ; nobody has ever proved equal to the task of explaining to me how those four quantities are independently measured and why the equality must hold – except in the tautological sense that ‘we define these four variables in order that the equation must hold’. In which case where is the empirical basis for its truth?
Utility is tautological in one sense, yes, as is V. We generally derive it from MV=PQ, for we can measure directly M, P and Q and V is the thing that makes it balance.
On the other hand. People do what seems best to them at the time given their desires, their knowledge, seems like a useful starting point. To deny that this is true puts the idea of democracy in one hell of a bind for example. Similarly, the number of times we use how much money we have is equal to the prices of things we use money for times the number of times we use money seems a useful assumption. It’s also usefully explanatory. Inflation rarely tracks M but it does have a close connection to MV/Q. Sure, using it as a target – Friedman’s monetarism – has a problem given Goodhart’s Law but still. Useful even if not 100%.
So, you know. One of my biggest problems with Spud is that he takes something that’s mildly true then declares it to be an inviolable law from which all else can be derived. Naw, don’t work that way, Honey.
I was listening to an economist talking about this earlier in the week. He made the point that in physics to be useful claims have to be objectively or deterministically true.
However in economics claims only need to be stochastically true to be useful.
Seems reasonable to me.
Bearing in mind this is largely an economics blog, surprising how many commenters seem to think seriously intelligent economists over the years (of whom there have been plenty) have somehow failed to notice a fundamental flaw that even a reasonably intelligent sixth former could have pointed out.
Not exactly groundbreaking news: no they haven’t. And getting hold of and reading a decent first year econ textbook would probably save time overall versus arguing on message boards about it.
There are in fact ways of measuring utility.
https://en.wikipedia.org/wiki/Utility_assessment
Basically, provided that preferences for different bundles of goods can be ordered in a rational way – what Tim said about if A is better than B and B better than C then A is better than C – then mathematically it’s possible to construct a utility function. So in a way all this talk about utility is a bit of a red herring – it’s just a way of representing preferences. The work of John von Neumann (yes, that one) and Oskar Morgenstern is worth reading here.
https://en.wikipedia.org/wiki/Multi-attribute_utility#assessment
Obviously the measurement scale of utility is to some extent arbitrary (“utils” are hardly an SI unit) but what really matters to describe / explain / predict behaviour is the shape of the utility function. Results are often transformed back on to a dollar scale anyway, but there are other options. In health economics, QALYs are constructed by mapping utilities associated with health states onto whatever fraction of a life year in full health would be valued at the same utility as a year spent in that health state.
Closely related is the study of revealed preferences by hedonic regression, again more often done in dollar terms.
https://en.wikipedia.org/wiki/Hedonic_regression
But to be honest you’d probably get more out of reading a properly sequenced textbook than from fittings bits and pieces together from random wiki articles of varying quality.
Physics uses plenty of measures that are only stochastically true.
No atom has temperature. It is a statistical measure, and even then has meaning only within certain contexts. (If you went into deep space where the “temperature” was 50 degrees C, you would die of cold pretty quickly. Because you would radiate out your heat and the very rare atoms around you would not transfer their energy in to balance that loss.)
Diffusion is a stochastic process. No atom has will. Yet their behaviour is entirely predictable in large amounts.
There’s plenty of others: sound, optics, radioactivity, rate of chemical reactions.
The objections here to economics seem to be based on the lack of behaviour of individuals making it impossible to predict the mass. Yet physics tells us the exact opposite.
The ONLY difference is that the number of atoms involved in much larger, so the randomness tends to cancel out. But physics at the level of the numbers in economics is just as random.
“The objections here to economics seem to be based on the lack of behaviour of individuals making it impossible to predict the mass.”
Absolutely not. What I’m saying is that ‘everyone maximises utility’ does not predict the mass at all. It just says that every single individual within the mass has done the rational thing as far as they see it. Its perfectly useless as a statement of prediction of anything. I might as well say that everybody does whatever Allah’s will is for them personally. Its about as useful, and as scientific.
“provided that preferences for different bundles of goods can be ordered in a rational way” So what: surely nobody is claiming that an individual must rank them in the same way on two successive days or in two different circumstances?
Yet if they don’t have some substantial invariance what use can they be?
And another objection to “velocity of money”: velocity is a vector not a scalar.
What I’m saying is that ‘everyone maximises utility’ does not predict the mass at all. It just says that every single individual within the mass has done the rational thing as far as they see it. Its perfectly useless as a statement of prediction of anything.
You have got it exactly, Jim. What textbook economics says is the aggregate will behave in a particular way to certain stimuli, because reasons. Similar to Chester’s atomic model. Each atom is individual but you can measure gas pressure & diffusion rates. Where that falls down is each individual atom is rigidly bound by the law of physics so is predictably unpredictable. Individuals are individuals who will do what they will. So textbook economics is dealing with probabilities. You’re off into the largely uncharted realm of psychology. The probabilities are not necessarily high. People will react differently even when the stimulus is totally unconnected to the matter in hand. Like whether it’s a bright sunny day or raining. Or whether England has won the won the World Cup.
Non-linear utility of money is an essential part of portfolio theory – the idea is that whereas additional money has positive utility, to an individual £2million has less than twice the utility of £1million. One can in principle draw a “utility curve” for a person, which will be concave, i.e. downward curving. It follows that investors will be risk adverse, leading them to invest in diversified portfolios, rather than putting all their money in one asset which they judge to have the highest expected return.
Economists, being economists, have done a fair bit of maths on this, and been awarded sort-of Nobel prizes.
Meanwhile, “behavioural economics” has become a major area: it deals with the ways people actually behave economically, as opposed to how they would behave if they were perfectly rational actors.
As Anon says above, economists do in fact think intelligently about stuff. In this context, as in most others, Murphy is not an economist.
Non-linear utility of money is an essential part of portfolio theory – the idea is that whereas additional money has positive utility, to an individual £2million has less than twice the utility of £1million. One can in principle draw a “utility curve” for a person, which will be concave, i.e. downward curving.
Except when it isn’t. There’s plenty of examples of where gaining the first million has incentivised gaining the second & thus the third & onwards. People become less risk averse. The walking on water syndrome. It’s why people get in trouble with gambling. People don’t start heavy gambling because they tried it & lost. Usually it’s because they won big.
Economists, being economists, have done a fair bit of maths on this…
One doesn’t know whether to cry or laugh.
I geddit now. We are all irrational so we need a “rational” government comprising irrational individuals to make rational decisions on behalf of the irrational populace.
Right…
That is the usual conclusion of those who insist that consumers are not rational yes….
I mean what has economics actually done for us? What useful feature of modern society can you point to and say ‘Economics did that’? Engineering can point to just about everything around us, medicine can point to drugs and operations that save lives (and ones that kill plenty TBF), chemistry can point to new plastics and alloys and useful compounds, physics can point to the electrical world we live in, and the utilisation of space, Biology to the discovery and exploitation of DNA, but what has economics actually added to the sum of human happiness?
Nothing I would say, all it does is spend a lot of time trying to explain why whats already happened did happen, and then to provide well paid sinecures for people to argue about what might happen in the future if we do X or Y. None of which arguing ever actually reaches a point of discovering something useful or important that makes anyone’s life better.
@PiP
“So what: surely nobody is claiming that an individual must rank them in the same way on two successive days or in two different circumstances?”
You can have models where said “circumstances” are incorporated into the utility function. It’s not rocket science thatl
circumstances can affect preferences. If I have 5 tins of beans in my “inventory” (kitchen cupboard) after visiting the supermarket yesterday, I’m probably not going to pop in for more when I pass the shops again today. (Marginal utility of beans for me is low.) But once I’m down to my last tin, I will be stocking up again. (Marginal utility of beans is high.) Similarly inter-temporal utility is a thing – and indeed gets used when describing people’s preferences for insurance or investments, particularly versus present consumption.
Often the “circumstances” you’re talking about are such that one chunk of the population is in one state, another chunk in another state, and so on, and the proportions in each state might be similar from day to day or week to week even though individual people are switching from one state to another. So the aggregate of all their choices is indeed stable in a useful way.
So, people who already have many tins of beans might not buy any unless there’s a special offer, tin for 5 pence or something, that they think might not last until their next shopping trip. People who are completely out of beans might be willing to pay a lot to restock, people who have a few tins of beans left rather less so. And those people are basically the same people but cycle between categories. There are also people who are not big fans of beans, and so are quite happy not to have any but might be tempted to buy a few tins if the price is tempting, and people who dislike beans, who wouldn’t take any home even if they were being handed out for free.
These sets of preferences give those types of individual different demand functions, aggregate those across the population (according to the prevalence of people of each type) and you get a total demand function that can be used to describe or predict how bean purchases will vary as retailers change the prices. This aggregation procedure is covered in term 1 of an economics course, you don’t need to be a brain surgeon to see that consumers can be of different types with different preferences! And this demand function is “stable” in the sense you wanted – when prices stay the same, week to week sales of beans indeed don’t vary much at a national level, either in practice or in the model. Even though annual sales vary considerably between households, and even if within one individual household purchases can vary a lot week to week.
Maybe demand varies seasonally, more in winter and less in summer, but it’s trivial to include such circumstances in your model, as an increased preference (utility) for beans at certain times of the year. You can even, and this is where it gets more useful, look at preferences between different brands – supermarket own-brand vs Heinz for example. At the same price, most consumers might prefer Heinz. The cheaper the own-brands get, the more Heinz sales suffer, because people’s preferences are such that they’d prefer an own-brand tin plus some cash left over versus a Heinz tin and no cash left over. People get paid big bucks to analyse this stuff and develop pricing strategies from it.
If your point is “but what’s the role of utility in all this – couldn’t you have just modelled the demand directly?” then the answer is yes, in practice that’s often the way it’s done. And often without disaggregating consumers into so many types as in my description above, because simpler models are often preferable and even using one reasonably representative “average consumer” might give good enough results for practical purposes. But at a foundational level, we were still imagining consumers making trade-offs and the choices they made being based on their preferences. Utility is just a mathematically tractable way of describing those preferences, that’s all. “Utility isn’t a real/meaningful thing!” or “people don’t always maximise their utility!” basically reduce down to “people don’t have real/meaningful preferences!” and “people don’t always choose the thing they prefer the most!” Unfortunately that’s not a good starting point for describing or predicting people’s behaviour. So not the kind of thing that’s explored in depth in year 1 of an economics degree. Given the irrationality of humankind, those suggestions aren’t complete nonsense though, and it’s interesting to know to what extent the conventional models are invalidated by such quirks. If that’s what you’re interested in, then the textbooks on “behavioural economics” are thataway.
@Jim
Living under a government that has a good economic policy versus living under a bad economic policy makes an absolutely enormous difference to human wellbeing. Consider the UK vs US policy responses to the Great Depression, for one stark example. Or the state of China in 1970 vs 2000 – the primary difference there wasn’t that “science and technology had moved on, so people were now richer”.
It’s not all about the macro stuff either, the micro matters from the point of view of achieving regulations that promote the kind of technological progress you’re pointing to. Making sure there are well functioning capital markets, allowing companies to achieve economies of scale without being able to abuse market power, ensuring there are sufficient incentives for R&D, designing systems to encourage people to save for retirement, the list goes on and on. And obviously none of that is implemented in a “perfect” way but it is possible to make things better, and cumulatively these improvements can have a big effect. Modern western society has very sophisticated economic plumbing – but discussion of it tends be rather wonkish and happens well below the waterline of public debate or media interest. Replicating this economic plumbing turned out to be a very non-trivial problem in the ex-USSR though – it’s one of those things you notice more by its absence than its presence.
“Living under a government that has a good economic policy versus living under a bad economic policy makes an absolutely enormous difference to human wellbeing. Consider the UK vs US policy responses to the Great Depression, for one stark example. Or the state of China in 1970 vs 2000”
Buts that just politics. Different countries have different economic policies. Some might be better than others, the debate is still continuing ad infinitum, largely by economists paid for by us peasants. Economics has never come up with a discovery on a par with 3 phase electricity or how to make steel or the microchip, something that once discovered no-one ever bothers trying to do anything differently, something that the world adopts universally because it just works so much better than whatever went before. So its not a science, its a arts subject, and about as useful.
Living under a government that has a good economic policy versus living under a bad economic policy makes an absolutely enormous difference to human wellbeing.
Living under a government has less economic policy rather than more economic policy would seem to better reflect reality.
Modern western society has very sophisticated economic plumbing
Modern western society is deep in economic shit.
Economics has never come up with a discovery on a par with 3 phase electricity or how to make steel or the microchip, something that once discovered no-one ever bothers trying to do anything differently, something that the world adopts universally because it just works so much better than whatever went before.
Oh it did, Jim. It did. Marxism. Of course it’s never been correctly implemented but next time…
Economics has never come up with a discovery on a par with…that the world adopts universally…
Joint-stock companies, limited liability, fractional-reserve banking, central banks, fiat money, one could think of more…
“If your point is “but what’s the role of utility in all this – couldn’t you have just modelled the demand directly?” then the answer is yes, in practice that’s often the way it’s done.”
Ah ha, ladies and gentlemen of the jury, the miscreant has just admitted his guilt.
But modelling demand – is there consistent evidence for success at this venture? I ask because when I was a young mathematical modeller and demonstrated that the data weren’t good enough for my task there was an easy solution – into the lab and make my own measurements. That must have been a common experience for STEM people. What’s the economist’s equivalent?
“Joint-stock companies, limited liability, fractional-reserve banking, central banks, fiat money, one could think of more…”
That’s a bit liking claiming that Newtonian mechanics was responsible for sailing ships, a claim that – for excellent reasons – you’ll never see made.
A better answer might be that Smith’s Wealth of Nations seems to have had a huge influence on the political classes in his day., overwhelmingly for the better.
Joint-stock companies, limited liability, fractional-reserve banking, central banks, fiat money,”
If you’re trying to sell me on the benefits of economics, its not working with these examples…….FRB, central banks and fiat money? Really???
@Jim
“Buts that just politics. Different countries have different economic policies. ”
But that’s not “just” politics is it? Those are economic policies, so while you need to look at the politics to explain what’s being applied and where, you need to look at an economic analysis to see the results. And governments that make bad calls on the economic aspects of their policies do inflict a lot of harm on their citizens. But even the way we measure that, by looking at national accounting/GDP for example, is basically an economic tool. Oh, and one universally in use – contra your point that economists never invent anything useful – even though it was only developed post-WW2 and seems hard to imagine now ever living in a world where such figures were unavailable (even conceptually unimaginable).
As for your disdain of joint stock companies…. without large, well-capitalised corporations a lot of the examples of technological progress you pointed to would simply never have got out of the labs at scale. Even the USSR was pretty good at scientific discoveries, throw enough money at enough scientists and engineers and clever ideas can indeed come out, but the sort of innovation needed to implement them in widely available consumer products was beyond them.
@bis
“Living under a government has less economic policy rather than more economic policy would seem to better reflect reality.”
Think about policy responses to the Great Depression. Do you go off the gold standard or stay on it? There’s a political aspect to that choice- you’re going to make some segments of the population winners and others losers and you need to be able to handle the political fall-out of whatever your choose – but fundamentally it’s an economic decision. It’s not just choosing “more” policy or “less” policy.
“Modern western society is deep in economic shit.”
Yeah, fair enough. Which is a shame as the economic plumbing that holds it all together took a long time to build up. But the solution to that is some people thinking very hard, economically, about how to fix it. You can’t just put your fingers in your ears, shutter all the uni econ departments, sack anyone with “economist” in their job title, and refuse any further discussion that involves the word “economics”.
Lots of people have vague negative feelings about big banks or large corporations which have potential to exploit their market power but may also need their size to reach economies of scale that make modern life possible. Unfortunately even reasonably competent business journalists often don’t know much more about the specifics other than “well they should be regulated better or something, probably”. You really wouldn’t want to live in a world in which there was no policy response to those challenges at all.
The people who understand the nitty-gritty of this stuff basically communicate with each other in journals hardly anyone reads; even the better business media very rarely report on bust-ups or new schools of thought within that arena. People just expect decent regulatory proposals to somehow float out of this environment and into the statute books, without realising how much of this stuff is contentious – often in ways you need a lot of technical competence to even understand what this obscure argument is about, but that doesn’t mean it doesn’t matter. When trendy but bad ideas swirl around regulatory or academic circles, harmful policies often follow. Unfortunately “I don’t understand this stuff, and they keep on arguing with each other anyway, let’s just get rid of them all” doesn’t solve things either. It wouldn’t be a clever idea to let big banks do what they want. You aren’t going to solve the problems of systemic failure in the financial system by sacking every expert who studies systemic failures of financial systems.
There is a difference between saying “expertise is necessary” and “experts are always right”. Don’t mistake me claiming the former for me supporting the latter.
@PiP
“Ah ha, ladies and gentlemen of the jury, the miscreant has just admitted his guilt.”
Umm, no? If you didn’t know what I wrote, it’s an expression of your own ignorance more than anything else.
I’m sorry, I don’t understand the need for all this “weeeeeee, clever old me who’s never studied any economics has just discovered half a dozen flaws in what those fake-Nobel-winning professors say and it’s not even Saturday!” business. It’s as galling as Richard Murphy proudly telling the world he walked out of his first term intro to econ lectures because they were clearly nonsense… yet decades later he’s still getting basic technical details wrong, redefining standard definitions to mean what he wants them to mean, falling for logical fallacies that are picked apart in any standard textbook.
You seem to think utility is the secret sauce at the core of economics and the dark truth is it’s the emperor’s new clothes. But utility is just describing preferences, as Tim was pointing towards. “Utility-maximiser” is just a puffed-up way of saying “makes rational choices”, for a very specific definition of rationality (which can be found in the early pages of any decent textbook). If you need them, there are clever mathematical ways to define and even measure utility. There’s no problem with preferences, and consequently utility, depending on circumstances or time. Nor with the fact that it varies from person to person, though you can often get a close enough approximation to the truth by considering even one “representative” individual, or aggregating a few different classes of people, each with their own representative individual. In practice economists don’t always work directly with utility but that’s no big secret either.
All of this is just standard knowledge, freely available in the textbook or youtube lecture series of your choice. Once you’ve reached the level of technical competence required to understand them, there are then many excellent critiques of utility theory available if you still think it all smells fishy. None of it has brought the whole edifice of economics tumbling down, mind you. You seem to be smart enough and have enough interest to comment on economics blogs. If you were to take some of the hours you spend commenting on econ stuff you don’t actually understand because you haven’t done the work, and use it reading a decent book instead, you might find that a very good value swap. And one which would increase your pleasure when commenting on econ blogs in future, with the smug satisfaction that comes of at least knowing the first term’s worth of it.
“But modelling demand – is there consistent evidence for success at this venture?”
Demand modelling is a well understood problem which keeps thousands of economists in corporate (and regulatory) work. Again, best thing to do is go read a textbook – you’d want one on econometrics with applications to microeconomics. But do read an Econ 101 book first, and perhaps a Microeconomics one for good measure. Most people would need to do some maths/stats reading too but I suspect your technical background would cover you.
Fwiw a lot of cutting-edge statistical analysis was developed in the course of studying econometrics. Causality vs correlation is a big issue that economists sunk a lot of effort into considering, rather before other social sciences underwent their “quant” turn. (You can hardly do a masters degree in political science these days without having to learn hierarchical Bayesian modelling, for example… 20 years ago that was not the case, but an econ masters was always going to be very quant-heavy.) One of the things I’d point out to Jim’s list of stuff academic economists have come up which has gone into widespread use even in the natural sciences would be vector autoregressive modelling (VAR), but again it’s one of those technical things you take for granted if you use as a regular part of your toolkit, but sounds pointless and obscure if you never had recourse to it.
Demand modelling is a well understood problem which keeps thousands of economists in corporate (and regulatory) work.
Here’s a question for you then. If economists are so clever, why are there so few rich ones? Why would any economist grovel in employment when he has the ability to be independently wealthy? Or is the problem, there’s a world of difference between theoretical & practical economics? That people don’t do what the theories say they should do? Because it’s amazing how many people become independently wealthy in business, without having studied theoretical economics. Or perhaps that’s why.
I think it’s a fair rule of thumb. The more economists you have the poorer you get. UK seems a good example of the principle..
I missed this:
You can’t just put your fingers in your ears, shutter all the uni econ departments, sack anyone with “economist” in their job title, and refuse any further discussion that involves the word “economics”.
It’d be a good start though.
Its odd that our new economist friend is having to resort to the old ‘its all really important under the hood stuff that you peasants wouldn’t understand and its really really important [that I keep getting paid to be an economist]’ argument. I mean all the other sciences can point to lots of stuff that ordinary people interact with every day that makes their lives better, yet the best economics can come up with is a form of statistical analysis that isn’t actually anything to do with economics at all because its maths, and can be used for analysis of data from any area of science.
“You can’t just put your fingers in your ears, shutter all the uni econ departments, sack anyone with “economist” in their job title, and refuse any further discussion that involves the word “economics”.”
Forget sacking all the university economics depts, just close all the universities. They’ve done more damage to the UK than Hitler did.
We need a new Henry VIII to dissolve the university system, with prejudice.
““Utility-maximiser” is just a puffed-up way of saying …”
You’ve already admitted it’s unnecessary for modelling, now you admit it’s puffed up.
What on earth is the point of defending it, then?
I think “utility” needs to hire a better barrister.