There are certain things that make economics very potent- a multitude of ideas and concepts that govern most of what we do in life. However, the more I study and read I find that there are many things about economics that are a bit questionable.
First of all, allow me to clarify something I did not mention in previous posts: Economics has a variety of belief systems, the set of beliefs and assumptions that I am referring to in these posts is called “Neoclassical Econimics.” The reason I will be primarily mentioning Neoclassical economics is because it makes up around 90-95% of economists in the U.S.. It’s pretty crazy how homogeneous the makeup is… Apparently many economists will be confused if you tell them they are part of a classification of economics- they just think there is one. In any-case, I’ll continue my notes:
One assumption that I find particularly interesting is this: CHOICE is all-important. There can never be too much.
And the people must be allowed to have the choice.
One interesting side-effect of this is that the market loses any sense of ethics- any sense of priority on one good over another. So in the market a breast implant is just as valuable as education. Now I don’t mean to pick on breast implants… err… I’m not sure where I was going with that sentence. Anyway, the economics justification for ethical apathy is this: We are economists, not ethicists! Let the PEOPLE decide which is more important.
But can people really decide for themselves? Is there really no such thing as too much choice? Why do grocery stores shove tons of candy in the check-out aisle? Why do advertisers spend billions on finding ways to manipulate the buyer? Are people really in complete control?
Even if people are completely in control, the econ view of people states that people make decisions myopically- they choose immediate benefits/pleasure. If people really are short sighted, then we can expect them to give into some very poor decision making. Why else would the university I attend pile the eateries with cake, chicken wings and candy? In fact, there are entire eateries on campus devoted entirely to different kinds of fried chicken… and the lines are out the door. Why is no-one at the salad-bar?
Afterwards, when people will pay a price for not looking to the long term- economists shed all responsibility. “You had a choice, had you not?“. Despite the fact that, in econ, people are expected to make these poor short term decisions.
Dr. Browne introduced to the class what he called the “Hurricane illustration”. It works like this:
Let us look at some products that are in high demand during a hurricane: Plywood, milk and gas. The supply of these products is relatively low during the normal operations of a coastal city. Suddenly, WHAM… a hurricane hits and suddenly there is an extremely high demand for plywood, milk and gasoline. What happens? Well the prices for each of these goods sky-rockets- money acting as a natural rationing device. If people cannot afford these goods and ask for help the economists simply turn to them and ask: “Did you know you live on a coastal city? hmm… Did you know that coastal cities are prone to hurricanes? interesting… Did you also know that the destructive power of a hurricane could complete wipe out your house and belongings? intriguing… so, I must ask you, why do you wish to burden the poor tax-payers with your problems? You did, after all, have a choice.”
The funny thing here is that many political figures decide that they will not allow the prices to go up during the aftermath of a hurricane. Somehow the drama of the disaster makes them feel sad, and seeing people floating in the streets makes them rethink market decisions. Unfortunately, the political figures do not realize that the market works like this ALL THE TIME, prices are always acting and reacting to demand- such as the demand for plywood, milk and gas that is illustrated above. So instead of changing the way things work, they label the price changes during a disaster as “Price Gouging“. The rest of us refer to it as the “market system;” it’s just that during a hurricane, the victims of the market system are much more publicized and concentrated.
I am not suggesting that the modern Neoclassical economics approach should be tossed away. Dr. Browne makes a good point that it works extremely well for poor countries. In a sense, for the very poor, consumption and money DOES create happiness. However, once we have satiated our basic needs, perhaps we need to look to a different model.
-Tom
