Unorthodox Economics: 1. What Is Economics?

This is the first entry in what I hope will become a book-length series of posts. That result, if it comes to pass, will amount to an unorthodox economics textbook. This first chapter gives a hint of things to come. Here are the chapters that have been posted to date:

1. What is Economics?
2. Pitfalls
3. What Is Scientific about Economics?
4. A Parable of Political Economy
5. Economic Progress, Microeconomics, and Macroeconomics

A book about economics should begin by explaining what the author means by the word. Many economists have given many definitions of economics. You can look them up.

Regardless of where it started, economics seems to have become the study of how human beings make choices and how those choices affect them directly (e.g., the demand for and supply of new automobiles, enrollment in an employer’s retirement plan) and indirectly (e.g., the effects of government actions on the income available for the purchase of new automobiles or on the benefits paid out by retirement plans). The parenthetical examples are about choices that usually come with dollar signs attached. And most non-economists probably think of economics as having something (or everything) to do with money – earning it, spending it, making a profit (or not) by making and selling things, adding up the dollar value of items bought and sold to arrive at an estimate of aggregate economic activity, and understanding why the aggregate grows and shrinks, for example.

But there are many economists nowadays who have taken the study of choice into areas that would seem strange to economists of yore. Here’s just one example: voting, as in whether or not to vote and how much time (if any) to spend in the pursuit of information about the candidates or issues on the ballot. Some economists tackle voting as they would any other aspect of economics: by arguing (pro or con) that voting is rational (or irrational) given the amount of time involved (time that could spent on other pursuits, such as making money), the vanishingly small chance that an individual vote will tip the balance in an election (at least in an election where there are more than a few hundred voters), and the effect of the election results on the individual voter’s well-being (usually in terms of money).

On the other hand (as economists are supposedly fond of saying), there are economists who recognize that casting a ballot is a “feel good” act, and that voting is therefore rational if it makes one happier. But that’s only a local, short-run effect. Some economists understand that voting leads to the enactment of policies that harm voters (or many of them), regardless of why they choose to vote. This points to two conclusions: (1) Voting should be discouraged, and (2) the power of government should be curbed so that voters can feel good without causing harm (or as much of it as they do now).

So, which is it? Is voting a waste of time or is it a good use of time if it makes the voter feel good? And is it worse than a waste of time if it leads to harm? This conundrum illustrates a key point about economics (and analysis in general): It leads to conclusions that are built into the assumptions (usually implicit) that guide the economist who studies an issue. If the economist cares about liberty, he is likely to tackle the issue of voting as it affects persons other than the voter. If the economist isn’t interested in liberty – or if he sees it only as a peripheral issue — he is likely to tackle the issue of voting as it affects the voter.

Unfortunately, too many economists take the view that if government can do something to promote economic well-being, it ought to be empowered to do so. But economic well-being is in the eye of the beholder. And in this era of massive redistribution, one person’s benefit is another person’s cost. Who, other than an arrogant economist, presumes to weigh one person’s benefit against another person’s cost? My list begins with the greedy voter who believes that he can get something for nothing; the smug pundit; and the power-hungry, vote-buying politician.

There is much more to be said about the wayward paths taken by economists, and the essays in this book say a lot of it. But more than that, this book is a defense of liberty against economists who – wittingly or not – undermine it. And, ironically, the diminution of liberty results in the diminution of prosperity, which economists claim to love.

In sum economics is fraught with dangerous error. This book is meant as a warning and antidote.

One thought on “Unorthodox Economics: 1. What Is Economics?

  1. Your comments in quotation marks are followed by my replies.

    “What book are you referring to?”

    I don’t understand the question. I’m not referring to a particular book other than the one that might emerge from this series.

    “I’d define economics as the study of the optimal allocation of limited resources. Those resources can be anything – steel, money, time, etc. And “optimal” of course depends on your goals. What is optimal for one person’s goal may be sub-optimal of for another’s.”

    That’s one definition of economics, and close to the classic one that I was taught a long time ago. But if you follow very many economists in the blogosphere, you’ll see that economics has become much broader than that — for better or worse.

    “Still, there are situations where one person’s cost *can* be usefully measured against another person’s benefit, perhaps most famously in the concept of Pareto optimality. Such comparisons depend on people having similar goals (at least in the one case in question).

    “And people compare costs and benefits against one another all the time – that’s what a negotiation is.”

    But you’re talking about the situation in which a voluntary exchange takes place because the parties believe that the exchange will benefit each of them. Politicians and bureaucrats — and economists who do cost-benefit analyses — are making decisions that affect other people and blithely assuming that A’s cost (e.g., higher taxes) is offset by B’s benefit (e.g., subsidized housing). But it isn’t, except in the rare coincidental case of taxpayer A who would voluntarily contribute to B’s housing cost. But that’s not true of most taxpayers, who have their own problems and priorities. I’ll have much more to say about this in a later post.

    “Just because it’s tricky, and there are traps for the unwary, doesn’t mean there isn’t a real subject to be studied, and real things to learn.” True. I have learned many of those real things, and will try to impart some of them. This is only the opening shot.


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