Wed, 30 Jul 2003

Why is he angry?

I've been publishing this for a few months now, and it's probably appropriate to talk about myself at this point. Why, oh why is the economist angry? Being angry, and publicly so, is a bit of a self-indulgence. Everybody and everything sucks to a certain degree, so why sustain anger about any one thing? Why go on and on for months about a single topic?

Answering my own question (Yes, I do ask a lot of rhetorical questions; bad habit I suppose), economics is important because it affects nearly everything we do. Humans are social animals. We do almost nothing on our own. Economics is the study of how people cooperate, collaborate, and trade. Lots of people think economics is about money, and that economists want to reduce everything to dollars and cents. That's wrong, wrong, wrong, and incorrect, too. Economists study the way in which people exchange resources, whether they be money, time, prestige, real estate, or ownership. A consequence of this definition is that everything falls under the purview of economists.

Marriage is an economic act. People enter into a marriage to trade love for love, sex for housing, children for protection. Marriage can be analyzed on economic terms. Takes all the romance out of it, no? Yes, no: the romance is still there, and it, too, is part of the analysis.

Economics is in some sense the imperial science. It claims to have all Human Action as its realm. There isn't much, well, human activity, that cannot be analyzed as a trade or exchange. People generally don't like to be analyzed, certainly don't want to be put under a microscope, and never want to be predictable. That is, though, exactly what economists do. They start from a set of assumptions about human behavior. From that they derive, a priori, what the implications of those assumptions are.

For example, one assumption that economists make is that people always prefer money now to money later. It's a reasonable assumption, but given human cussedness it's only an assumption. From this assumption you can derive the rate of originary interest. That is the name of the rate at which people discount money they don't yet have. Or, as Wimpey put it "I will gladly pay you Tuesday for a hamburger today.".

People have an intuitive sense of economics, which they should not apply to larger issues, because it doesn't apply. For example, it surely appears that the world is flat. It surely appears that the sun revolves around the earth. It surely appears as if a feather and a cannonball fall at different rates. It surely appears as if someone should be in charge of the economy.

This intuitive sense is mostly right. Every family has to have a single leader. I propose that a family with more than one leader has in fact no leader at all. Somebody makes the economic decisions for the family. This works for a family because by definition, everyone in the family is intimately familiar with everyone's circumstances. Prices, within a family, introduce a formalism which interferes with the smooth functioning.

In essence, every family is a centrally controlled marketless communist state. You can even paste together a group of families into a tribe or band, or cohousing group, and they can make economic decisions without markets or prices. Communism works, and works well within extremely small groups of <100 people. The trouble with communism is that people understand it intuitively and they like it. They want to share its benefits with everyone by forming a larger communism. That doesn't work.

Every science has to deal with the issue where the intuitive sense produces wrong results. Physicists have run experiments, e.g. dropping equally-shaped objects off the Leaning Tower of Pisa, that conclusively demonstrate that objects of different weight fall at the same rate. Multiple sciences have demonstrated that the world is not flat. There used to be a set of 7.5' topographic maps (twenty of them) over at Potsdam State. They were pasted together on a flat surface and at the edges, the maps could not be made to meet. They really should have made the surface slightly curved.

Here is where the economist gets angry. Economists have not been able to decisively and effectively communicate their results to the public. There are many economist jokes of the form "Lay a hundred economists on the ground end to end, and you'll have a hundred and one opinions." Economics is not about opinions. Opinions are what you have before you have results. Economics has lots of results, but people don't understand them even though they're quite simple results.

Take the example from above, about originary interest. People don't understand that a non-zero interest rate is natural. They think that all interest is profit, and so seek laws to interfere with the interest rate. If a law tries to set the interest rate below the originary interest, nobody will loan money. Nobody.

I want people to understand the basic results of economics. Anybody who doesn't, isn't fit to participate in the setting of public policy. Unfortunately, more often than not, lawmakers are lawyers and not economists. They pass laws which don't have the effect they desire. The only solution I see to that is to help everybody understand economics as best they can.

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