Economics in One Lesson

January 25, 2007 3:49 PM

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Economics in One Lesson, by Henry Hazlitt, is available online for all to peruse, and makes sobering reading for anyone who's ever fretted over the United States' $8.7tn national debt. Or if you prefer action to theory, you can always help your fellow citizens out by making a check payable to the Bureau of the Public Debt.
posted by hoverboards don't work on water (39 comments total)

Thanks, hoverboards, books are good.

Hmm.... skimming the first few chapters, there's a lot of, "government is teh stupid," "I am smarter than the so-called experts"-style argumentation. No empirics or studies or anything to liven things up.

All the hallmarks of... libertarianism.
posted by ibmcginty at 4:12 PM on January 25, 2007

As this is being written, in fact, printing money is the world’s biggest industry—if the product is measured in monetary terms.
posted by grobstein at 4:34 PM on January 25, 2007

He's associated with the Austrian school so yeah, it's somewhat libertarian. Ultra-individualist, anti-neoclassical, anti-Keynesian, etc.
posted by inoculatedcities at 4:47 PM on January 25, 2007

Folks like this always single out the little guy as the whole problem. It's never the lobbyists and the corporate handouts and military spending that are parts of the same problem. It's teh welfare.
posted by crowman at 4:59 PM on January 25, 2007 [2 favorites]

My first thought about making a check out to the Treasury to ease the public debt was, "is it tax deductible?"
posted by gurple at 5:01 PM on January 25, 2007

That's been on my "to read" list for years, but it's not in our library and I've always been too cheap to buy it.

(Wisecrack notwithstanding, thank you. Really. Now I shall read it.)
posted by IndigoJones at 5:02 PM on January 25, 2007

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

But if only there were some science in this black art...

Sadly, there really isn't very much science there, at least not in what most folks think of when they say "economics" (there's a lot of math, which I love, but math != science).

Interesting reading, though, thanks for the link.
posted by teece at 5:45 PM on January 25, 2007 [1 favorite]

Right, so here's my question: I know how everyone's share of the debt is something like $28,000 (I think), but IF we somehow got everyone to pay - Bill Gates can pay double - wouldn't the value of the dollar increase a lot? Would this be anywhere close to making back the $28,000 I don't have anyway?


(no, I didn't read the whole thing yet, so it's not my fault if he addresses this very thing)
posted by niles at 6:13 PM on January 25, 2007

Perhaps an economist can help me on this one: is everything in economics always zero-sum?
Like, governmental investment, which guarantees student loans, has resulted in a pretty decent default rates and a savings for students. And there's an argument to be made that the insane costs of health care can be mitigated by pooling resources.
(And that's leaving aside the very real fact that very often, people aren't good judges of what they need— see the stereotypical cigarettes and ho-hos purchased by the straw-woman welfare recipient).
posted by klangklangston at 7:59 PM on January 25, 2007

is everything in economics always zero-sum?

No. I have some money, but would rather have a widget. You have a widget, but would prefer money. We swap and are both better off. The set of possible swaps we might make is usually called the contract curve.
posted by ROU_Xenophobe at 8:15 PM on January 25, 2007

klangklangston-- Two economic concepts that might be relevant to what you're talking about are multiple equilibria and positive externalities.

Multiple equilibria means that any given stable equilibrium (point where supply and demand meet) need not be the only possible equilibrium. So, government intervention can, in theory, bump us up to an equilibrium that's happier for everyone.

Positive externalities: "If consumers only take into account their own private benefits from getting vaccinations, the market will end up at [a worse equilibrium], instead of the more efficient price and quantity.... [A]n unfettered market is inefficient since at the quantity Qp, the social benefit is greater than the societal cost, so society as a whole would be better off if more goods had been produced. The problem is that people are buying too few vaccinations."

Your last point, on ho-hos, brings irrationality into the picture. That's where economics is heading. Economics is, or ought to be, a behavioral science, describing what people do, rather than a mathematical discipline.
posted by ibmcginty at 8:26 PM on January 25, 2007

ugh. Meant to explain multiple equilibria a bit better... hope it makes some sense. I'll try googling for a bit.
posted by ibmcginty at 8:27 PM on January 25, 2007

(And that's leaving aside the very real fact that very often, people aren't good judges of what they need— see the stereotypical cigarettes and ho-hos purchased by the straw-woman welfare recipient).

There are really two typical libertarian responses to this. The first is that the cigarettes and Ho-Hos are the revealed preference of the woman, that she is spending her money how exactly how she wants, and that your busybody notion of "need" is totally irrelevant. The second is that, well, maybe she would be happier if X, Y, or Z, but we don't really know that, and maybe a properly engineered program/subsidy/action really would make everything better off, but nonetheless leaving her entirely free to make her own decisions is what a free state ought to do.
posted by Kwantsar at 8:41 PM on January 25, 2007

There are really two typical libertarian responses to this.

I think those are actually OK libertarian responses, but they miss the real problem.

Pretty much all neoclassical economics relies upon people making decisions in ways they clearly can't (the assumptions built into supply and demand curves stipulate that we can make ridiculously complex combinatorial analysis, and that we are purely rational actors, and that we are actually all the same rational actor, amazingly, and that our preferences for purchasing decisions don't change with time or with changes in income.).

Even if you assume something like a "rational actor" exists, there are still major problems. Whoever that guy was that really kicked of neoclassical econ. (Smith? Adams? I forget), postulated that humans are always seek to maximize their happiness. It seems a reasonable axiom, although not an unassailable one.

Most modern econ. (and all of neoclassical econ., which is what this guy is talking about, I think) is based upon an idea that is essentially the same as that.

Trouble: it's pretty well established that people are very bad at actually doing things that make them "happy." Worse, economists don't like squishy terms like happy, so they cheat and call it efficiency or utility or productivity or what not, but that really just avoids the question. The fact is, people can and do make "stupid" decisions that are completely impossible to account for with modern econ., and they do it all the time.

The reality is that all current economic models you've ever heard of make assumptions about how humans behave that are flat-out impossible, and contrary to empirical research (unless you're a PhD studying cutting edge econ., in which case you're trying to build a better econ. from scratch, essentially) .

One of the nifty things these problems introduce is the simple fact that, if you followed the math without the ridiculous assumptions, supply and demand are not neat curves that intersect at one point. Indeed, they're not even predictable.

Which is why all of this econ. talk, why fascinating, must be taken with a HUGE grain of salt. It's built on incredibly rickety foundations.

Libertarians, Marxist, communists, capitalists, laissez-faire capitalists, socialists, etc. None of us have it figured out. There are gaping holes in our knowledge here. We can't really make cut-and-dry decisions based on "economic science," as many arguments (such as this author's) would have you believe.

The reality is very messy, and much more complicated than any of our current models can account for (and even if you have the perfect model, you still have to put morality back into the picture at some point).
posted by teece at 9:29 PM on January 25, 2007

Well said, teece.
I have more to say, but that comes later.
posted by daq at 9:38 PM on January 25, 2007

The grain of salt: To undestand the book, you need to undestand that Hazlitt is basically attacking the early Keynesian view. What does that mean?

You might remember Keynes from his famous statement "In the long run, we are all dead." Keynes was critiquing laissez faire economics, which assumed that markets would reach equilibrium on their own (in what economists call "the long run"), and therefore government intervention is inefficent, simply delaying what the invisible hand would do itself.

Instead, Keynes and his followers believe that the market is "sticky" -- that prices do not smoothly slide down in the absence of demand, and that wages do not always rise when demand for workers goes up, for example. The result is that the market is not naturally efficient on its own, and needs to be "fine tuned" by government spending, monetary policy, and other government tools, in order to keep employment up to optimum levels. Keynes further argued that money spent often has a "multiplier effect": that each dollar spent by the government could have more than a dollars impact on the economy, as it stimulated spending and investment. The result is that Keynesians, who became increasingly dominant in government policy through the 1960s, often advocated strong government intervention in the economy.

Austrian economists, like Hazlitt, argue for a fundamentally different approach. They are concerned about knowledge - who possess knowledge of economic value (such as a new innovation) and who posses knowledge of what is valuable to each individual (namely, the individual themselves). Since knowledge is spread unevenly, and nobody but you knows what value you place on any particular good or service, any government intervention will do a terrible job of (a) understanding what the economy needs and (b) satisfying people. Thus, Hazlitt and his fellows are much more "free market" than Keynesians.

Who is right? Well, Austrians and other free-market types are right where externalities (like pollution) are small, demand leads to supply being created, monopolies aren't a problem, etc. When these conditions aren't true, many economists would advocate some sort of intervention by government.

So do read the book, but get a sense for the fact that this is one economic theory attacking another, regardless of the language involved.
posted by blahblahblah at 10:27 PM on January 25, 2007

Pretty much all neoclassical economics relies upon people making decisions in ways they clearly can't (the assumptions built into supply and demand curves stipulate that we can make ridiculously complex combinatorial analysis, and that we are purely rational actors....

IANAE, but...

I hear this argument a great deal. (Did Malcolm Gladwell write an article about this that I missed? Because it seems like the sort of thing that people would talk about because Malcolm Gladwell wrote an article about it.) It's perfectly valid. But you're setting up a bit of a straw man; I don't know anyone who has ever claimed that real people act in an economically rational way all of the time. It's a convenient assumption for the sake of getting results, like assuming that physics is Newtonian rather than relativistic when you're analyzing shots in billiards. It's a way to get a first approximation of an economic situation — and given that even the simplest economic environments are far beyond our ability to comprehend or compute in toto, it's about as good as we can get in many cases, and better than nothing. Generally, people are rational actors given the information available to them; the transactions in which I seek to minimize expense and maximize value are far more numerous than those in which I succumb to entirely irrational considerations. (Well, I suppose I would think that, wouldn't I?)

Also, I think there's a great deal of truth in the first of the two arguments presented by Kwantsar; there is a damned good chance that a given person understands his or her own priorities better than an external observer. Maybe the cigarettes and Ho-Hos keep the lady sane, consequently helping her deal with the exigencies of her circumstances — I've noticed that when I've been very poor, while I do scale down my general level of expenditure, I'm actually more willing to spring for the occasional (relative) indulgence than when I've had a more comfortable income, because it sucks being poor, and, as long as you're able to feed, shelter, and clothe yourself, one of the things that sucks most about being poor is feeling poor; being able to obtain things you don't strictly need, but would enjoy having, mitigates that feeling and lets you feel better about your situation to a degree far out of proportion to the amount of money it's cost you.

The reality is very messy, and much more complicated than any of our current models can account for (and even if you have the perfect model, you still have to put morality back into the picture at some point).

Sure. I've never met anyone who would disagree, and I've met a number of hardcore Milton Friedman fans in my day. That's why we call them models.
posted by IshmaelGraves at 10:41 PM on January 25, 2007

No, they are not a good first order approximation, IshamaelGraves. The comparison to Newtonian mechanics is extremely invalid.

Supply and demand: you can't do neoclassical economics without them. Everything is built upon those concepts.

The mathematical underpinnings of those two concepts are invalid.

Also, I think there's a great deal of truth in the first of the two arguments presented by Kwantsar; there is a damned good chance that a given person understands his or her own priorities better than an external observer.

This doesn't really have anything to do with what I'm talking about. I'm not interested in an outside observer.

In inside observer (me) is horrible at knowing what makes me happy or maximizes my utility. The next time you go to the grocery store, use the econ. 101 method to decide what to buy. If you buy 40 things, you'll need a few hundred years on a supercomputer to figure out what is the correct proportions of goods that maximizes your happiness (or maximizes your utility or income or whatever). But unless I can do this kind of thinking, neoclassical econ. actually has nothing to say about how the hell I decide what to buy (the problems are just as bad on the supply side).

Supply and demand DO NOT intersect at one point unless we assume that every consumer will make the same choice in the above combinatorial analysis.

The concepts are 100% flawed. If they give anything at all like a first order estimate, it's completely by mistake. The reality is that, except in very special and simple situations, neoclassical econ. would be doing extremely well to get even a 1st order estimate.

The models don't get any better, just more complicated.
posted by teece at 10:59 PM on January 25, 2007

Oops, I forgot: I don't know who Malcolm Gladwell is.

The ideas I'm going on about come from economists. Both the holes in supply and demand were first written about almost a hundred years ago. I forget the names of the guys that published the findings.
posted by teece at 11:03 PM on January 25, 2007

teece- If you buy 40 things, you'll need a few hundred years on a supercomputer to figure out what is the correct proportions of goods that maximizes your happiness... But unless I can do this kind of thinking, neoclassical econ. actually has nothing to say about how the hell I decide what to buy (the problems are just as bad on the supply side).


I really think you are attacking a very oversimplified view of economics.

First, it is worth understanding that economics has moved far beyond linear utility functions and completely rational actors. Work on behavioral economics yields a better understanding of actual preferences, while neo-Austrians and others have integrated a better understanding of the role of knowledge into economics. But we don't need to get to that level in order to address your critique.

Economics works at an aggregate level. Nobody really thinks you are using a calculator to make every economic trade-off in your life, but the more we aggregate up, the better we get a sense of your demand. The amount you spend on each of the items in the store may not be particularly rational, but the amount you spend on food vs. other things you want is probably a better indicator of your preferences at current prices. Further, as prices change, the degree to which your consumption changes (and it will change) gives us the shape of your demand curve. Similarly, when we aggregate the same choices across many people, we have something that looks quite like what economists model. It is that aggregate curve that economists examine, and, yes, it does tend to meet a supply curve at one point - the point where producers and consumers agree on a price and the quantity they are willing to buy at that price.

If the curve was to meet at multiple points, like you say, then that the exact same product is available at both high and low prices, and that consumers are equally willing to buy at both prices. There are problems with neoclassical economics, but I am not sure that the non-existance of supply and demand are among them.
posted by blahblahblah at 11:29 PM on January 25, 2007

Regarding economics as a science, you might compare it to other sciences: for instance, astrophysics and evolutionary biology.

In both cases, practical experiment is virtually impossible. You can't put a lizard on an island laboratory for a million years and watch it evolve. You can't add a trillion tons of iron to the Sun and see what happens to its radiation output.

What you can do is combine two different tools: modelling and observation.

The fossil record provides a large amount of data of what has happened to species over time. The night sky provides a lot of data about stars at various stages of their development.

You can then develop models and (the crucial bit) compare your models against your observations. If your model predicts a large number of observations well, then it has a very good chance of predicting the next one too.

In the same way, there's a huge body of economic data which you can test your models against. In some ways economists are better off than astrophysicists or evo biologists, as the changes are relatively short term. And occasionally governments even make economic decisions based on economics, which lets you test the outcomes of those decisions.

No economic model is absolutely perfect. But even the relatively simple models have a fair degree of accuracy. That's why the assumptions are chosen.

If you read an introductory Physics textbook you'll find the examples full of perfectly elastic collisions and "light, inextensible strings". Neither of those assumptions are perfectly accurate, but they're good enough to illustrate the principles. The reason these assumptions are chosen is that they don't make that much difference even in a more accurate model.

The same thing applies to the rational actors and perfect markets in introductory Economics texts. They're not fully accurate in the real world, but they're accurate enough that you can forget about them while you demonstrate the basic principles.
posted by TheophileEscargot at 1:14 AM on January 26, 2007

teece, you are actually making an excellent argument for a libertarian theory of economy. It may indeed be impossible to work out what quantity of X makes person Y more Z, but if anyone gets to decide, it should be person Y. Anyone else is necessarily further from the truth of the matter.

In inside observer (me) is horrible at knowing what makes me happy or maximizes my utility.

Nevertheless, would you rather someone else made that decision for you?
posted by hoverboards don't work on water at 2:44 AM on January 26, 2007

Yah, teece is attacking a strawman.

Supply and demand: you can't do neoclassical economics without them.

Of course you can. I don't need supply and demand to construct an indifference map and find its tangency with a budget constraint, or to build an Edgeworth box and find the contract curve.

The next time you go to the grocery store, use the econ. 101 method to decide what to buy. If you buy 40 things, you'll need a few hundred years on a supercomputer to figure out what is the correct proportions of goods that maximizes your happiness

See, there's a difference between the real world and a model. There's a difference between a thing or a process and the way that thing or process is described.

Grab a pen. Put it in your hand and toss it into the air so that it rotates once longways and falls back into your open palm.

The way a physicist might describe this problem would be ugly, confusing, and difficult. You're applying a vector of a certain direction and length to the pen at a certain point along its length in order to give it the wanted trajectory, and you're adjusting the position of your hand to take into account errors caused by breezes and such. And there are at the very least an extremely large number, if not an actual infinity, of solutions to this problem. If all you looked at was the formal description of the problem, you'd never be able to do it.

But chucking a pen in the air and catching it is not difficult. It's only our means of describing it that are difficult.
posted by ROU_Xenophobe at 5:34 AM on January 26, 2007

blahblahblah -

First, it is worth understanding that economics has moved far beyond linear utility functions and completely rational actors.

Really? Can someone let (former Bush Council of Economic Advisers chair, Harvard professor, writer of the most popular econ text book) Greg Mankiw know?
posted by bonecrusher at 8:03 AM on January 26, 2007

bonecrusher - I am not sure why you object to that post by Mankiw, the assumption of rational actors still makes sense in many cases. Regardless, you may want to look at Mankiw's writing on behavioral economics, which he has included in his latest text book. In any case, behavioral stuff rarely has as much impact on macroeconomics (Mankiw's area of focus), it is much more about microeconics; though he gives a great example of how it matters in the link above.
posted by blahblahblah at 8:25 AM on January 26, 2007

Folks: I am talking about neoclassical economics, and in than sense I am most certainly not arguing against a straw man. (you can't do a damn think in neoclassical econ. without supply and demand, so you're talking about the same thing if you say you don't need them to do econ.)

And neoclassical makes up 100% of the lay thinking, 99% of the non-cutting-edge research econ.

And all of the econ that influences public opinion.

It's broken so badly as to be beyond useless.

The key difference between physics and econ: the models in physics are exhaustively verified, and predict many phenomenon very, very well.

Not so in econ. And again, I'm talking about neoclassical econ: I'm all for fixing the broken thinking in econ, and realize that some folks are trying to do it, but from what I've seen in the field, they are definitely in the minority.
posted by teece at 8:32 AM on January 26, 2007

I read this book in high school, and angrily scribbled many irate questions in the margins. I remember the author had the most smug, self-satisfied tone.

There are so many problems I have with the discipline of economics, but I guess the most general way I could put it is that relying on economics for important decisions subverts the principle of justice: that the people affected by a decision should have proportional say in that decision.
posted by eustatic at 8:49 AM on January 26, 2007

No economic model is absolutely perfect.

That's about as right as you can get.

But even the relatively simple models have a fair degree of accuracy.

This is, of course, completely laughable. If you're defending econ based on it's predictive power, you on some pretty thin ice.

That's why the assumptions are chosen.

Nope. They're chosen because for their PR purposes when fighting policies that attempt to left-shift the income curve.

Let's demonstrate using the recent minimum wage debate. The argument that retard Mankiw is making above is that wages are determined by labor's marginal productivity, so if a wage is increased by government fiat, the worker who's wage was increased will now be getting paid more than they produce and will therefore be a net cost to their employer, who will then fire them to keep from losing money.

The proof that the marginal rate of return to capital is a seriously non-linear function (and that therefore it's complement, the wage function, is as well), is forty years old. It's literally nonsense to say that wages are determined by their marginal productivity.

(BTW - blahblahblah, your aggregate supply and demand curves suffer from exactly the same criticism.)

Of course, there's no empirical evidence to support that increasing the minimum wage increases unemployment. But contrary to what people are saying above, zero empirical support for their theories doesn't keep economists awake at night.

And these problems are endemic to neo-classical econ - the math is bad - which is what the Sraffians and chaos guys are going on about.
posted by bonecrusher at 9:08 AM on January 26, 2007

you can't do a damn think in neoclassical econ. without supply and demand

Again, that's simply false.

I can put together an Edgeworth box and find the contract curve without any supply or demand.

I can put together a simple set of indifference curves and a budget constraint or set of constraints without any supply or demand.

Both of these are entirely boringly neoclassical things to do.
posted by ROU_Xenophobe at 9:31 AM on January 26, 2007

Well, since you mentioned Professor Mankiw, take a look at this one post.

You say "there's no empirical evidence to support that increasing the minimum wage increases unemployment". But that one post lists four different empirical studies supporting it.

You may choose to dispute the evidence, or say the evidence is insufficient. But you can't say it doesn't exist.
posted by TheophileEscargot at 9:32 AM on January 26, 2007

I have more time to reply now.

blahblahblah:
Economics works at an aggregate level.

You're not understanding my critique, because this is at the heart of the problem. On the non-aggregate level, neoclassical economics, although not without problems, works OK.

Demand can be explained and modeled for a single consumer and a single product. Two products works OK. There are issues with many products (like the combinatorial one I mention), but they aren't huge.

Great. But guess what? With the model of demand in neoclassical economics, it has been proven that the mathematics of demand in neoclassical economics is impossible to extend to the aggregate. There is no prediction that can be made by the models of demand. Again, mathematically proven. That's not a straw man argument (see Varian, a neoclassical economist himself. He admits this in his graduate econ text, but for some reason glosses over it as if it was no big deal).

So assume the "rational actor" makes sense at the individual level. The math model tells us that at the aggregate level, demand is completely irrational and unpredictable. So neoclassical demand is either wrong, or it can tell us nothing about aggregate demand. This knowledge is 100 years old.

There are problems with neoclassical economics, but I am not sure that the non-existence of supply and demand are among them.

I'm not saying that supply and demand don't exist: I'm saying the neoclassical mathematical models for those things are mathematically unsound. It's been proven, by economists.

Nevertheless, would you rather someone else made that decision for you?

hoverboards don't work on water:

I'm not saying anything at all about who should make decisions. But since you brought it up, no, the libertarian position is not better. The libertarian position is predicated quite heavily (completely?) on the idea that a society is merely a collection of individual actors, acting to maximize their happiness. The mathematical models of economics show us quite the opposite: an economy is more than the sum of its parts. It can't be explained completely by only considering individuals. That's the fundamental failing of neoclassical econ, and it's the fundamental tenet of libertarian beliefs: that individuals doing their own thing will produce the best social outcomes. It's just wrong.

ROU_Xenophobe:

Of course you can. I don't need supply and demand to construct an indifference map and find its tangency with a budget constraint, or to build an Edgeworth box and find the contract curve.

Huh. Well, the indiference curves I've seen are merely an indirect way to find a consumer's demand and where utility is maximized, and it's fundamentally built on the mathematical problems inherent in neoclassical economics. So you're either using a definition of indifferenc curve different from the one I know, or your argument is entirely specious.

(Supply is just as bad: diminishing marginal revenue has its own serious problems).

People keep bringing up physics, so let me use an example there.

In Newtonian mechanics, it is postulated that the force of gravitation acting on a particle is predicted by a Gmm/r^2 mathematical model. Experiment shows this to be valid for things that are particle like. However, it's not guaranteed that you can extend the behavior of a particle to the behavior of something that is not a particle. As it turns out, the math is such that one can do that via a center of gravity (assuming symetric objects. non-symetric ojbects bring other factors into play).

The math was a pain. It's why Newton hadn't published some of his results. He could not prove that it was fair to treat the Earth and Jupiter as simple particles. But eventually, the math proved that to be a fair simplification.

In neoclassical econ, and individual demand curve is postulated. Guess what? It has been proven that the math of the individual demand curve CAN NOT be extended to aggregate demand curves.

Unlike Newton, economists did not luck out.
posted by teece at 9:37 AM on January 26, 2007

That's the fundamental failing of neoclassical econ, and it's the fundamental tenet of libertarian beliefs: that individuals doing their own thing will produce the best social outcomes.

No it's not. Libertarians don't promise a utopia, and don't seek to maximise happiness, utility, efficiency or any other fluffy quantity. Libertarianism is a political ideology, not an economic one. The fundamental libertarian position is that all transactions should be voluntary. All of them, economy be damned.
posted by hoverboards don't work on water at 10:36 AM on January 26, 2007

Where is the lesson in this sentence:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

?
posted by little miss manners at 10:50 AM on January 26, 2007

And less you think I snipe unfairly, let me put the quote in context:

From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

posted by little miss manners at 10:52 AM on January 26, 2007

Well, the indiference curves I've seen are merely an indirect way to find a consumer's demand and where utility is maximized

It's entirely possible to use indifference curves or (or closed indifference contours) to study something that doesn't have a goddam thing to do with supply or demand.

What you seem to be saying is that really all economics is macroeconomics and that microeconomics exists only to build macro. I am not an economist, but I really don't think this is the case. It's possible to do micro without particularly caring about macro.

you're either using a definition of indifferenc curve

An indifference curve is a set of alternatives with equal utility. I'm not aware of any other definition. If you want to be really fussy and exclude closed indifference contours, an indifference curve is a set of alternatives of equal utility for a person with infinite wants and diminishing marginal returns for any single good.
posted by ROU_Xenophobe at 11:08 AM on January 26, 2007

I just bought Debunking Economics, which seems to get into a lot of the same criticism that people bring up here. I haven't really read it yet, though, but I was wondering if anyone has, and if they have thoughts on how good it is?
posted by Joakim Ziegler at 12:09 PM on January 26, 2007

This fellow's biography also contains this amusing tidbit (about his early career):

"I had no skills whatever. So I would get a job, and I would last two or three days and be fired. It never surprised me or upset me, because I read the Times early in the morning, went through the ads, and I'd practically have a job that day...And so I usually found myself at a job the next day, and I'd get fired about three or four days after that.... I didn't have the skills. But each time I kept learning something, and finally I was getting about $3 or $4 a week.
posted by little miss manners at 12:41 PM on January 26, 2007

ROU: You can't build a comprehensive neoclassical economic theory without supply and demand. Neither contract curves nor can you do that with budget constraints.

Yes, I'm saying I don't "care" about micro -- it's not what I'm talking about, and neither is the author here.

Micro is all fine and dandy, and you can do some (limited) things with the tools you mention (and the problems with neoecon are not as serious there). But it is not at all an overstatement to say that supply and demand are the bedrock upon which economics is built (both micro and macro). The concepts and models there work there way into pretty much everything in neoclassical economics.

As it turns out, it's been proven that that "bedrock" is actually quicksand.

There is no comprehensive theory of economics that does not rely upon the broken models we have for supply and demand. Some alternate schools are trying to build them, but they haven't gotten there yet.

Joakim, I've read Debunking Economics: It's a great synopsis of the dismal state of affairs in neoclassical economics.
posted by teece at 3:11 PM on January 26, 2007

Here's an article about how bad humans are about choosing to buy X when buying nothing or Y would almost certainly make us happier.

The impact on one's policy preferences isn't obvious. As one expert economist in the field said, "Just because we figure out that X makes people happy and they're choosing Y, we don't want to impose X on them. I have a discomfort with paternalism and with using the results coming out of our field to impose decisions on people."
posted by ibmcginty at 9:26 PM on January 26, 2007