Generally speaking, I agree with the overall content of your post. However your first and last sentences really emphasise for me the real problem: oversimplifying and stratifying the discussion.
"Nonsense" is an extreme overstatement, there are nuances to both arguments.
"This is economics 101" is exactly the problem: we're dealing with an economic system that isn't working. Questioning economics 101 is precisely what's needed, and I'd argue that while your arguments are sound, they've been treated as absolutes, which they're not.
A farmer needs to buy their tractor from a tractor manufacturer and fuel it from a fuel extractor/generator, but not everyone need be involved in this cycle and not every step need be specialised in a completely unary manner. Also, the emphasis on individual economic efficiency over efficiency of communal benefit is important: if a farmer can produce less - but sufficient - food, for less - but sufficient - material profit, while not producing negative impacts for others elsewhere in the economic system at large, that's a more "efficient" overall system.
The most important word in the excerpt you quoted is "most"
"This is economics 101" is exactly the problem: we're dealing with an economic system that isn't working. Questioning economics 101 is precisely what's needed, and I'd argue that while your arguments are sound, they've been treated as absolutes, which they're not.
This makes as much sense as saying "You say that my magical spacecraft won't work due to the laws of physics, but physics is exactly the problem: We can't travel to Alpha Centauri yet. Questioning the laws of physics is precisely what's needed...".
You don't get to ignore facts simply because they're inconvenient.
Begging the question; economics is not a physical science where you can run A/B tests on an economy and find results. It's a social study, mostly. As someone who studied it for years, institutionally and on my own, I can tell you that economists do not agree on any basic laws except that people have a long list of wants and that not all of them can be satisfied.
Many economists are questioning their 101s lately. Look closely in the various journals and you'll see evidence of that, both explicitly and implicitly.
> economics is not a physical science where you can run A/B tests on an economy and find results
The is broadly true of Macro Economics. This might even be impossible as a science, since the object of study (world economy and markets) is aware of its findings, and adapts around them.
Micro Economics, or "Price Theory" as it maybe should be called, is OTOH a very powerful science that gives deep and counter intuitive insights into how the world works.
Are you sure about microeconomics? AFAIK, only recently have economists started to use behavioral economics (psychology & game theory) to logically explain empirical behaviours that were previously thought of as irrational. It doesn't really seem to be a solved problem.
I'm not a real economist, just a really interested amateur.
My impression is that "behavioral" economics is a promising field that can help explain some unusual phenomena. But it doesn't change the solid core of the science.
I think it gets talked about like that sometimes by people who don't like the implications of the established science. Much like what happens with Climate Change and Evolution when any seemingly contradictory study appears.
Seriously, though, your econ mind is on the same track as mine. "Economics" is a pretty broad brush, and it's difficult engaging in meaningful discussion.
You make a great point: The "economic system" is conscious and reacts/adapts to internal and external changes, which changes the rules, and the meta rules, and the meta meta meta....
If we're talking about supply and demand, price elasticity, and things like that, I can't think of any loopholes. Knowing how these things work only makes people make more informed decisions.
Take the pricing of anything. Its greed pricing vs how much greed is tolerated. Take fish for example. In our local market prices basically increase roughly every 2 or 3 weeks. Sellers quote high when they are not desperate for money. They don't care if it doesn't sell. Now they may lie to other sellers that they sold at higher price and then others try their luck at pushing price high. Sales may be down for initial two three days but then people start buying at higher price. Fish supply hasn't changed, cost of catching it haven't changed cost of living didn't change, wages earned by buyers didn't change.
That is pure capitalism at play as it is a free market without government regulations.
Similarly some drugs that are priced at crazy multiples of real cost to produce it(including RnD and healthy profit) by the likes of martin shkreli.
So its basically how much the individuals in an economy values money. When the seller quotes high and I as a buyer has truck load of money, I wouldn't even bother to bargain. When I don't have cash, I try to bargain it to the bottom levels and sellers would probably not even be able to cover their cost.
Pricing that varies over the day in ecommerce websites is another example. Time during which people are more likely to rush into buying, things are priced high.
These examples don't actually disprove anything about microeconomics though.
Your example of the fish markets is just a good example of the fact that people have varying marginal utilities of money. Of course people try to get the highest price they can get - taking into account, of course, the time they'll be receiving the money. Obviously people will see if they can raise the price, but they're still in competition with other sellers; the price cannot be raised indefinitely. And it's not always clear whether other factors have changed - things like fish supply and catching are notoriously dependent on the weather, demand for fish varies seasonally and with changing fashions; it's a perishable good with not-super-fungible markets - maybe the prices know something about fish that you don't.
You give the example of super-high pricing for drugs such as the Daraprim case with Martin Shkreli. Note that this market is overseen and hugely, hugely regulated by the FDA, which imposes very lengthy and costly approval processes on drugs (even different manufacturers of off-patent "generics".) More generally, these drugs are on-patent - both of these situations are a de-facto monopoly that grants exactly the kind of economic rents that microeconomics predicts.
Ecommerce pricing also doesn't disprove anything. You could, for example, explain this by other factors, such as that ecommerce warehouses and logistics chains are capacity-limited, so "surge pricing" would make good sense to smooth demand peaks. But that's besides the point, really, because microeconomics would absolutely predict that if people, on average, have a preference for shopping at a particular time, then a seller may attempt to capture this preference in the price. This isn't done in brick-and-mortar retail, since changing the prices hourly would be a huge hassle. But in ecommerce, it's easy, so prices modulate with demand. And stores have always changed their prices over time, it's just that the internet makes it easy to go for a smaller granularity.
Can you give one (preferably two) specific examples of respected economists who are questioning 101 level econ principles?
I've studied economics at the college level. I follow economics news and am not aware of economists questioning 101 level principles. Many of these are relatively simple and intuitively obvious ones (once you wrap your head around them), much like 101 level maths.
Consequently I am inclined to disbelieve the claim that economists are questioning econ 101 principles, unless you can provide some examples. More than one example would be most convincing since you're claiming this is a general trend. Journal article links would be appreciated.
(I am not an economist, never took a class in economics, but am interested in the field and like to read about it, so talke all of this w/ a grain of salt)
It is not so much about questioning economics 101 principles as much as questioning their validity in the various economies. Taking the example of comparative advantage and more general trade theory, there are well known, respected economists (e.g. D. Rodrik) who have argued against the scope of their validity.
There also seems to be a debate about how 101 is taught in schools, see e.g. [1].
You're right, it's a larger question of validity in these nuances. I knew I'd get in trouble saying "101", but I hope people will read that in a sympathetic light. (Ha!)
Please accept my apologies: I'm taking a Mary Poppins approach by "not explaining anything." We're all capable of looking for examples that'll confirm our own suspicions; an attempt at confirming or disconfirming what I've blurted out above can be an exercise for the diligent reader.
I want to push back on the idea that economics is a way to divinate the truth of how to generate and share happiness. It's a piece of the puzzle, but a very small one.
If the law stands in isolation. But there are more questions that arise. To whom? For how long? In which way? Etc. etc.
The side effects must be investigated because that's largely where we are in the public discourse right now. We're in a big adjustment period. We're learning about consequences; good and bad.
Yes, and we should ask Lysenkoists about effective growing of crops.
Marx contributed massively to sociology. He contributed nothing of note to economics that's really relevant to this day (not that his effort was not commendable). Sticking to orthodox marxist economics in 2016 is more dogma than science.
Citing economic theory that has been discredited as evidence that economics is not a science makes about as much sense as citing Ptolemy's Geocentric model as evidence that astronomy isn't a science.
Marx's contributions to sociology are definitely relevant today, even if they're not in vogue. Even if they're wrong. This is human behavior we're talking about, and people have memories that they act upon.
And if you ask biblical literalists, they'll tell you that there was no big bang but the world was instead created in six days. There are always some people with counterfactual beliefs.
Most (all?) bad economic policies come from denial of economics 101. For example, fixed currency exchange rates. And, of course, wage and price controls.
No, economic policies come from observation that policies are sociological. Economics tells us what is, not what is desirable. Policies are applied economics, intended to distribute value in unnatural but desirable ways. Price controls and other "bad" economic policies are akin to a rocket ship's gravity controls that generate huge amounts of entropy to lift a metal box off the ground: They sacrifice some measure of global optimality in exchange for local improvements.
That's a bit of a silly comparison. 'Economics 101' is not a hard-and-fast set of physical rules; if it were, we'd probably be doing a much better job of managing it!
I said nothing about ignoring economics 101. I'm talking about application of principles in moderation, accounting for nuance, and it's again been framed as an extreme absolute.
That said, as other commenters have pointed it, it is a little rich comparing economics to physics
And economics often operates under the assumption that all actors act rationally and with perfect and complete information, which of course we know is not true.
Essentially zero actual economists assert or believe that actual humans in actual economies are, or behave like, homo economicus. Essentially all are aware that it is a limited model, which attempts to approach certain important features of reality, but cannot always do so due to limits on information, comprehension, and subjective values. Meteorology is still a valid field of science even if its models are limited and incomplete. Likewise with economics.
"Economists think homo economicus is literally true" is a ludicrous strawman.
> we're dealing with an economic system that isn't working.
Can you explain this statement further? North Korea and Venezuela's economic systems aren't working. America and most of Europe simply don't allow everyone to consume as much as they would prefer to consume.
It sounds like you mean "isn't working" in the sense of "an iPhone 5 isn't working as well as an iPhone 7", not "my car isn't working so I can't get to work."
I would say "isn't working" in the sense that the vast majority are struggling to achieve or retain financial security, while a tiny minority have concentrated most of the weath for themselves. Also, the trend continues to concentrate wealth further, making it ever more difficult for the majority.
This is a recurring cycle, which has happened many times throughout history. Pretty much every time it ends with the elites killed, their wealth stolen, civilization collapsed or set back significantly, and a new cycle begins. I don't understand why the elites never see this coming, or take adequate steps to prevent it. All they have to do is be somewhat less greedy.
Are you implying that people have had to struggle less to achieve or retain financial security in the past? During what time period and in what country? Can you share some specific data substantiating the claim?
Average wealth has increased in America over the last 50 years, and real family income has been rising overall since the 1950s. Wealth concentration today is lower than it was in the 1930s. Poverty has fallen since the 1960s. I excerpted these facts from (1). While it is also true that income and wealth inequality has been rising during this time as well, the fact of the rich being well off doesn't necessarily hurt the non-rich, especially if both groups are becoming richer over time, which the data shows is happening in the US.
People are becoming better off over time. Why is our economic system failing us?
Note as well that the average person today has a better quality of life than medieval kings did. Near the official government poverty level, most Americans live quite comfortably (2), and have amenities such as housing, air conditioning, cable TV, mobile phones, etc.
> government surveys show that most of the persons whom the government defines as “in poverty” are not poor in any ordinary sense of the term. The overwhelming majority of the poor have air conditioning, cable TV, and a host of other modern amenities. They are well housed, have an adequate and reasonably steady supply of food, and have met their other basic needs, including medical care. (2)
Technical progress has brought about any of the perceived benefits you mention; the economic system has only caused those benefits to be disproportionately applied. While the median quality of life has improved, the extremes continue to widen making that metric less and less relevant. The "average person" you talk about has become a tiny minority.
Your comparison of wealth concentration to the 1930s is also disingenuous: wealth concentration spiked massively toward the end of the 1920s, it was far lower than now before and after that. That particular point in history isn't a particularly ambitious bar to set.
Though if you're linking heritage.org while keeping a straight face, I fear this may fall on deaf ears...
>Note as well that the average person today has a better quality of life than medieval kings did.
Shut up poor people, you have sanitation and refrigeration!
When people who make arguments like this are dragged from their beds kicking and screaming they will only have their own hubris to blame.
Edit: Those who down vote forget that we once had an elite ruling class in this country.
"what country before ever existed a century & half without a rebellion? & what country can preserve it’s liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance? let them take arms. the remedy is to set them right as to facts, pardon & pacify them. what signify a few lives lost in a century or two? the tree of liberty must be refreshed from time to time with the blood of patriots & tyrants. it is it’s natural manure."
the fact of the rich being well off doesn't necessarily hurt the non-rich
That's debatable. Human beings have a pretty significant natural tendency to look at the relative well-being rather than their absolute well-being. It makes sense, given that for any social animal, relative well-being aka ranking in the group hierarchy, is essential.
Some people are more affected by this and other less, but even all else equal, increased inequality can reduce people's quality of life.
Add to that the effect of mass media which allows an easy comparison to some of the most wealthy and powerful people in society, and you have a recipe for widespread unhappiness.
>>Average wealth has increased in America over the last 50 years
Average wealth doesn't matter. Relative wealth does. The reason is simple: wealth is a proxy for political power.
Let's say Bob had 10 dubloons yesterday and Alex had 20, and today Bob has 20 and Alex has 100. Sure, Bob is twice as wealthy as he was, but Alex is five times as wealthy and also five times wealthier than Bob (as opposed to twice).
Now replace "wealth" in the above paragraph with "power" and you'll see the issue.
Wealth has nothing to do with gold coins or green pieces of paper.
Wealth is about the total amount and quality of goods and services you consume.
Your house is of much higher quality than the houses of the 1950s. Just because the mansions are even bigger and better, This doesn't take away the quality of life improvement of you owning a better house or car or your ability to be cured of diseases that were incurable in 1950.
The apartment I'm living in now is in a renovated factory which was built in the 30's. Very solid brick and concrete construction. There's a new apartment building not far from me; they built a two-story concrete structure with a slab on top, and then put a stick-built four-story building on top of that. Wood stud and foam exterior walls, and metal studs and drywall inside. Looks like a firetrap, and the noise from other apartments must be awful.
Before I lived here I was in a single-family house, also built in the 30's, also very sturdy. I've seen other houses being built nearby, McMansion style. They look nice (new, anyway) but they use the same shoddy materials and construction techniques.
Prior to that, I lived in a new condo. I bought it while it was still under construction. (Big mistake.) The builder neglected a few details, like flashing on all of the windows. When it rained, water poured in around my window casings. People on the top floor had their whole ceilings cave in. I managed to get out of there, but a year or two later after the lawsuits the entire brick exterior had to be ripped down to fix the windows, then put back up.
So I disagree that today's houses are "much higher quality" than the houses of the 1950s. An older house, with modern upgrades, is more likely to be high quality than a new house with the same features.
That's all besides the point, because without wealth, without those gold coins and green pieces of paper, you can't afford the nice house, or better car, or the healthcare. Without wealth (in all senses) you don't have financial security, and without financial security you're forced to make decisions about how you use your limited resources. You buy lower-quality goods, you skimp on maintenance, you don't upgrade things, you hold off on preventative care until you need emergency care. Your quality of life is lower, despite having (potential) access to much better things than you might have had in the past.
And medieval peasants were orders of magnitude better off than people living in the stone-age. You can always find comparisons showing anything, the question is how relevant they are.
In this case I'd argue your comparisons are apparently not relevant for a lot of people - or else, if everything is so wonderful, how do you explain trump?
Or alternatively, implement something to stop the "elites killed, their wealth stolen [etc]" bit.
Completely co-incidentally :), technology to monitor/influence large numbers of people seems to be happening, and research/development/manufacturing of automated weaponry for the er... "self defence" of said elites seems to be on the agenda.
Gee, that sounds like it'll end well doesn't it. :(
By "isn't working", I mean "is actively causing massive poverty despite enormous technical progress to the point where we should technically have the means and resources to provide everything everyone needs to be comfortable".
Not so. Tribal societies inherently function on everyone in the tribe working for the overall good rather than their individual gain. Socially, this is how we function by default - people will make sacrifices, extend loans, give gifts, and generally help out those close to them (family, friends, tribe members) without an expectation of something in return.
Yes, in small groups such as tribes. There is reciprocal altruism at play, where helping other members of the group can reasonably expected to be repaid in future, so it can be a win win.
In our modern world it is often going to be the case that you won't deal with the same people again, or the transaction is completed completely impersonally.
When I extend a loan to a friend, I do it because I value the relationship with that friend more than the timely receipt of payment. This is a selfish action on my part, is it not?
Really? In Northern Europe I would argue we have this working decently well. To point where we have a health care system and educational system which is both less expensive than some and more productive/effective at the same time.
What's notable is that Northern European economies have among the freest, most "market capitalist" economies on Earth. There's a substantial amount of tax-and-redistribute to them, but very little in the way of economic planning, or actual-socialist communalism. Mostly it's just a large welfare state.
Because it doesn't run counter to human nature. If I had a dollar for every time someone rolled out that painful, tired line... It's utterly baseless. Again, it comes down to oversimplification.
bjelkeman-again has a fair point re: northern Europe; some very good examples to the contrary.
This is what social norms are for. Slavery is for now still mostly frowned upon, and in some circles even racism is. Even though using either usually results in huge personnal gains for some.
Slavery is a great example to work with. It has been made so costly to own slaves that no one in the western world can or wants to do it. In most areas just the social of ramifications of attempting to acquire slaves will cause all your customers to leave and employers to fire you. Then if you somehow do get a few slaves law enforcement or military agencies will try to stop you. Since they generally enforce their monopoly on violence they will probably succeed at stopping you.
Only in the places most removed from these incentives do we see slavery. Look at North Korea, much of the population can be seen as slaves (The subsistence farmers for example). The costs of keeping the slaves can be thought of as the cost of running their propaganda machine, arming their military, controlling the border and the loss in relations with the rest of the world. As long the leaders fail to gain a sense of compassion then the only thing that matters to them is their slaves make more than they cost.
A more modern and relevant example would be the foreign workers from the indian subcontinent on most of the middle east construction sites building the sky scrapers or the next FIFA cup facilities. (withheld pay, life threatening living conditions, confiscated passports). These is modern slavery. Aided and abetted by the state.
You may also want to look at the few stories of "domestic workers" and "maid" abuse that make the headlines from time to time in your own country (works in any country with a free press).
As said in another comment, slavery is alive and well. It is only frowned upon.
"Nonsense" is an extreme overstatement, there are nuances to both arguments.
"This is economics 101" is exactly the problem: we're dealing with an economic system that isn't working. Questioning economics 101 is precisely what's needed, and I'd argue that while your arguments are sound, they've been treated as absolutes, which they're not.
A farmer needs to buy their tractor from a tractor manufacturer and fuel it from a fuel extractor/generator, but not everyone need be involved in this cycle and not every step need be specialised in a completely unary manner. Also, the emphasis on individual economic efficiency over efficiency of communal benefit is important: if a farmer can produce less - but sufficient - food, for less - but sufficient - material profit, while not producing negative impacts for others elsewhere in the economic system at large, that's a more "efficient" overall system.
The most important word in the excerpt you quoted is "most"