“Economics is the study of the use of scarce resources which have alternative uses.” ~ English economist Lionel Robbins
The notion that scarcity is the rightful locus of economics simply isn’t true. Hominids have been surviving for over 7 million years. Sure, survival was a struggle then; so it remains for most today.
The salient socioeconomic issue since antiquity has not been scarcity, but the distribution of surplus. After industrialization, the most pressing economic problem has been unsustainable environmental degradation; a dangerous dilemma which has garnered serious scrutiny only recently.
Economists have been remiss in their examinations, operating from the blithe religious assumption that Nature exists for human exploitation. The discipline of economics as exercised has been positively destructive to the weal of the world. Properly, economics should be the study of the quality of material life for all, with a close watch on sustainability. It is a false economics which leads to extinction.
Economics is no science in the usual sense. It is instead an exercise in biased, interpretive storytelling: imaginative narratives about material exchanges, blending psychological and sociological dynamics, and the belief systems behind the stories. In modern economics, talismans are commonly cast through ever-inept mathematical models: a voodoo discipline called econometrics.
“The laws of economics are to be compared with the laws of the tides, rather than with the simple and exact law of gravitation. For the actions of men are so various and uncertain, that the best statement of tendencies, which we can make in a science of human conduct, must needs be inexact and faulty.” ~ English economist Alfred Marshall
Conventional economics flows from a singular myth: the law of supply and demand, which forms a pricing mechanism that is erroneously assumed to efficiently allocate resources. These falsities form the foundation upon which all theories of market-oriented economic dynamics are formed. Faith in fables will be the death of us all.
“I think we’re miserable partly because we have only one god, and that’s economics.” ~ American psychologist James Hillman
The Dismal Science
“A man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under this Sun.” ~ Thomas Carlyle
Economics was called the “dismal science” by Scottish philosopher Thomas Carlyle in the mid-19th century. Carlyle held to Calvinist values even though he had lost his Christian faith. Carlyle’s pejorative referred to:
“finding the secret of this Universe in ‘supply and demand,’ and reducing the duty of human governors to that of letting men alone.”
The phrase “dismal science” first appeared in Carlyle’s 1849 tract entitled Occasional Discourse on the Negro Question, arguing for the reintroduction of slavery as a way to regulate the labor market in the West Indies. Slavery had been outlawed throughout the British Empire in the early 1800s, even as it continued unchecked in practice.
The Negro Question went beyond black people to an overarching theme: the freedom of men, and particularly its impossibility. Infant mortality among the working class in England at the time was around 50%; the same as for Southern slaves in America. People lived on the verge of starvation. Famine severely struck Ireland at the time from the potato blight. Albeit classified as free, poor white British folk lived the lives of slaves. While the British ruling class turned a blind eye to poverty at home, they condemned slavery as part of a political trend in Europe.
“Why, then, should not groups of superior men be able to justify their enslavement, exploitation, or even genocide of inferior human groups on factual and moral grounds akin to those we now rely on to justify our treatment of the animals we harness as beasts of burden, that we butcher for food and clothing, or that we destroy as disease-bearing pests or as dangerous predators?” ~ American philosopher and educator Mortimer Adler
An economy or economic system is a characterization of how any economy works. Economic systems address 3 issues: what is to be produced, and in what quantities; how production is to occur; and, the how production is to be distributed.
There are 3 main economic systems: traditional, command, and market. A traditional economy relies upon custom or tradition to address production and distribution issues. Traditional economies typically produce to survive, with only modest surplus, and so minimal trade. There are few traditional economies today.
In a command economy, the government decides production and distribution. Command economies were typical in the ancient large-scale civilizations, including Egypt and China. The inept 20th-century “communist” command economy experiment illustrates that the idea of societal progress is a fable.
A market economy relies upon individual initiative to produce and distribute. Market economies are characterized by inefficiencies, overproduction, inequality, corruption, and pollution. As market economies are employed worldwide in the present era, the fruits of civilization owe largely to this economic disorder.
Scales of Economics
Microeconomics is the study of individual decision-making behaviors by households and firms (businesses) which affect the supply, demand, and the prices of goods and services.
Macroeconomics is the study of large-scale economic dynamics of a region or nation-state. Measures in this sphere include gross production, income, employment, and overall price level.
The best-known macroeconomic figure is GDP (gross domestic product), which is a monetary estimate of the value of all final goods and services produced in an economy for some period (usually yearly or quarterly). GDP deliberately leaves out business-to-business transactions involved in production stages, as well as ignoring sales of used goods. Hence, GDP is a laughably rough approximation of economic activity. (China does not even pretend to reliably measure its GDP; other countries are merely more pretentious.)
“GDP is increasingly a poor measure of prosperity. It is not even a reliable gauge of production.” ~ The Economist magazine in 2016
GDP does not consider socioeconomic inequalities or quality of life, notably environmental and social conditions. GDP therefore says nothing about how well people get by.
The figure below shows relative national GDP per capita in 2017; lighter is lower, darker higher.
Though some of the same concepts traverse both realms, there is an unbridgeable gap between micro- and macroeconomics. The focus of microeconomics is ultimately the decisions of individuals at ground level, whereas macroeconomics is a bird’s-eye view of the aggregate. Each has its own fictions.
The term political economy originated in moral philosophy as the unified study of economics and politics. Its meaning evolved in the 18th century into the study of the economies of states (polities) before being supplanted by economics at the end of the 19th century, owing to Alfred Marshall’s influential 1890 textbook on the subject.
Politics remain integral to how markets work, as governments set the stage upon which markets perform. Economics is a sociopolitical dynamic.
The old adage – if you want to know what is going on, follow the money – applies equally to economics and politics. Corruption is, after all, a political dynamic fueled by economic interest.
“Use mathematics as shorthand language, rather than as an engine of inquiry.” ~ Alfred Marshall in 1890
Econometrics concerns mathematically modeling economic activities. Econometrics marries economic theory with math and statistics, providing the means for quantitative analyses. This number-crunching allows theories to be tested, forecasts to be made, and policies to be evaluated.
In its abuse of statistics, econometrics falls into the same pit of fiction as other sciences: mistaking correlation with causality. Statistics can never prove one event causes another, but it is precisely this nonexistent power which econometricians implicitly rely upon in their models.
“The only function of economic forecasting is to make astrology look respectable.” ~ John Kenneth Galbraith
Econometrics rose to the fore in the last half of the 20th century, replacing hand-waving theorizing with statistics-based theorizing that wasn’t really better; the herding of numbers just seemed more precise. Beyond statistics abuse, the assumed rationality of humans by economists is as much myth as practice.
People may be fairly predictable, but rational is as often as not an undeserved compliment. Behaviors are commonly motivated by desire or fear, with cunning to achieve desires and wiles to avoid objects of fear. In contrast, rationality, in the form of habitual good sense and sound judgment, is exceptional.
Econometricians tell me that rare events such as panics cannot be dealt with by the normal techniques of regression but have to be introduced exogenously as “dummy variables.” ~ American economic historian Charles Kindleberger
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“Economics must become fundamentally empirical, in contrast to the faux empiricism of econometrics. By this I mean basing itself on economic and financial data first and foremost, and by respecting economic history.” ~ Australian economist Steve Keen