A year and a half ago or so I did a series debunking the purported "science" of economics. I'm going to revisit it, including some recycled material, but with updating to reflect some evolution of my thinking, and relevance to current events. Let's start with how economics is commonly taught to college freshmen.
I expect that many economists who might happen to read what follows would say that I present a caricature of the discipline. That may be so, or partly so, but unfortunately it’s a caricature that many people, including many influential people, think is reality. It strongly influences journalism, our political discourse, our jurisprudence, and our public policy, so it needs debunking.
Introductory economics textbook writers are fond of proposing what they call “simplifying assumptions.” For example, they invent cartoon worlds in which there are only two people with goods to exchange, or only two products for sale. They imagine how these worlds would work and then argue that these imaginings can be extrapolated to explain how the real world works. (Viz. Quiggin J. Economics in Two Lessons: Why markets work so well, and why they can fail so badly. Princeton, New Jersey: Princeton University Press; 2019.)
In the imaginary world of only two people, let’s say Alice and Bob, Alice raises chickens and Bob grows corn. So if they exchange chickens and corn, they’ll both end up feeling better off. That’s called a transaction, and so it would seem to follow that whenever a transaction happens, the world is a better place because now both parties are happier. Obviously, if some busybody comes along and stops Alice and Bob from doing all the trading they want to do, they won’t be as happy as they could be.
The endeavor from this point on is to inflate this into a claim about the real world of many people, many corporations, and innumerable products. A first order conclusion, without looking too deeply, would be that the way to the happiest possible world is to let everybody do whatever trading they want, of anything, with anybody. The posited “free market” economy, if left to its own devices, will turn out maximum prosperity, efficiency and utility -- a jargon word we’ll get to -- for all. Government just needs to leave it alone – an idea called laissez faire – French for “let do” – a phrase popularized in the 19th Century.*
Apart from a few ideologues – and they do exist – most economists today understand that this is not actually true. The textbook will acknowledge that in certain special situations, there can be “market failures” that require some patching up. But these are usually presented as exceptions. Because Economics 101 gets around to reality as an afterthought, the fantasyland has gotten stuck in the minds of many people, including politicians, the journalists who write down what politicians say and repeat it back to us as conventional wisdom, rich people who really like to hear it, and a large segment of the public who are exposed to the idea, as at least a good approximation of reality. Politicians are fond of saying “It’s economics 101!” It might be, but that doesn’t mean it’s true.We'll see why next time.
*This conclusion was a central premise of liberalism as the term was used back then, although liberalism doesn’t have quite the same meaning today. Nineteenth Century liberalism was more like what we today call libertarianism (although without the accompanying emphasis on social freedoms), and was partially resurrected as neoliberalism in the 1980s. The changing meaning of the word “liberal” creates much confusion.
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