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It's interesting because, as a layman, this sounds a lot like what Keynes said: aggregate demand is the most relevant factor. Hell, using those ideas pulled us
by jwdunne 11y ago
It's interesting because, as a layman, this sounds a lot like what Keynes said: aggregate demand is the most relevant factor. Hell, using those ideas pulled us out of the great depression.
Then there's the Friedman supply-side argument that only aggregate supply matters. The demand curve is effectively vertical. Arguably, this seemed to have heaved Britain out of stagflation thanks to Thatcher. We now see raging inequality that these policies seem to promote.
Between these two theories of macroeconomics, it seems to mW that we swing between either extreme without considering a middle ground - both are important. Either extreme seems to have a long-term negative effect. When aggregate demand falls sharply in a recession, measures to rectify seems appropriate. This keeps people spending in a time where they typically wouldn't. When businesses struggle, due to a shock in supply, measures to ease this on that end too seem appropriate.
In a way, it seems a lot of economics is used with political bias. Certain all-or-nothing theories tend to be used as the means to an ideologue's ends within a democratic system.
- dnautics 11y agoWhat if the middle ground just gives you the worst of the both worlds. What if the idea of measuring the success of an economy via an aggregate quantity is flawed? It seems to me that optimizing for aggregate demand or aggregate supply will merely result in redistributing to politically connected individuals who are able to convince the authorities that their programme will improve that metric.
- jwdunne 11y agoIn fairness, if economics is the study of allocation of scarce resources, which is implicitly a study of human behaviour wrt a limited resource in individuals, slightly larger functional groups (families and firms) and then large populations as a whole, then surely we are within the realm of psychology and sociology. The thing is that psychology gives us ideas that shows how humans can be influenced individually (think foot in the door or an incredible offer that ain't really an incredible offer). Sociology gives us ideas of how humans can be influenced in groups that, in literal terms, will give away their freedom and rights with tears of happiness in their eyes to a charismatic speaker who says the right things in hard times. How does supply and demand fit in all of that when the assumption in the model is that we behave rationally? How does the work on habit formation fit into that? How does peer pressure? I smoke cigs. I pay for take out food and chocolate. Before I got a car, I'd get a cab to work even though I had a bus pass. Now I'm not holding myself up as a model of the actual man but that's the point: the homo economicus is like the description of someone's ideal of homo sapiens. Ideally, that's how we should make decisions about resources. In actuality, I think it's just far off the mark to cause what would be sound decisions to work out not so well. Economics to me is like a social science trying to be used as a hard science and in a position to be quite dangerous.