Econoclasm 101

I ' m going to do a series in which I explain why most of what you read in the paper, see on teevee, or hear politicians say about economics -- how the economy works, and why we should minimize taxes and government intervention -- is utter gibberish. Here is the first lesson.Introductory economics textbook writers are fond of proposing what they call “simplifying assumptions.” 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. To the more reali stic world of many people, many products, and many buyers and sellers they apply numerous other assumptions, without for the time being examining whether any of them are ever likely to be true. In the imaginary world of only two people, let ’s say Alice and Bob, Alice has something that Bob wants more than she does, let’s call it X, and Bob has something that Alice wants, call it Y, that is worth less to Bob than it is to Alice. So if they exchange X and Y, they’ll both end up feeling better off. That’s called a transaction, an d 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 endeavo...
Source: Stayin' Alive - Category: American Health Source Type: blogs