Dec 11, 2010

Some Thoughts About Economics

Economics is about people.
Economics is a practical discipline.
Economics is not neutral.
Economics, emotions and equality.


Economics is about people.
Nothing to do with phisics, whose laws are given by the nature. Nothing to do with mathematics, whose theorems are truth. No actual experiments, even if someone is trying...
Nothing in economics is given, but everything depends on how people actually behave, on what they think, and that changes in space and time. Economic models are true as a mathematical truth, but that does not mean that they work in practice. Economists can not say "let's control every aspect of people life, including their beliefs, change the money supply and see what happens..."

Economics is a practical discipline.
As I see it, the ultimate task of economics is getting material welfare. Obviously that's related to all other aspects of life. But economics is mainly concerned on material aspects. Knowing "economics" means knowing the "rules of the house", that is knowing how to manage things in order to get everything you need. In this sense I see economics as quite close to enginering, which is not a science but a discipline. I would say that to some extent economics stands to social sciences as enginering stands to natural sciences.

Economics is not neutral.
Economics is also strictly related to "human" aspects of life. Managing the material aspects of life means making choices that may affect you and the others, not only in material terms.
If I decide to do a certain job in my life, then my mind is shaped and my deep essence is probably going to be affected by this decision. Thus it is not just a matter of how much value I get from working vs how much I get from other jobs or from leisure (opportunity cost). It's also a matter of how I value changing myself in that direction; how I value that now and how I will value that in the future, when I might judge things differently.
If I need a job to be done I can do it myself or I can pay someone else. If I do it myself, I subtract time to other activities. If I pay a guy, he substracts times to something else he could do. I might be better than him at everything, but I am so much better in doing my own job that it is convenient for me to hire him. He could be better at doing something else other than that job, but what I gain in not doing it more than compensate him for doing it, thus I can pay him more than he would get by doing something else. That's the comparative advantage. And in material terms we are both better off in this exchange: I should hire the guy and spend my time doing my stuff.
But what if then I start feeling that I am the boss, that I am very superior because I am better than him at everything, in particular I am so much better in doing my stuff that I can pay him more than he would get by doing anything else?
What if that guy is so improductive that he would barely survive if I didn't pay him? Could I use that as a threat and eventually pay him a very low wage? Out of the contract he is in big trouble, and despite my loss being greater than his, I can comfortably live: I have more bargaining power.
As long as the guy is strictly interested in his immediate payoff he will accept what I pay, given that the wage is greater than its outside option: I have the power.

Economics, emotions and equality.
If we admit a role for emotions they can have a strategic role. If the guy has a strong sentiment of justice, he would rather starve than accept my proposal. And this must not be rational if it has to be credible!
In this situation, if I am interested in my immediate payoff I can not pay him less than what he believes is right: he has the power. How rational can be being motivated by irrational emotions!
But let's try a step further. Suppose you were born without knowing what type of person you are. Your general task as a human being is to survive. Then wouldn't it be better to develop a morality, a sense of justice? That could save you in case you are the guy, while it would not make much of a harm in case you are not. And there's even more. Assume people have such a morality, which is probably going to be set at the point where how you were born is indifferent, then not only the guy wants the right wage, but also I want to pay it, because I feel bad if don't.

1 comment:

  1. I suggest the work of professor Robert H. Frank on this kind of topics.
    http://www.robert-h-frank.com/

    ReplyDelete

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