What Is Economics, Anyway?

What Is Economics, Anyway?

There are some theories I've never understood. They always leave me wondering whether the problem is that I'm not smart enough, I'm too ignorant, or the theory is a lot of hooey. For the last couple of years I've been trying to read up on economics, so as to discharge my duty as a voting citizen. I'm still pretty lost.

My husband read me aloud a comment the other day posing this question: If astrology developed into astronomy, and alchemy developed into chemistry, what will economics develop into? I often feel that the economic theory I'm reading about is like phrenology: full of elegant abstract constructs and arcane jargon, but nothing at all to do with the real world.

I've mentioned here before how baffling I find "MMT" or "Modern Monetary Theory," which I run into in the blogosphere with some regularity. One of its clearest and yet most bizarre claims is that, by definition, the amount of possible national private savings must be exactly equal to the national deficit; one cannot exist without the other. Today Zero Hedge is running an article addressing some aspects of MMT and arguing that aggregate constructs like "GDP" and even "the economy" are meaningless. I'm a willing audience, since I've never been able to make much sense of them, either.

The only text on economics that's ever made sense to me is Thomas Sowell's "Basic Economics," which makes the simple claim that the economy is hundreds of millions of people setting prices with each other as a means of allocating scarce resources that have alternative uses. By definition, this is not a system amenable to central control. It works as well as it does only because the decisions are delegated as much as possible to the entire population. The theory is that individuals, being closer to the transactions, make better decisions on average than any central planner could do. The system is inefficient and wasteful and full of shocking results, but still better than a centrally planned economy.

Whether or not such a thing could be established theoretically, I'm persuaded that it's true empirically. A central planner may occasionally make a "better" choice about how to use resources than the vast unwashed public does, but by and large the huge, unruly mass of free citizens wins the contest, as demonstrated by the fact that countries with centrally planned economies are poorer than free ones. The free ones are often also more unequal in the distribution of their wealth, of course, but since the poorest citizens in a free economy tend to be rather well of in comparison with the moderately prosperous ones in an economic tyranny, the trade-off suits this voter. That this viewpoint also suits my libertarian views is, I'm sure, merely a coincidence.

All this is apropos of the deficit negotiations in Congress. I'm strongly in favor of reducing the deficit by means of spending cuts, but I'm trying to understand whether adding tax increases is merely an unwelcome necessity, or instead a horrible mistake. Politically, I'm sure tax increases will be necessary. The question is whether they'll do more harm than good: good, because they'll theoretically speed up the process of reducing the deficit (something I scarcely believe, since it's more likely they'll simply be spent again), and harm, because they'll divert resources from the private sphere into the public one, always a net economic loser in my book.

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