Category: Economics

I have long held the belief that a reasonably educated person — regardless of his professional specialization or occupation — should be familiar with the basic principles of the natural sciences (physics, biology, etc.), the social sciences (psychology, economics, etc.), know how to do arithmetic, know something about law and history, philosophy, etc.

I confess that I was not “reasonably” educated when I graduated from engineering school. Other than what I was minimally required to learn — the basics of science, engineering and math — I knew hardly anything else. Today I would judge my 20-something year old self as a barely educated, mostly ignorant person. Fortunately for me, I am naturally thoughtful, curious and quite intelligent, which allowed me to overcome some of my deficiencies. I was doubly fortunate in being able to learn economics — first neoclassical and eventually Austrian. Now I consider myself a reasonably educated person. And getting more educated by the day. Continue reading “Don Boudreaux on Externalities”

This week in my online class “How the World Works – an Introduction,” I introduced a few basic economics concepts — starting with the easy to understand law of demand and supply. We call it a law but it is not the same sort of thing we call laws in the natural sciences. Social sciences are qualitatively different from the physical sciences like physics and zoology. Societies are not machines made of inert matter engineered by designers; societies are ecosystems of organisms that have minds which have volition and act purposefully to achieve their goals.

Social engineering — the deliberate transformation of an entire society according to some design — is doomed to failure because people are not inanimate objects that can be manipulated at will. The basic difficulty boils down to a lack of knowledge and the open-ended nature of the future. Nobody has the required knowledge of the present conditions of every person in society and the future state of the society. Continue reading “Hayek on the Impossibility of Designing Society”

Here’s a graduation speech that won’t tax your time and, without taxing your brain, will remind you of what is worth remembering. In 2007, Thomas J. Sargent, one of the two winners of the 2011 Nobel Memorial Prize in Economics, delivered a graduation speech to UC Berkeley (my alma mater) undergrads. Here’s the entire speech — just 355 words. Continue reading “Tom Sargent on a Few Lessons of Economics”

When people get to know that I am an economist, for instance on a flight, I often get asked about the economy or even the stock market. I just make up some stuff if the mood strikes me but sometimes I tell them that I don’t know. You tell me, I say.

As it happens, I am not interested in the economy per se. I am a serious student of economics but am only marginally interested in the economies of countries. What’s reported in the media regarding macroeconomic variables such as inflation, unemployment, GDP growth rates , etc., are to me mostly noise that can be profitably ignored. News is mostly noise anyway. It’s literally noise in the case of TV news but also figuratively speaking news is noise because the signal is hard to discern in the meaningless drivel that gets shoveled around. Continue reading “Don’t Ask me About the Economy”

Basic economics partitions goods into private goods and public goods, and property into private property and public property. Private goods are defined as those goods that are rival — one person’s consumption of the good  reduces the amount available for others to consume — and excludable — a person can be prevented from consuming the good. Thus a cookie is a private good. A cookie eaten reduces the stock of cookies, and cookies can be locked up.

In contrast to private goods, public goods are non-rival and non-excludable. The services of a lighthouse is an example of a public good because one person’s use of the lighthouse signal does not affect the use of the signal by others, and people cannot be prevented from seeing the lighthouse signal. Continue reading “Goods, Property and Externalities”