Why does an economy exist

purch

dtsazza wrote: »

academic-level discussion of economics

Wrong forum.

CLAPTON wrote: »

a serious discussion

Ditto

CLAPTON

Generali wrote: »

Prices act as a pretty good proxy for utility if you believe in Utility Theory which I don't.

I guess at the micro economic level our choices of how we earn and spend our money maybe very well to good guides to our own values of our welfare (which may equate to 'utility').
However at the macro economic level, economics does not provide a good proxy for non monetary advantages or disadvantages of the collective decisions.

Generali

CLAPTON wrote: »

I guess at the micro economic level our choices of how we earn and spend our money maybe very well to good guides to our own values of our welfare (which may equate to 'utility').
However at the macro economic level, economics does not provide a good proxy for non monetary advantages or disadvantages of the collective decisions.

The problem is that we start with the idea that people are perfectly rational and will spend their money in such a way as to maximise their utility at all times.

Anyone who has been in a pub at 10pm on a Friday can tell you that is rubbish.

If the initial premise is rubbish, the theory that flows from it is rubbish.

However, economists have finally got their heads around the idea that this is rubbish. They just don't (yet) know what to do about it. Economics is in about the same place as physics was 4,000 years ago. We'll get better at it though.

antrobus

CLAPTON wrote: »

it is possible that a slave or warrior economy produces less goods and services that a economy comprising free people.

that is, the economy of comparative advantage is sacrificed so that the few do very well and the many do very badly.

it is doubtful whether your view of comparative advantage was the driving force in the USSR.

Bit of a straw man argument really. It is not my view that comparative advantage was the "driving force in the USSR", and I have not said anything at all that even suggests that I hold that view.

All you are doing is pointing out that governments can do stupid things. That doesn't change the fact that comparative advantage exists, any more than the existence of aeroplanes changes the fact that there is a law of gravity.

CLAPTON

antrobus wrote: »

Bit of a straw man argument really. It is not my view that comparative advantage was the "driving force in the USSR", and I have not said anything at all that even suggests that I hold that view.

All you are doing is pointing out that governments can do stupid things. That doesn't change the fact that comparative advantage exists, any more than the existence of aeroplanes changes the fact that there is a law of gravity.

No point debating a straw man

dtsazza

CLAPTON wrote: »

If it were a serious discussion then we would clearly need a decent definition of 'economy'. In the sub thread we would need a clear definition of 'competitive advantage' too.
Too wide a definition then it all becomes a bit meaningless, too narrow it reduces to how many angels can dance on the end of a needle.

True. I think my first post covers similar ground, in that I don't think "the economy" actually refers to a specific real-life thing, it's just a way of categorising a bunch of observations.

It is certainly amusing to note your comments on the idea of 'utility' and contrast that with the typical economists total devotion to GDP (i.e the monetary view only).
So any discussion of relative merit of say house building, immigration etc is strictly confined to the monetary value of the matter and economists rigorously exclude any discussion of 'utility'.

Yes - I completely agree. If you use GDP as your sole metric for policies, then you'll act in a way that maximises GDP. And since it's only a proxy of what you really want to maximise, you'll inevitably make some changes that increase GDP but decrease wealth/happiness/utility/fairness/whatever it is you're really after.