Economics

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'''Economics''' is the [[social science]] that deals with the production and allocation of scarce resources.
 
'''Economics''' is the [[social science]] that deals with the production and allocation of scarce resources.
  
Many different strains of the science exist; the two primary fields of study are microeconomics (the study of small things such as how firms and households operate), and macroeconomics (which studies things such as inflation, monetary policy, and international trade). Furthermore, there are several current schools of thought in economics, each with their own sense of what the result of actions like [[tax|taxation]] and [[government]] intervention have on markets, and as a result what policies create healthy economies.  
+
Many different strains of the science exist; the two primary fields of study are microeconomics (the study of small things such as how firms and households operate), and macroeconomics (which studies things such as inflation, monetary policy, and international trade). Furthermore, there are several current schools of thought in economics, each with their own sense of what the result of actions like [[tax]]ation and [[government]] intervention have on markets, and as a result what policies create healthy economies.  
  
 
Until recently, classical economics was the main school of thought in academia. [[Adam Smith]] is largely regarded as the founder of economics as a science in its own right. The phrase "the invisible hand" was his, and he used it to show that markets, if left alone, can allocate scarce resources efficiently through price mechanisms. The 20th century saw the rise of [[John Maynard Keynes|Keynesian]], demand-based economics and [[supply-side economics]] in opposition to each other.
 
Until recently, classical economics was the main school of thought in academia. [[Adam Smith]] is largely regarded as the founder of economics as a science in its own right. The phrase "the invisible hand" was his, and he used it to show that markets, if left alone, can allocate scarce resources efficiently through price mechanisms. The 20th century saw the rise of [[John Maynard Keynes|Keynesian]], demand-based economics and [[supply-side economics]] in opposition to each other.
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There are several heterodox (non-mainstream) schools of thought in economics, ranging from the libertarian Austrian school to World Systems Analysis, which is heavily influenced by [[Marx|Marx's]] historical materialism.
 
There are several heterodox (non-mainstream) schools of thought in economics, ranging from the libertarian Austrian school to World Systems Analysis, which is heavily influenced by [[Marx|Marx's]] historical materialism.
  
None of the mainstream schools of thought predicted the [[Banking crisis | global financial crisis]] triggered by the problems in the US housing market which rather brings into question the quality of the science.  
+
None of the mainstream schools of thought predicted the [[Banking crisis|global financial crisis]] triggered by the problems in the US housing market which rather brings into question the quality of the science.  
  
 
==Fundamentals of economics==
 
==Fundamentals of economics==
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A large and diverse body of [[crank]] economic ideas exists, ranging from people who still adhere to quaint and archaic theories of the past (see below) to those ideas which still enjoy widespread popularity today, such as [[name it and claim it]] (aka God will make you rich), [[pyramid scheme]]s, and esoteric conspiracy theories about the [[Federal Reserve]].  The [[Liberty Dollar]] is a cranky [[libertarian]] scheme to set up a competing private-minted currency.
 
A large and diverse body of [[crank]] economic ideas exists, ranging from people who still adhere to quaint and archaic theories of the past (see below) to those ideas which still enjoy widespread popularity today, such as [[name it and claim it]] (aka God will make you rich), [[pyramid scheme]]s, and esoteric conspiracy theories about the [[Federal Reserve]].  The [[Liberty Dollar]] is a cranky [[libertarian]] scheme to set up a competing private-minted currency.
  
Other notions such as the [[Laffer Curve]] are valid economic theories, based on a vague curve fitting exercise with a broken data set, but are misapplied by some who don't have a full understanding of these theories. Often solid economic thought is twisted to fit a political agenda; [[tax|taxation]] and government intervention are two common targets.
+
Other notions such as the [[Laffer Curve]] are valid economic theories, based on a vague curve fitting exercise with a broken data set, but are misapplied by some who don't have a full understanding of these theories. Often solid economic thought is twisted to fit a political agenda; [[tax]]ation and government intervention are two common targets.
  
 
===Archaic ideas that still get brought up occasionally===
 
===Archaic ideas that still get brought up occasionally===
*Laissez-faire -- almost no economists will still hold to this, if only because of the understanding that the government needs to deal with externalities. Moreover, a [[free market]] depends on perfect information, and people is ignunt, as any person who walks around a given city for a few hours can discern.
+
*Laissez-faire—almost no economists will still hold to this, if only because of the understanding that the government needs to deal with externalities. Moreover, a [[free market]] depends on perfect information, and people is ignunt, as any person who walks around a given city for a few hours can discern.
  
 
*[[Georgism]] -- This particular belief has been demolished in the economics literature, yet mutated forms constantly arise in the era of the Internet.  
 
*[[Georgism]] -- This particular belief has been demolished in the economics literature, yet mutated forms constantly arise in the era of the Internet.  
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*[[Cyclical theory]] -- trying to predict how the stock market will go in the future by the Kondratiev Wave or Elliott Wave
 
*[[Cyclical theory]] -- trying to predict how the stock market will go in the future by the Kondratiev Wave or Elliott Wave
  
*[[Lyndon LaRouche]]'s set of ideas. They involve quite a lot of protectionism (i.e, 19th century economic thought)<ref>http://www.larouchepub.com/pr/site_packages/2002/july_lar_breakout/2927memo_to_dems.html</ref>, and a harsh attack on globalism, the IMF, or anything else developed in your lifetime. He also has a rather hilarious hatred of both corporate interests and international institutions while supporting constant government intervention.
+
*[[Lyndon LaRouche]]'s set of ideas. They involve quite a lot of protectionism (i.e., 19th century economic thought)<ref>http://www.larouchepub.com/pr/site_packages/2002/july_lar_breakout/2927memo_to_dems.html</ref>, and a harsh attack on globalism, the IMF, or anything else developed in your lifetime. He also has a rather hilarious hatred of both corporate interests and international institutions while supporting constant government intervention.
  
 
==See also==
 
==See also==

Revision as of 01:14, 19 March 2010

Economics is the social science that deals with the production and allocation of scarce resources.

Many different strains of the science exist; the two primary fields of study are microeconomics (the study of small things such as how firms and households operate), and macroeconomics (which studies things such as inflation, monetary policy, and international trade). Furthermore, there are several current schools of thought in economics, each with their own sense of what the result of actions like taxation and government intervention have on markets, and as a result what policies create healthy economies.

Until recently, classical economics was the main school of thought in academia. Adam Smith is largely regarded as the founder of economics as a science in its own right. The phrase "the invisible hand" was his, and he used it to show that markets, if left alone, can allocate scarce resources efficiently through price mechanisms. The 20th century saw the rise of Keynesian, demand-based economics and supply-side economics in opposition to each other.

There are several heterodox (non-mainstream) schools of thought in economics, ranging from the libertarian Austrian school to World Systems Analysis, which is heavily influenced by Marx's historical materialism.

None of the mainstream schools of thought predicted the global financial crisis triggered by the problems in the US housing market which rather brings into question the quality of the science.

Contents

Fundamentals of economics

What fundamental truths there are in economics varies between ideologies and individuals. Here are ten basic principles taken from the top-selling college economics textbook, Gregory Mankiw's Principles of Economics[1]

  1. People face tradeoffs
  2. The cost of something is what you give up to get it
  3. Rational people think at the margin
  4. People respond to incentives
  5. Trade can make everyone better off
  6. Markets are usually a good way to organize economic activity
  7. Governments can sometimes improve market outcomes
  8. A country's standard of living depends on its ability to produce goods and services
  9. Prices rise when the government prints too much money
  10. Society faces a short-run tradeoff between inflation and unemployment

These touch on most of the major concepts and problems addressed in economics- the scarcity of capital, resources, and labor, the concept of absolute and comparative advantage that leads to trade, the use of the market as the basis of exchange, the disparity between rich and poor nations, inflation, and government intervention.

Some of these assumptions are disputed by contemporary fields, such as behavioral economics, which believe that assuming perfect information and rational actors produces distorted conclusions. There is also an ongoing debate between branches that believe that the government can and/or should intervene to correct market failure (primarily Keynesian and neo-Keynesian), and those that believe that markets should be largely left to their own devices, such as monetarism and the Chicago school's Real Business Cycle Theory, which rose to prominence through Milton Friedman.

Pseudo-economics

A large and diverse body of crank economic ideas exists, ranging from people who still adhere to quaint and archaic theories of the past (see below) to those ideas which still enjoy widespread popularity today, such as name it and claim it (aka God will make you rich), pyramid schemes, and esoteric conspiracy theories about the Federal Reserve. The Liberty Dollar is a cranky libertarian scheme to set up a competing private-minted currency.

Other notions such as the Laffer Curve are valid economic theories, based on a vague curve fitting exercise with a broken data set, but are misapplied by some who don't have a full understanding of these theories. Often solid economic thought is twisted to fit a political agenda; taxation and government intervention are two common targets.

Archaic ideas that still get brought up occasionally

  • Laissez-faire—almost no economists will still hold to this, if only because of the understanding that the government needs to deal with externalities. Moreover, a free market depends on perfect information, and people is ignunt, as any person who walks around a given city for a few hours can discern.
  • Georgism -- This particular belief has been demolished in the economics literature, yet mutated forms constantly arise in the era of the Internet.
  • Marxism -- Although Karl Marx's economic theories are clearly in the dustbin of history, that doesn't stop some communist kooks from clinging to them, out of fear of being guilty of "false consciousness" (or, in a communist state, fear of being executed).
  • Distributism -- a failed attempt at forming a new economic ideology out of a 19th century Papal encyclical; comes out something similar to the more recent "back to the land" sentiments.
  • Supply side economics -- not completely archaic in some very limited circumstance, but in any state that already has less than 70% top marginal tax rates, the proponents should be shown the door pretty quickly.
  • Social Credit -- C.H. Douglas unveils the mysteries of consumer power using complicated mathematical formulas, like consumers exercising their power at the marketplace will direct the behavior of producers. Ya think?
  • Galambosianism -- intellectual property rights taken to its absolutist, and absurd, conclusion.
  • The Townsend Plan -- nobody seriously advocates this today but it is occasionally mentioned as an example of the economic woo schemes that flourished during the Great Depression.
  • Cyclical theory -- trying to predict how the stock market will go in the future by the Kondratiev Wave or Elliott Wave
  • Lyndon LaRouche's set of ideas. They involve quite a lot of protectionism (i.e., 19th century economic thought)[2], and a harsh attack on globalism, the IMF, or anything else developed in your lifetime. He also has a rather hilarious hatred of both corporate interests and international institutions while supporting constant government intervention.

See also

Footnotes

  1. http://en.wikiversity.org/wiki/10_Principles_of_Economics 10 Principles of Economics
  2. http://www.larouchepub.com/pr/site_packages/2002/july_lar_breakout/2927memo_to_dems.html
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