Economic vs. Political Processes, or Why More Students Should Major in Economics

Gernot Wagner, in The Washington Post:

Markets, in fact, work all too well. They are an aggregator of wishes and desires, however misguided they may be.

This is actually a more accurate description of democracy — especially the misguided wishes bit. There is little, if anything aggregate about the market process. It is the process of individuals making exchanges with other individuals, each individually trying to meet their individual wants and individual needs.

The first thing I learned in undergrad macro is that all economics is micro. GDP and other indicators try to sum up the results of that process. But it all happens at the individual level.

Every customer at a grocery store gets an individually customized bundle of goods. Usually, no two are the same. But in a democracy, there are usually only two bundles of policy stances to choose from. And almost nobody agrees with the entire contents of either of the bundles. Nobody gets what they want. The successful politician picks his positions based on aggregate opinion, and ignores individual opinion.

But I quibble. The point of Wagner’s piece is to steer young people towards studying economics, and he makes a good case. He also offers some great advice, though it does contradict most of the policy prescriptions he puts forth:

Economists ought to be more humble in what we know and how we teach it.

Precisely. Humility is at the core of the economic way of thinking, and should form the basis of any humane political philosophy. It’s OK to admit that it’s impossible to consciously push an economy in a given direction without unintended consequences. And it’s not OK to tell other people you know what’s best for them.

(via Russ Roberts)