immortaleconomist

What is economics?
“Economics is what economists do”, reckoned Jacob Viner, a
leading 20th-century economist. For a more helpful definition
try “the study of how society uses its scarce resources” or, more
snappily, “the science of choices”. Without scarcity – of land,
labour, raw materials, capital, entrepreneurial spirit, time – there
would be no need to make choices about how to use those
things to greatest effect, and thus no need for economics. At its
best, economics helps people to make the right choices; at least,
it shows them the most efficient way to use scarce resources in
the process of achieving their goals.


Some critics say that what makes economics truly dismal is
that it reduces the whole of life to questions about money. It
does not. Economics is about how to maximise a person’s or a
society’s “welfare”, not merely their financial wealth. Welfare,
or “utility”, is economic jargon for happiness or satisfaction,
which even economists understand can come from many
things besides money



Moreover, when economists answer a question such as
“What should be the wage of a nurse?”, they are often misunderstood.
The economist will look at the demand for nurses
and the supply of people willing to be nurses. The market wage
produced by this analysis says little about how important the
work of nurses is. If individuals are highly motivated by helping
others, wages in the caring industry may be comparatively low,
as more people want to work as carers.




How can inflation be lowered and full
employment be created? Why is one country richer than
another? Not even the leading economic theories on such questions
can be tested in the thorough way that, say, a chemist
would test a theory about how one chemical will react with
another.




The belief that
letting market forces decide how to allocate scarce resources is
usually more efficient than getting government planners to do it
is one of the oldest in economics. The decisions people take in
the market drive an economy towards greater efficiency, thanks
to the combination of at least three common human desires: for
a bargain, to do better and to get richer. When Adam Smith, the
18th-century “father of economics”, said that the market
economy works as if an “invisible hand” guides the actions of
individuals to combine for the common good, this is what he
meant.



To lower unemployment, economists no longer enthuse about
using demand management as the main, best way to prevent a
downturn in the economic cycle. Instead, they are more likely to
try to encourage workers to become more employable by removing
regulations that discourage employers from hiring and
by urging, and even paying, people to increase their human
capital, particularly through education.


The aftermath of communism’s collapse has taught a second
lesson. Free markets do not work well in the absence of the rule
of law and good government. Exactly what the right role is for
government remains debatable. But at a minimum, there is a
need for clear, legally protected private property rights, helping
participants in markets to know that their trades are legally
watertight, which makes them more likely to trade. Democracy
is now seen as one of the foundations of successful economic
policy




political
freedom usually (if not always) goes hand-in-hand with economic
freedom with China being the exception where capitalist(private) economies are growing even though it is a non democratic country i.e it has lesser political freedom.


new growth theorists tried to identify the source of technological
progress, and explain why that rate often differs over time
and from one country to another. They argue that technological
progress and thus growth is faster in economies that are marketoriented,
open to international trade, and have democratic, but
not big-spending, government.



Economists
also face meaty intellectual challenges if they are to extend the
reach of market economics into areas of the economy where government
is still in control or playing a leading role, such as
health care, education, environmental protection and law enforcement.



Economists increasingly debate whether absolute poverty
should be regarded as quite different from relative poverty.
They point out that relative poverty can increase even when,
thanks to economic growth, absolute poverty is falling. Is an
increase in the number of people in relative poverty as a result
of rising income inequality worth worrying about if absolute
poverty is falling? So far, there is little consensus among
economists. There is more agreement that to stop inequality increasing
would require much greater government intervention
than reducing absolute poverty, and that such intervention
might reduce the rate of economic growth. Likewise, most
economists agree that the world’s poorest countries could get
richer by being more open to international trade, more democratic,
enforcing sensibly drafted laws, encouraging private
property and educating their people. However, there is
growing debate about the proper sequencing of the introduction
of different macro and micro policies during the process
of transition from bad to good policy. There is growing evidence
of the dangers of doing the right things in the wrong
order.



Nevertheless, in recent decades, countries with the highest
levels of gdp have made the greatest progress in reducing environmental
damage.

internet. Inadequate information, and
the high cost of getting better information, has long been one of
the main causes of market failure, and of government economic
policy mistakes. Possibly, the ready availability of information
will enable government macroeconomic policy to be much
more effective than in the past. If so, the role of the free
market’s invisible hand in allocating scarce resources might
decline again. It is more likely that better information will mean
less market failure, and thus less need for government intervention,
including in areas such as education and health care