What is Economics? BS? or Queen of Social Science?

[Marine05]

Originally Posted by jeeves0923

Perhaps Smith merely left out a piece of his IF-THEN statement. Rather than just in the presence of self interest, we also must not have our self -interest interfered with.

Your first example of the butcher is not a valid counterexample. Obviously, he derives utility from giving meat to people(he likes to take care of people, thinks it is right to be good to his community). Since he benefits from it, it is not irrational.

As for the financial crisis, some could say that the invisible hand was interfered with, and that caused the crisis. Rather than letting interest rates settle where they may, the United States government enacted populist policies to try to get people to buy houses. They enacted a price ceiling on mortgage loans. As soon as they did that, the invisible hand was not able to do its job. People who could not afford these mortgages were purchasing them because they were under priced. So Smith wasn't wrong in this sense- it just so happens that the IF in his IF-THEN statement was false. If the IF is false, surely you can't expect the THEN to be true.

If I say if f(x) is continuous, then limf(x) = f(limx), and f is not continuous, we cannot expect limf(x)=f(limx). It might be by fluke, but certainly not by design.

These kinds of examples are fine, but it does not mean that kind of work is worthless, we need to destroy the way we think about things and start over. Surely, people react to price incentives. Surely, people often look out for their self interests. Surely, prices change based on demands and quantities. We owe a debt of gratitude to these people for making us think about these things. SO WHAT if their work needs to be improved upon. It's good! It gives us something to do with our lives. Surely, it doesn't need to be thrown away.

I agree with many things you are saying- but I want to make something clear here.

Adam smith SAYS it is butcher's self interest that gives him a daily meat on his table NOT the Benevolence of the butcher! what he means by self-interest is NOT Charitable action warren beffet takes at times but "SELF-INTEREST" action literally. No one gets utiliy by giving out one's own property in the theory of economics.

...every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

This passage is taken from his book "An Inquiry into the Nature and Causes of the Wealth of Nations"

What I was saying was whatever this GodFather says to us in EC101 class, we tend to believe human society as it is without giving a second thought and this might brainwash our Butcher really think and act and live this way with no human decency. ofcourse not everyone but it affects many of us.
I think .

[YoungEconomist]

Originally Posted by Marine05

No one gets utiliy by giving out one's own property in the theory of economics.

Says who? Economists totally realize that charity can be in an individual's utility function. To say that economic theory does not account for this, is to totally misunderstand the depth and subtlety of economic theory itself.

In regards to Adam Smith, I haven't yet read The Wealth of Nations, however, I find it hard to believe that Adam Smith didn't understand this (I mean, the guy was a moral philosopher). I think his bigger point, is that the majority of "the good" done is through individuals pursuing their self-interest. Put differently, you will feed many more people, bring them higher quality food, better service, etc, in a system that does not rely on "the benevolence of the butcher." Or put another way, relying mainly on "the bevevolence of the buter" will not feed nearly as many people as "appealing to his self-interest."

[GymShorts]

Originally Posted by Marine05

I No one gets utiliy by giving out one's own property in the theory of economics.

I haven't read the entirety of the Wealth of Nations, but assuming you're right, what you mean is that "No one gets utility by giving out one's own property in Adam Smith's theory of economics."

First, economic theory has grown a lot since Smith. It's almost like saying there is no space-time fabric in the theory of physics, and citing Newton's works.

Second, there is not one "economic theory." That is exactly why many economists disagree with each other--their economic theories, at least at times, contradict each other. Indeed, there is a whole economic theory specifically about the utility gained from acts of charity.

[Marine05]

yes. Adam Smith is a good man indeed. He himself gave all his porperty to charity with his death. you guys are absolutely right.

[YoungEconomist]

Originally Posted by GymShorts

Second, there is not one "economic theory." That is exactly why many economists disagree with each other--their economic theories, at least at times, contradict each other.

This is sorta nit-picky, my own opinion, and therefore probably not worth mentioning, but I will anyway. In my opinion, many of the arguments in economics stem from normative aspects rather than positive aspects (I realize this is less true of macro, given that there is less concensus in terms of theory). For example, it seems that many (note: I did not say all) economists agree on the theory behind minimum wage increases leading to increased unemloyment. Yet, there seems to be more disagreement amongst economists about whether or not a minimum wage is "a good thing." Essentially, some economists who think minimum wages increase unemployment, still think minimum wage legislation is sound policy. They believe that the gains to the winners make up for the losses to the losers, and/or think the losers could be compensated through redistribution of wealth, welfare, social security, etc.

Maybe I could have thought of a better example than minimum wage legislation, but it's the first one that came to mind. It just seems to me that the majority of disagreements among economists are rooted more in the diversity of normative views rather than a diversity of positive economics.