What is “economics” in the most general sense

In this post I will try to say what economics is – at least, as far as I understand it 😛 . The purpose of this piece is to be part of the set of posts for new readers – so feedback is very appreciated.

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Tarot card reading and Economic forecasting

So I’ve started reading the moral philosophy and economics book I was discussing, and on the eighth page I found this quote:

The idea that studying ethics could help people do economics or policy analysis may seem far-fetched.  Why not consult tarot cards instead?

Now I do not agree with the first part of the above paragraph – policy analysis requires value judgments to reach conclusions, and understanding ethics helps to inform value judgments.

But my focus is on the second part of the paragraph.  Why the dig at tarot card reading?

My impression that his focus is on the broader form of economics that requires value judgments in order to reach conclusions – however, if this is what he is focused on tarot card reading is virtually equivalent.  Let’s discuss why:

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New blog from NZ economist

Offsetting behaviour by Eric Crampton (ht Anti-Dismal).

Already there is a set of post on policy ignorance up.  Here is a quote from here:

Political ignorance then is ignorance about how the political system works in general rather than necessarily ignorance about any specific policy issue

I can tell you’re interested, go give it a look already 😉

Math <3 Econ?

First, is <3 a heart?  That is what I’ve run with – but it always looked like an ice-cream to me!

I have just seen this awesome 1 page paper by some mathematicians (ht William J Polley).  Why is awesome?  Well it talks about some ideas they had about studying society – and what they described represents a chunk of the way economists already view society.

Whether they meant this as a complement, they think we are not smart enough to think of it this way, or (most likely) they have a better way of doing the same things we do – I don’t know 🙂

Question: Have economists been over-confident regarding their ability to predict things?

My unequivocal answer here would be yes – but I’m not asking me, I’m asking you.

Do you guys think that economists have been over-confident about their ability to predict things?

We have repeatedly said on this blog that economic science “frames issues” – but predictions only stem from virtually untestable value judgments (although we can inform these, and narrow the band of judgments, by using data).

However, it appears that many economists have tried to sell their ability to predict – something that has caused issues.

This blog post really sums up how I think people think about economists right now (ht Market Movers).  I think the issue is that economists have sold this story to the public about their ability to predict – an ability that doesn’t exist.  The risk from this is that the value that economists can add (framing issues, even describing what has happened) may get ignored as a result of this perceived failure.

Average vs Marginal: The most common mistake in economics

Something I have noticed over time is that there is always a mass of confusion surrounding average vs marginal costs (or benefits) in economics.

Although there is some confusion with fixed vs variable costs as well (an issue that I believe is closely related) the issue of average vs marginal costs appears ohh so often.

Greg Mankiw mentions a case from the paper recently here.  I remember a case where it was important that was blogged about here.

Now, the difference is important as it is “marginal” costs and benefits that determine decisions (implicitly) not average costs and benefits.  However, if people are often confused between the two is it not possible that many people do make decisions based on the average?  There are a lot of interesting questions implicit here – something we should discuss over the next week 😉 – eg do people choose marginal when describing average?  does this confusion serve some “evolutionary” purpose?