Quote: 10) Joan Robinson and the purpose of studying economics

Joan Robinson (*):

The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.

Training to be an economist does not tell you the answer to any economic question – it gives you the tools with which to determine answers for yourself, given your own set of value judgments.

Quote: 9) Robert Solow on Friedman

Robert Solow:

Everything reminds Milton Friedman of the money supply. Everything reminds me of sex, but I try to keep it out of my papers. (*)

This quote is Solow’s humourus way of reminding us that the study of inflation isn’t the whole purpose of economics.

Quote: 8) John Maynard Keynes – the long run

John Maynard Keynes:

The long run is a misleading guide to current affairs. In the long run we are all dead

More commonly written as “in the long-run we are all dead” putting the quote in wider context makes it more reasonable.  Fundamentally all this tells us is that the long run (when prices can all clear and agents have responded to a shock) differs intrinsically from the short run.

Quote: 7) John Maynard Keynes – on self-sufficiency

John Maynard Keynes:

I see three outstanding dangers in economic nationalism and in the movements towards national self-sufficiency, imperilling their success. The first is Silliness–the silliness of the doctrinaire. It is nothing strange to discover this in movements which have passed somewhat suddenly from the phase of midnight high-flown talk into the field of action. We do not distinguish, at first, between the color of the rhetoric with which we have won a people’s assent and the dull substance of the truth of our message. There is nothing insincere in the transition. Words ought to be a little wild–for they are the assault of thoughts upon the unthinking. But when the seats of power and authority have been attained, there should be no more poetic license.

I found this quote on Paul Krugman’s blog. In the paper it comes from “National Self-Sufficiency” Keynes states that self-sufficiency in some things is a luxury society may be willing to pay for – this makes sense given that people inherently value goods made domestically by more, even if there is no difference in the quality or prices. Stats NZ 2008 year book took a survey that recorded 90% of people felt this way.

However, this article was merely a critique of economists that felt that “free-trade” in itself is the goal – in this quote he turns the argument back onto the “economic nationalists” when try to push self-sufficiency as the goal.

Ultimately, the goal of any policy should be to increase the happiness of society. The language of economics allows us to describe situations at this level in a fairly “objective fashion” – a tool that allows us to assault the thoughts of the unthinking and hopefully put these issues in their proper context.

Quote: 6) Vernon Smith – Unconscious optimisation

Vernon Smith:

That economic agents can achieve efficient outcomes which are not part of their intention was the key principle articulated by Adam Smith, but few outside of the Austrian and Chicago traditions believed it, circa 1956. Certainly I was not primed to believe it, having been raised by a socialist mother, and further handicapped (in this regard) by a Harvard education, but my experimental subjects revealed to me the error in my thinking (emphasis added)

Economists do NOT think that people analyse every decision they make in a pile of analytical detail.  However, economists do believe that the actions that people act within their “interests” – and that this process can be described using mathmatics.  Maths provides a language to describe action – the agents themselves do not need to be able to do the maths.

Quote: 5) Lionel Robbins – definition of economics

Lionel Robbins (*):

Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses

This is the fundamental definition of economics that I adher to when I write here. In all honesty this is not the sole definition of what people “see” economics as – however, it THE definition of what I would term “economic science”.

This definition fits neatly with the theoretical and applied versions of micoeconomics – however, without appropriate “microfoundations” it is hard to decide whether marcroeconomics sticks to this definition of what economics is – is macroeconomics raising the TRUE trade-off between scarce resources in the entire economy?

Ultimately, Milton Friedman felt we make macroeconomics consistent with this view (and useful) bu focusing on predictive accuracy – like many economic models, this made sense once you converged to your result, but not out of equilibrium 😛