Sunday, August 21, 2011

Economics and Reality

I often say that economists study models and don't really care about reality. I often complain about "market fundamentalism," the belief that the market works perfectly and can solve all our problems. I rarely, however, have as good examples of these "tendencies" of economists as what came up in the NY Times today:

 In an article on SR5 of the Sunday Review, entitled "Fairies, Witches and Supply and Demand" that discusses the economic principles being taught in children's books. It quotes an "avowedly liberal" economist as angry because so many children's books have virtuous poor and evil rich characters. Not mentioned is that this is the value of most major religions. And then we get a classic:
Sometimes, economists think that children’s books get things wrong. Dr. Seuss’s “The Lorax,” about the destruction of a forest by a greedy industrialist, “assumes that there is no economic system in place,” Mr. Conant said. In a modern capitalist economy, he said, the trees “would get very valuable as they got scarce, and the person with the property rights would harvest them at an economically reasonable rate.”
What planet do these economists study? Or rather, do they ever look at real markets. In most cases that I know of, higher values leads to higher prices which leads to greater pressure on the resource (because owners can make more money on it, or because poachers can make more on it).  Even in the US, it has been found necessary to impose regulations to assure the protection of scarce forest resources.  Economists say the same thing about scarcity in girls; they claim that as girls become scarce in Asia because of sexual selection for boys, girls will become more valuable. Instead, we have found throughout history that girls become commodities, and bought and sold, and are not treated as "more valuable."

The author concludes the article saying:
By and large, the economic lessons in children’s books lean left of center. “I think the writers are not particularly sympathetic to or don’t understand how a market works,” said Gary S. Becker, the Nobel laureate who teaches economics at the University of Chicago. “It’s not easy to convey that to a child. It’s not always easy to convey it to grown-ups.”
For the most part, the economic concepts conveyed in the books reflect values like generosity and equity rather than competition. Raymond Fisman, an economist at Columbia University, said his 3-year-old daughter’s favorite books teach the importance of sharing and gift-giving, values that might not lead to the greatest wealth in the real world. But, he added, “I doubt that 3 is the age where you start teaching people the brutal economic truths of grown-up commerce.” 
It is just astonishing how narrow minded economists are. In the real world, economic principles are only one of many principles we humans use in everyday life, but economists treat them as the only true underlying principle of social life. Anyone who values friendship, loyalty, the environment, stewardship of the planet, gift giving, etc., is either not too bright or a bleeding heart liberal or old fashioned. We should get with the program and value competition, and be a follower religion of economics.

Who in their right mind would criticize Dr. Seuss!

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