Wednesday, November 15, 2006

Take An Economics Class!

Whatever the flaws of your typical Econ 101 class, it's actually the kind of class one should take to have the basic literacy necessary to read a newspaper. Our discourse on political/economic issues is entirely dominated by an Econ 101 worldview which while generally not all that complicated does have some nonobvious wrinkles.

So, Matt, go take a class.

As for Mankiw's assertion that economists like him don't care about income inequality, well that's just silly. Or it means people like him are very silly. It's one thing to embrace a positive, rather than normative, focus. But caring about "efficiency" or per capita GDP or some other supposedly "value neutral" metric as the only important metric is a normative decision if you embrace it to the exclusion of everything else. If your social welfare function ranks economies with greater GDP as "better" than ones with lower levels of GDP regardless of income distribution or any other consideration, you have still chosen a social welfare function. It's a pretty weird social welfare function, but a social welfare function nonetheless. You've made a value judgment, just one lacking actual, you know, values.

In other words, if you think an economy where Bill Gates earns $1000 and another 500 people earn $1 is better than an economy where Bill gates earns $500 and another 500 people earn $1.90 simply because in the former there's "more in total" then you're a very silly person.

It's understandable that people want to focus on metrics that don't require value judgments. And it's true that the metrics themselves don't require judgments, but only if you put your head in the sand and ignore all the information available to you.

If you have no other information, being told that you can choose between a society with per capita GDP is $40,000 versus one which has a per capita GDP of $30,000, it's understandable that you'd choose the former. But if you knew that the former number was what it was only because Bill Gates lived there, and that everyone else had an income of $1000, you might change your mind. Unless, I guess, you're Greg Mankiw.