The Dismal Science

Stephen Moore was on Colbert tonight to talk about his new book. This guy is, what many like economists refer to them selves as, a neoclassical economist. He wants little to no government intervention to allow markets to make function the way that they can (in theory) work best. The problem is that he is living in a bubble if he really wants to apply his theory to the real world.

Economics is a very interesting school of thought. I hesitate to call it a science because while it tries to make predictions about the world, it more often looks at what outcomes should be based on assumptions about the people making the choices. I was attracted to this study of choice because many of its assumptions about people are actually the way I go about life. I try to be rational about everything. I always choose the path that will most benefit me in my life. And I often like to think that I have perfect information. Unfortunately, neither I nor anyone else has that last one.

Now, perfect information, or at least as close as we will ever get without being able to totally predict the future, is coming. I am sure of that, but as of right now we have to factor in that people are ignorant when talking about economic models. Notice: I say "ignorant," not "stupid."

This is why we still need government intervention in our economy. I know that this sounds paternalistic when I say it alone so let me clarify. Right now we have such a lack of information, in some places that the only way to prevent the most heinous things from happening is to have rules against it. For example, social security, one of the most Big Brotherly things we have in the US. It is a system that forces people to save money. There are many people who would just assume that we get rid of it because it causes some economic inefficiencies. These people would much rather let everyone do exactly what they want with their money in order to save for retirement. There is a problem though. No one saves money! In a culture that has been told that a dollar today is worth more than a dollar tomorrow, we are going to want to spend spend spend. Like our great grandparents who didn't save enough to have money when they needed (thus causing the need for social security), we are to ignorant to be able to see a time when we might need it. We (wrongly) expect to have a constant flow of income, even when we get too old to work, thus we need a mechanism that will not disappoint us, like social security.