Monday, January 10, 2005

God, I Hate Economics

It's rare that I come into a class and think, "This entire class is going to be totally worthless", yet that's exactly what I thought today in my macro-econ class. The entire class was spent doing basic algebra with supply and demand "curves" (in this case, basic lines). What's even worse is that macroeconomics involves taking aggregate demand (i.e. the demand expressed by the entire society, not simply in one industry or for one product) and aggregate supply (i.e. the supply for the entire society).

There's a reason why the word "ivory tower" came into being. The Wall Street Journal is where the real economics happens, where the investors have their own forum. They compare the economic forecasts of the best in the field with a dartboard. According to a USA Today article linked here,, "I was inspired by a recent article in The Wall Street Journal that compared the performance of three groups of stocks in 2000. The first group was a portfolio chosen by investment professionals, the second was a random collection of readers' stock tips and the third group was compiled by flinging darts at stock tables. The experts' stocks lost an average of 53% last year, the readers' picks dropped 43% and the "dartboard portfolio" lost only 11%."

We know NOTHING about the economy. Let's just mess around with the supply and demand curves for, say, oranges. Let's say that the cost for oranges was 0 (when you do demand curves, you typically try to find the x and y intercept). What would demand be? Well, some people may assume that it was free because of poison in oranges or for some other ulterior motive. Others would get so many oranges that oranges would rot, generating an externality (negative from the smell, positive from the fertilizer for the ground). Maybe some people would make orange juice from the free oranges and thus the market would be inundated with orange juice. Orange juice prices would drop. Some people would come with huge trucks and get as many oranges as they could, others would recognize that they couldn't eat that many and instead take a few. Now, let's move further down the line. It's proven that people were slightly more likely to buy things that are $3.99, say, than $4.00, because their mind associates $3.99 with $3.00, not $4.00. But I know that I view any store that has prices that end in nice, pretty zeroes in a better light. Now, try graphing a line for oranges that makes ANY sense given all of these things. This is the top of the tip of the iceberg.

So, tell me: Given what anyone can realize based on very simple assumptions about how much we know reliably about the economy, why is it that we're being taught this algebra crap the first day of class? Why aren't we discussing commodity fetishism, adversarial work norms, externalities, what prevents markets from reaching equilibrium, etc? If these economists are so smart with their algebra and graphs, why are they living on a professor's salary at Davis?
I'm not saying that the study of economics has zero value: quite the contrary. Studying the way we produce, allocate and distribute is totally vital. What I'm saying is laughable is the pseudo-science that we mask the exercise in, usually as a way of giving capitalist and elite consensus a facade of legitimacy (Rajani Kanth did a history of economics showing how economic theory is in fact a weapon of class warfare and has been since Malthus at least). What are the questions I'd like to see asked? How about, "Why is it that there are as many vacant hotel rooms as there are homeless people? Is it possible to design workplaces so technology doesn't make workers into pimply-faced teens saying 'Super-size that, sir?' Who makes the economic decisions, and why do they do? Why can't you see the Hollywood sign in LA anymore? Do people really want what's being sold, or is it that their desires are being manufactured? Is there a way we can get rid of waste industries like, say, advertising?" And so on. Compared to that, laughable lectures on demand and supply curves seem to me to be a cop-out.


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