Sunday, July 3, 2016
Complex and evolving........................
Scarcity and choice are certainly important concepts, but making them the central focus can lead to economic analysis that is simplistic and mechanistic. In fact, the approach to economics that took hold after World War II treats the economy as a machine governed by equations. Textbooks using that approach purport to offer a repair manual, with policy tools to fix the economic machine when something goes wrong.
The mechanistic metaphor is inappropriate and even dangerous. A better metaphor would be that of a rainforest. The economy is a complex, evolving system.
Another metaphor would be the Internet, which is also a complex, evolving system. Although the Internet requires hardware, its value lies in its software. The same is true for economies. Economists used to focus on the hardware of the economy, such as factories and equipment. More recently, we have come to realize that intangible factors, such as social norms and cumulative innovation are the important determinants of economic outcomes.
-Arnold Kling, Specialization and Trade: A Re-Introduction To Economics