Just what is economics?
Economics is the study of people making purposeful choices on how to implement their means to achieve chosen ends. People make choices and act to be left better off than they were before they had decided to take action.
All economics, when boiled down, is on the micro level. That is, all economic activity is determined by individual action. Human beings are not part of an insect hive and don’t act like they are. Macroeconomics attempts to make theories based on group action and even attempts to make interpersonal comparisons of subjective utility. This is the fatal flaw of modern economics.
In the 1920s, economist A.C. Pigou forged a new branch of economics known as Welfare Economics, wherein he stated that a unit increase in income adds more to the welfare of a poor man than it adds to that of a rich man, and concluded that social welfare would be increased by a transfer from the rich to the poor. In the 1930s, Lionel Robbins countered Pigou by pointing out that economists cannot make interpersonal comparisons of subjective utility (satisfaction). We don’t know how the wealthy man is affected because utility is subjective. The economic establishment responded to Robbins by stating, if this was correct then the whole field of economics on the macro level would be meaningless. Lionel Robbins, for whatever reason, recanted his position. Others following Robbins, such as Kaldor, Hicks, and Kenneth Arrow attempted to excuse away this dilemma with their own theorems of welfare economics. The establishment was dead set on making this new branch a norm in the study of economics. This is where modern or “mainstream” economics is today. One flaw after another in the name of academic advancement and to hell with any realistic theoretical development.
Modern economics is based on an odd marriage of Keynesian theory and Chicago school monetarist theory. Devotion is given to positivist econometric models and not reality. When the Bureau of Labor Statistics announces that the government’s policies will eliminate unemployment by 3.891% per year, one has to wonder just who the .891% are? How can a few academics in Washington D.C. know, down to the third decimal place, exactly how much unemployment will be reduced? This again is a body of individuals making interpersonal comparisons of subjective utility. They couldn’t possibly possess the required vast knowledge of every person in the country to make such an assumption. Reducing the choices and actions of people to an econometric equation is truly a pretense of knowledge. All actors in the scheme of government do this. Regardless if it’s bureaucrats, the Federal Reserve, media pundits, academics, or politicians. These actors are determined to implement changes for your own good. Often times it’s quite the opposite.
Fortunately, there has been a large resurgence of what is known as the Austrian school economic theory. Thanks to people like Ron Paul, the Mises Institute, the Foundation for Economic Education and especially the internet. People are rediscovering this sound theory in economics that doesn’t rely on modeling but rather studies the reality of human action. More universities are beginning to offer courses in Austrian economic theory. But, with so much gone a rye in the economy, one has to wonder if this is all too little too late.
The Blue Collar Economist attempts to explain today’s issues from an Austrian school perspective. Understanding economics isn’t really very complicated, although the mainstream would have you to think it is. Whether it’s minimum wage, price gouging, welfare, inflation or deflation, the Blue Collar Economist will dispel the myths. Changing one’s ideology to fit the truth is more honest than changing the truth to fit the ideology.