Economics – where to start?

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A non-economist started a discussion thread on the Heterodox Economics facebook group asking ‘What Economic System Works Best’. He made the observant comment:

Politics in the U.S. these days can be summed up in one sentence, “Pick a side, find sources to reinforce your opinion, attack your critics mercilessly, and defend your position to the end.” Like I said, I rarely hear REAL economic discussions.

Such a debate then ensued! I tried to consider (neutrally) what the fundamental starting point should be in thinking about economic issues. This is what I came up with:

They say economics is about ‘the allocation of scarce resources’ which is true, I guess, although extremely complicated by the fact that allocation can also affect the amount of resources there are!

So I suppose your view of economics is driven by how you want that allocation to be determined. And this depends critically on your attitude toward other people. Do you regard others as simply competitors, who should get the measurable input they currently add to the economy (their ‘marginal product’ in the jargon) – no more and no less? Or do you regard them as (at least potential) co-operators, who might at some time add something to your well-being (that you couldn’t on your own) if you allow them the means to do so?

The choice depends a lot on your beliefs about time (how long are you prepared to wait for someone else to co-operate?), uncertainty (do you think you can predict who will co-operate?) and human motivation. To some extent (but by no means completely) these questions can be answered by empirical observation.

There’s also the empathy aspect. How much does it hurt you to know that other people are suffering now and you could (or political decisions could) potentially help them now? This is of course purely subjective.

On a practical note: ignore any economic theory that does not explicitly explain the role of money in what is happening.

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