Sunday, July 17, 2005

Economics isn't Natural Science

Warren Meyer at the Coyote Blog believes that zero sum economics that hold that all the wealth in the world to be constant, and other natural science inspired philospohies are responsible for some of the worst public policy in the world.

One of the worst ideas that affect public policy around the world is that wealth is somehow zero sum - that it can be stolen or taken or moved or looted but not created. G8 protesters who claim that poor nations are poor because wealthy nations have made them that way; the NY Times, which for a number of weeks actively flogged the idea that the fact of the rich getting richer in this country somehow is a threat to the rest of us; Paul Krugman, who fears that economic advances in China will make the US poorer: All of these positions rest on the notion that wealth is fixed, so that increases in one area must be accompanied by decreases in others. Mercantilism, Marxism, protectionism, and many other destructive -isms have all rested on zero sum economic thinking.

My guess is that this zero-sum thinking comes from our training and intuition about the physical world. As we all learned back in high school, nature generally works in zero sums. For example, in any bounded environment, no matter what goes on inside (short of nuclear fission) mass and energy are both conserved, as outlined by the first law of thermodynamics. Energy may change form, like the potential energy from chemical bonds in gasoline being converted to heat and work via combustion, but its all still there somewhere. (Hyperlinks from the original text.)

The article is quite long, but well researched, well written and full of interesting links. You can read the rest of it here.

Posted in Politics and Economics.


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