Friday, September 21, 2007

Economics: or why you don't have to eat the pizza box if there's no more pizza left

I liked how P.J. O'Rourke argues this point:

The hardest thing to understand about economics is that it doesn't need to be understood. My beatnik friends and I, when we were in college, were perfectly justified in expending out intelliectual energy on sex and drugs instead of money. But there was one thing that we did need to learn. And still do. And it's a piece of knowledge that seems to contradict psychology, life experience, and the dicatates of conscience: Economics is not zero sum. There is no fixed amount of wealth. That is, if you have too many slices of pizza, I don't have to eat the box. Your money does not cause my poverty. Refusal to believe this at the bottom of most bad economic thinking.

True, at any given moment, there is only so much wealth to go around. But wealth is based on productivity. Without productivity, there wouldn't be any economics, or any economic thinking, good or bad, or any pizza, or anything else. We would sit around and stare at rocks, and maybe have some for dinner.

Wealth is based on productivity, and productivity is exapandable.Yet a person who worries about fairness can recite the old saw: "The rich get richer and the poor..." ....
"Get entertained by People magazine stories about divorces amound the rich." No, that's not what he's going to say... "Get lower mortgage rates because banks have more money to lend." Nope, not it either. "Get better jobs because there's more capital to be invested in business." No, the cliche to end that sentense is, "The rich get richer, and the poor get poorer."

Except that is no evidence of this in recent history. Per-capita GDP is a tricky figure and doesn't tell us much about the well-being of individual people. But there are other statistics that don't present the same problems of averaging. Life-expectancy and infant-mortality rates do tell us how things are going for ordinary folks. No matter how rich a nation's elitre, its members aren't going to live to be 250 years old and wildly skew the numbers. And a country can't fake a low infant-mortality rate by getting a few rich babies to live while letting all the poor babies to die.

P. J. O'Rourke: Eat the Rich, 1998, Picador Press, page 241.

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