Because, at risk of sounding rude, I don’t think you’ve acquired this “Level 2” understanding … (btw, you call yourself an economist but don’t have a grip on Keynesian theory? Isn’t that pretty much required these days?)
On macro policy I doubt I have level 2 understanding. I had to take papers in macro at university, and I was able to get reasonable grades on them, but level 0 or 1 understanding is sufficient to do that.
My guess is that if you asked a Keynesian why they care, they would say that boom-bust cycles create uncertainty and fear in people because they don’t know if they’re going to lose their job (and they want their job, or they’d have already quit) and by taming the boom-bust cycle people will have a more certain and therefore more pleasant life).
Equally if you asked a development economist, they would point to the misery in third world countries and for wealthy countries point out that productivity growth means being able to do more with less, and whether you want to have more, or want to do less, that’s a win. Unemployed people are by definition people who want a job but don’t have one, so concern about unemployment is easy to work out.
And as for me, well the reason I care about allocative efficiency is that allocative efficiency is the attempt to match reality to people’s preferences as well as is possible under current constraints. How do we use our resources and knowledge to create the things people want and how do we get them to the people who want them the most?
The market does a pretty good job of this most of the time, but it does fail sometimes. And when it fails there are things government can do to improve matters, but the government can fail too, so you have to balance out the imperfections of the market and the imperfections of government and try to work out which set of imperfections is more problematic. If I succeed, or if people like me succeed then people will have more of what they want, be that flat screen TVs, or cars or clean air or time with their families. Not everything falls within economics’ purview of course, love and truth and beauty are things I can’t help with. But for everything else, my goal is to help the market to match infinite wants with finite resources, and imperfect information.
Sure—I only meant that economic policy advocates who are concerned about aggregate economic variables are obsessed with GDP as one of those variables, but that should be assumed from context.
Perhaps it should have been, but I failed to assume this. And microeconomics is a lot wider than company behaviour, it covers pretty much everything but GDP and unemployment.
And as for me, well the reason I care about allocative efficiency is that allocative efficiency is the attempt to match reality to people’s preferences as well as is possible under current constraints. How do we use our resources and knowledge to create the things people want and how do we get them to the people who want them the most?
That wasn’t the question or contributory thereto, though it shows you can ground one concept.
The question is, whatever model/theory you have of the economy, are its predicates fully grounded in what laypersons care about? You mentioned things people care about, but not how they fit into the model that you advocate.
Allocative efficiency is what I work with. If you asked me why I care about GDP, my response would be, “I don’t, particularly”.
As for my economic model, I can’t give you a full rundown in a comment, but here’s the short version:
1) Level 1 is the fully ideal version, unrealistic, but useful for grounding the whole thing in people’s preferences. It basically rests on the notion that if you make a battery of assumptions voluntary exchange will result in allocative efficiency, if person A values something more than person B then they will trade, either directly or through side trades until person A has it. Yes there are a lot of reasons this doesn’t work in practice, but that’s level 2.
2) Level 2 picks at all those assumptions in level 1. Things like externalities (like pollution) imperfect information, irrational behaviour, imperfect competition, transaction costs and other git in the gears. These things cause violations of the assumptions in 1, and therefore prevent potentially efficiency-enhancing trades from occurring. The academic work at level 2 is focused around identifying these problems and considering possible solutions a government could introduce to correct for them.
3) Level 3 looks at the ability of government to effectively implement the policies identified at level 2. Theories like social choice theory (the ability of voting systems to effectively aggregate votes into social preferences) and public choice theory (how well do governments act as agents of the voting public). The academic work at level 3 is focused around identifying the limitations of real world governments, and identifying the side-effects of badly implemented policies.
Level 1 is all about individual preferences, not attempting to measure them directly because you can’t, but rather in setting up a system so people can sort it out themselves.
As for how GDP factors in, well they it doesn’t directly. Macro and micro aren’t integrated, they haven’t been since Keynes. You learn about them indifferent courses, people tend not to specialise in both, so there’s a gap there. Hence the reason I don’t care about GDP per se.
Now productivity I care about, because higher productivity means more resources for people to trade with and more preferences can be satisfied. I care about unemployment because it implies people are willing to make a trade, but unable to do so due to some bug in the system, either a level 2 problem (market failure), or a level 3 problem (government failure).
On macro policy I doubt I have level 2 understanding. I had to take papers in macro at university, and I was able to get reasonable grades on them, but level 0 or 1 understanding is sufficient to do that.
My guess is that if you asked a Keynesian why they care, they would say that boom-bust cycles create uncertainty and fear in people because they don’t know if they’re going to lose their job (and they want their job, or they’d have already quit) and by taming the boom-bust cycle people will have a more certain and therefore more pleasant life).
Equally if you asked a development economist, they would point to the misery in third world countries and for wealthy countries point out that productivity growth means being able to do more with less, and whether you want to have more, or want to do less, that’s a win. Unemployed people are by definition people who want a job but don’t have one, so concern about unemployment is easy to work out.
And as for me, well the reason I care about allocative efficiency is that allocative efficiency is the attempt to match reality to people’s preferences as well as is possible under current constraints. How do we use our resources and knowledge to create the things people want and how do we get them to the people who want them the most?
The market does a pretty good job of this most of the time, but it does fail sometimes. And when it fails there are things government can do to improve matters, but the government can fail too, so you have to balance out the imperfections of the market and the imperfections of government and try to work out which set of imperfections is more problematic. If I succeed, or if people like me succeed then people will have more of what they want, be that flat screen TVs, or cars or clean air or time with their families. Not everything falls within economics’ purview of course, love and truth and beauty are things I can’t help with. But for everything else, my goal is to help the market to match infinite wants with finite resources, and imperfect information.
Perhaps it should have been, but I failed to assume this. And microeconomics is a lot wider than company behaviour, it covers pretty much everything but GDP and unemployment.
That wasn’t the question or contributory thereto, though it shows you can ground one concept.
The question is, whatever model/theory you have of the economy, are its predicates fully grounded in what laypersons care about? You mentioned things people care about, but not how they fit into the model that you advocate.
Allocative efficiency is what I work with. If you asked me why I care about GDP, my response would be, “I don’t, particularly”.
As for my economic model, I can’t give you a full rundown in a comment, but here’s the short version: 1) Level 1 is the fully ideal version, unrealistic, but useful for grounding the whole thing in people’s preferences. It basically rests on the notion that if you make a battery of assumptions voluntary exchange will result in allocative efficiency, if person A values something more than person B then they will trade, either directly or through side trades until person A has it. Yes there are a lot of reasons this doesn’t work in practice, but that’s level 2.
2) Level 2 picks at all those assumptions in level 1. Things like externalities (like pollution) imperfect information, irrational behaviour, imperfect competition, transaction costs and other git in the gears. These things cause violations of the assumptions in 1, and therefore prevent potentially efficiency-enhancing trades from occurring. The academic work at level 2 is focused around identifying these problems and considering possible solutions a government could introduce to correct for them.
3) Level 3 looks at the ability of government to effectively implement the policies identified at level 2. Theories like social choice theory (the ability of voting systems to effectively aggregate votes into social preferences) and public choice theory (how well do governments act as agents of the voting public). The academic work at level 3 is focused around identifying the limitations of real world governments, and identifying the side-effects of badly implemented policies.
Level 1 is all about individual preferences, not attempting to measure them directly because you can’t, but rather in setting up a system so people can sort it out themselves.
As for how GDP factors in, well they it doesn’t directly. Macro and micro aren’t integrated, they haven’t been since Keynes. You learn about them indifferent courses, people tend not to specialise in both, so there’s a gap there. Hence the reason I don’t care about GDP per se.
Now productivity I care about, because higher productivity means more resources for people to trade with and more preferences can be satisfied. I care about unemployment because it implies people are willing to make a trade, but unable to do so due to some bug in the system, either a level 2 problem (market failure), or a level 3 problem (government failure).