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).
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).