I am quite well aware of these predictions that are made in general, but this is in an absurdly abstract model with patently false assumptions.
By ‘this’ do you mean the model of humans as perfectly rational agents? That’s a caricature of microeconomics and is not necessary to make useful predictions based on microeconomic reasoning.
It predicts that, all else being equal, a rise in the price of a good or service will reduce demand for that good or service. Do you think that prediction is wrong?
No, I think it is trivial.
Maybe the simple fact is trivial but the implications are not. Microeconomic reasoning explains a number of facts that are non-obvious, counter-intuitive and non-trivial to many people, for example:
Price ceilings cause shortages (rent-control, fuel price ceilings in the 70s).
Price floors cause surpluses (agricultural subsidies, minimum wages increasing unemployment).
Purchaser subsidies cause price increases (cheap student loans raise tuition fees, mortgage interest tax deductibility raises house prices).
Low interest rates cause speculative asset bubbles and malinvestment.
Banning the sale and purchase of drugs does not work and makes some criminals very wealthy.
If more politicians and voters understood these ‘trivial’ economic facts then we might see slightly better policy. Unlikely though, since politicians’ behaviour is also best understood as a rational response to incentives.
Sorry to take so long to get back to you on this but I do think this stuff is important.
This line from wikipedia on the minimum wage really captures what I would like to say about a lot of this stuff:
Michael Anyadike-Danes and Wyne Godley [21] argue, based on simulation results, that little of the empirical work done with the textbook model constitutes a potentially falsifying test, and, consequently, empirical evidence hardly exists for that model.
The minimum wage stuff is Econ 101/ideological claim that doesn’t take into account a lot of factors. There is a lot to say about this one issue but the lack of empirical evidence is an important thing to keep in mind about economics.
I think the point about rent control is right, but I think you are leaving out positive externalities: middle class workers can live near their place of employment.
The fuel price ceilings in the 70s sounds ridiculous to me though. It turns out the price spikes were largely due to OPEC. There is much less harm if you are dealing with a monopolist/oligopolist with low cost in setting a low price.
In another comment I addressed farm subsidies. They are pernicious and many people wish they would die.
Purchaser subsidies...I went to a school with low tuition that was subsidized by the state. Student loans are not exactly the biggest factor in tuition rates so I don’t think there is much of a point to be had there. Mortgage interest tax deductions are an absurd tax break for the rich and lets get rid of them.
Low interest rates cause speculative asset bubbles and malinvestment.
That is not a result of economics but it is a favored talking point of the right who would prefer not to talk about over-leveraged-formerly-seen-as-perfectly-rational financial institutions. Low interest rates leading to inflation during times of high utilization in the short to medium term is a result of macro know as the Phillips Curve.
Bubbles almost always are the result of herd behavior which is not a prediction of economics; nevertheless they are very real.
Banning the sale and purchase of drugs does not work and makes some criminals very wealthy.
This is a complex issue. Personally I’d like to see most substances removed from the criminal justice system.
Let me first return to your first point:
That’s a caricature of microeconomics and is not necessary to make useful predictions based on microeconomic reasoning.
No it isn’t. I am quite familiar with microeconomics mathematical models and you really need some simple frameworks/powerful differentiation techniques to get far. If you are willing to throw out all talk about consumer surplus then you might get a start with a workable framework. However, this is what so many people that love hard-right econ love to tout.
Perfect rationality/information assumptions are made because they are mathematically easy. I’d love to see some bounded rationality models, but trust me that it opens up all sorts of mathematical thickets.
I used to be very sympathetic to the right-wing investor/business community and I am very familiar with their arguments. Often when they say they are arguing with economics on their side, they are arguing from a highly ideological point of view and very few people will admit/realize that.
By ‘this’ do you mean the model of humans as perfectly rational agents? That’s a caricature of microeconomics and is not necessary to make useful predictions based on microeconomic reasoning.
Maybe the simple fact is trivial but the implications are not. Microeconomic reasoning explains a number of facts that are non-obvious, counter-intuitive and non-trivial to many people, for example:
Price ceilings cause shortages (rent-control, fuel price ceilings in the 70s).
Price floors cause surpluses (agricultural subsidies, minimum wages increasing unemployment).
Purchaser subsidies cause price increases (cheap student loans raise tuition fees, mortgage interest tax deductibility raises house prices).
Low interest rates cause speculative asset bubbles and malinvestment.
Banning the sale and purchase of drugs does not work and makes some criminals very wealthy.
If more politicians and voters understood these ‘trivial’ economic facts then we might see slightly better policy. Unlikely though, since politicians’ behaviour is also best understood as a rational response to incentives.
I wish the parent wasn’t downvoted into oblivion so that more people could see this!
Sorry to take so long to get back to you on this but I do think this stuff is important.
This line from wikipedia on the minimum wage really captures what I would like to say about a lot of this stuff:
The minimum wage stuff is Econ 101/ideological claim that doesn’t take into account a lot of factors. There is a lot to say about this one issue but the lack of empirical evidence is an important thing to keep in mind about economics.
I think the point about rent control is right, but I think you are leaving out positive externalities: middle class workers can live near their place of employment.
The fuel price ceilings in the 70s sounds ridiculous to me though. It turns out the price spikes were largely due to OPEC. There is much less harm if you are dealing with a monopolist/oligopolist with low cost in setting a low price.
In another comment I addressed farm subsidies. They are pernicious and many people wish they would die.
Purchaser subsidies...I went to a school with low tuition that was subsidized by the state. Student loans are not exactly the biggest factor in tuition rates so I don’t think there is much of a point to be had there. Mortgage interest tax deductions are an absurd tax break for the rich and lets get rid of them.
That is not a result of economics but it is a favored talking point of the right who would prefer not to talk about over-leveraged-formerly-seen-as-perfectly-rational financial institutions. Low interest rates leading to inflation during times of high utilization in the short to medium term is a result of macro know as the Phillips Curve.
Bubbles almost always are the result of herd behavior which is not a prediction of economics; nevertheless they are very real.
This is a complex issue. Personally I’d like to see most substances removed from the criminal justice system.
Let me first return to your first point:
No it isn’t. I am quite familiar with microeconomics mathematical models and you really need some simple frameworks/powerful differentiation techniques to get far. If you are willing to throw out all talk about consumer surplus then you might get a start with a workable framework. However, this is what so many people that love hard-right econ love to tout.
Perfect rationality/information assumptions are made because they are mathematically easy. I’d love to see some bounded rationality models, but trust me that it opens up all sorts of mathematical thickets.
I used to be very sympathetic to the right-wing investor/business community and I am very familiar with their arguments. Often when they say they are arguing with economics on their side, they are arguing from a highly ideological point of view and very few people will admit/realize that.