The Principles of Economics

The so-called principle of economics are fascinating…

The driving force or thermodynamics are based on the actions of people and how individuals make decisions.

Principles of Decision Making
People face tradeoffs
The cost of something is what you give up to get it
Rational people think at the margin
People respond to incentives

Then there are some kinetic rules for how groups of people interact.

How Groups of People Interact
Trade can make everyone better off
Markets are usually a good way to organize economic activity
Governments can sometimes improve market outcomes

And finally another set of kinetic rules based on the behaviors of societies or countries.

How the Economy Works
A country’s standard of living depends on its ability to produce goods and services
Prices rise when the government prints too much money
Society faces a short-run tradeoff between Inflation and unemployment

There’s a hell of lot inherent assumptions built into this model as a starting point for economics.

For example, the model assumes that resources are unlimited. They are not.

It totally ignores the inherent greed and corruption of individuals and groups. Especially how interest groups can corrupt government.

And it assumes that employment is required for productivity. This is rapidly becoming untrue with technology gains.

Climate change will also impact economics. It will require the intervention of governments in order to reduce consumption which in my opinion will put our economies into a tailspin. This is the very reasons not much is being done about climate change right now. That is to say, the rules of economics assume a long-term underlying growth in economies by the combined factors of population growth and productivity growth.

It’s time for  a re-think me-thinks.