Economia crua e sofisticada

Comparison of nuanced and standard principles of economicsa Nuanced principles of economics Standard principles of economics ● The trade-off principle: There is no such thing as a free lunch, but once in a while one can snitch a sandwich ● People face trade-offs: To get one thing, you have to give up something else. Making decisions requires trading off one goal against another ● The opportunity cost principle: Opportunity cost focuses economist’s cost-benefit framework on non-obvious as well as obvious trade-offs, and serves as a useful heuristic for decision making ● The cost of something is what you give up to get it: Decision makers have to consider both the obvious and implicit costs of their actions ● The rationality cost/benefit principle: Framing a question in a cost-benefit lens is useful as long as the lens is seen as a tool, not a rule; the economy is a complex system requiring multiple lenses to capture its many dimensions. Good economists always qualify their models with “other things equal” ● Rational people think at the margin: A rational decision maker takes action if and only if the marginal benefit of the action exceeds the marginal cost ● The incentive principle: Most people are driven by enlightened self-interest in achieving their personal and social goals. As the costs and benefits of achieving these goals change, behavior changes. ● People respond to incentives: Behavior changes when costs or benefits change David Colander Tools, Not Rules 167 Eastern Economic Journal 2016 42 continued Nuanced principles of economics Standard principles of economics ● The trade is good principle: Trade is a form of cooperation and cooperation can make everyone better off. Complicated trades require complicated institutional and social foundations ● Trade can make everyone better off: Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services ● The markets are good principle: Markets offer a useful way for societies to coordinate actions. The efficient use of markets evolves over time. One aspect of the government policy involves creating an ecostructure conducive to markets and other bottom-up solutions to problems ● Markets are usually a good way to organize economic activity: Households and firms that interact in market economies act as if they are guided by an “invisible hand” that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government ● The externality principle: The Government and market are intricately entwined. Public policy involves much more than just correcting market outcomes. It can also involve influencing the evolution of institutions so that top-down interventions into market outcomes are less necessary ● Governments can sometimes improve market outcomes: When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution ● The “real” principle: A country’s wellbeing depends on more than the material welfare that economics focuses on. The goods and services measured by GDP and productivity measures are only one aspect of social welfare. GDP misses many of these broader aspects ● A country’s standard of living depends on its ability to produce goods and services: Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation’s productivity grows, so does its average income ● The money illusion principle: Ultimately, the amount of real goods in the economy, not the amount of money in the economy, limits the amount that society can consume. Prices rise when sellers have incentives to raise their prices and demanders are willing to pay those higher prices ● Prices rise when the government prints too much money: When a government creates large quantities of the nation’s money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services ● The macroeconomic policy principle: Aggregate supply and demand forces are intertwined; many possible outcomes are possible. Economists don’t have good theories of the macro economy ● Society faces a short-run trade-off between inflation and unemployment: Reducing inflation often causes a temporary rise in unemployment. This trade-off is crucial for understanding the short-run effects of changes in taxes, government spending, and monetary policy a The standard principles listed in the table are based on those found in Greg Mankiw’s popular text
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