9 votes

The most important debate in economics: What should count as real economic wealth? Who truly creates it, who merely assists the process, and who might be actively impeding it?

4 comments

  1. [4]
    skybrian
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    Reposting my Hacker News comment: A fundamental assumption of mainstream economics is that market prices are approximately correct. This is more for pragmatic reasons than anything; you need some...

    Reposting my Hacker News comment:

    A fundamental assumption of mainstream economics is that market prices are approximately correct. This is more for pragmatic reasons than anything; you need some sort of prices to compare unlike things and it's often easy to get some consensus on what the market price is.
    If you want to calculate GDP some other way then you will need to decide what millions of prices "should" be and persuade others with your argument. Coming up with an alternative scheme is probably the easy part. Agreeing on a new standard would be much harder.

    Consider also that those millions of prices are also changing, often rapidly.

    The problem is that, even within mainstream economics, we know market prices aren't correct. Pricing externalities is something pretty much all economists can get behind, and that's just the beginning. Does anyone really believe health care prices are correct? How about all the other subsidies? Asset prices for things like startups are even worse.

    In areas where there are no market prices or the market is obviously artificial, price and value become nebulous. Without any objective standards of value, what things are worth becomes a matter of opinion and politics. I am pessimistic on there being consensus on a better way of understanding value any time soon.

    More likely we will muddle through with patches to the system we have. Philosophically, even major changes like a carbon tax or universal basic income are basically just patches to get prices somewhere closer to what we think they should be.

    7 votes
    1. [4]
      Comment deleted by author
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      1. [2]
        Litmus2336
        (edited )
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        They does go into detail about the conditions where that's true, such as externalities. I think they gave it a fair shake. The only think I'd take issue with is Most people who believe in...

        They does go into detail about the conditions where that's true, such as externalities. I think they gave it a fair shake. The only think I'd take issue with is

        carbon tax or universal basic income are basically just patches to get prices somewhere closer to what we think they should be.

        Most people who believe in pigouvian taxes don't think we're "pricing stuff to what we think it should be". They believe that they are "pricing stuff to what it actually is". They argue that the factory dumping waste in the river is actually violating free market principles by cutting the community out of the decision of whether their environment should get polluted or not.

        2 votes
        1. [2]
          Comment deleted by author
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          1. Litmus2336
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            I suppose it depends on how you define correct. I think the most common way would be to assess if the market is "Pareto efficient". In broad strokes, Austrians argue those don't exist. Freshwater...

            I suppose it depends on how you define correct. I think the most common way would be to assess if the market is "Pareto efficient". In broad strokes, Austrians argue those don't exist. Freshwater American economists would argue that they might exist, but the government also might make it worse. Many modern economists like Krugman wish to solve market failures. Business cycle theory is all about animal spirits and the benefits of government intervention in the business cycle. Yet we still have many countries utilizing austerity policies in downturn.

            Everybody "knows" GDP should not be the end-all be-all measure of output, yet we still rely on it far too much).

            2 votes
      2. skybrian
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        Yes, my use of "correct" is unorthodox but this assumption seems to be all over the place. For example, when doing accounting, whatever you paid for an asset is what the asset is worth on the...

        Yes, my use of "correct" is unorthodox but this assumption seems to be all over the place. For example, when doing accounting, whatever you paid for an asset is what the asset is worth on the books, and making up some other number is incorrect. And don't most economic statistics (like trade balance and GNP) depend on accounting? The use of market prices as inputs to calculations is pervasive.