What’s the point of an economy?

2012-01-31 (Tuesday) § Leave a comment

In media and in ordinary conversation I sometimes hear people talk about whether something is good for the economy.  Everybody seems to already know what “good for the economy” means, and further, what the economy is good for.

As with my attempts at analytic philosophy on this blog, I’m approaching economics as an amateur.  I’m hoping to understand it better by putting my current views forward and then responding to problems and alternative angles that people point out to me.

I’ve been reading The Worldly Philosophers, a survey of the views and lives of a sequence of European and American men who made important contributions to economics.  It may be because I’m getting their views at secondhand and in summary, but it seems to me that none of them looked directly at the question of what an economy is for.  (Maybe that’s because they already had it figured out.  But I don’t.)  They looked at more specific and less fundamental questions:  Why are there poor people and rich people?  Is everybody better off if everybody owns everything (communism), or if most things are owned by somebody in particular (private property)?  In a market economy, is it inevitable that the amount of goods and services being produced and sold will occasionally fall and leave a lot of people with a lot less access to goods and services (recession)?  Important questions, but they assume we already know what we want the economy to do.  So what is that?

One possible answer is that we want the economy to make supply match demand as closely as possible.  In other words, given that people want certain things, the point of an economy is to get as many of those things as possible produced and distributed to those people, while getting as few things as possible produced that nobody wants, and getting as few things as possible distributed to people who don’t want them.  Money, prices, and liberty of exchange are just ways of trying to make that happen in a market economy.

Right now in the United States the thing that the broader public wants most from the economy, and what elites claim to want most, is jobs.  Does that mean the point of an economy for us is to give people useful things to do with their time?  Clearly not, or at least not exclusively.  What people mean is jobs that pay a living wage.  Otherwise they (we) would be happy doing volunteer work all the time and consider that a successful economic outcome.  But a sufficient income + work aren’t enough simply added together.  Most people want a sufficient income that feels like a reward for their labor contribution.  Otherwise they would be happy living on reliable charity and doing volunteer work.  Anecdotally my sense is that most Americans wouldn’t be happy with that indefinitely.

So the point of our economy in the United States isn’t just to match supply with demand.  It’s to make supply match demand AND make the demanders feel like they earned the supply.

Tell me what I’m missing.

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