Economic Pet Peeves

My biggest pet peeve in economics is The Wealth of Nations by Adam Smith and specifically the “Invisible Hand” theory. I live by The Wealth of Nations but economists are driving me nuts.

To start with The Wealth of Nations which I am betting it is by far the most quoted book/literature in economics and is not even read by the vast majority of economists. By read I mean cover to cover not I skimmed it or I just read one of the five “books”. I have been reading the book for years now and it has taken me years due to the vast amount of pages, the depth of the concepts, and the lack of my personal free time. I have been told by PhD students, Professors, students, and economists that The Wealth of Nations is a good book which I agree with but then they miss quote portions of it just to prove a point. You can’t just take a sentence out of the book with no context and then think somehow this proves your point. I view it as the bible of economics and that being said it has been miss quoted just as much as the Bible. If you haven’t read the book, please don’t quote it and then think you have made a point. The book is written in Old English (published in 1776) which again adds to the complexity of understanding the material.

For the modern economist who thinks that the economy is like a house cat you must not understand Adam Smith or you don’t believe in the foundation that Adam Smith has created. If you don’t believe in Adam Smith’s principles please state that before you speak and announce that you are an economist as if it validates you. If I know you don’t agree with Adam Smith than at least I can understand that you have a different train of thought which I can respect. Now back to the house cat; modern economists think that the economy is like a feral cat that has been domesticated by their fancy econometrics. The Invisible Hand theory states that the economy allocates assets (being money, labor, or anything of value) the most efficient way possible. Now you have the modern economist who steps in and decides that having lower GDP is bad, poverty is a problem we must solve, and the list goes on with issues that economists feel they can solve with econometrics. The economists use econometrics to look for patterns in market data and then figure out how to adjust a variable to coerce people and the economy to adjust in a way that will “fix” their cause. The problem I have is that the economy is a wild beast that can’t and shouldn’t be tamed. Somehow the economists think they are God and think they know better than the Invisible Hand which is the economy. No human can ever out do the markets and no human should try to interfere with the markets to push their cause.

An example of the feral cat is the long list of financial crisis we continue to have and will continue to have. The economists on their ivory towers dictate governmental policy to help push their causes and agendas. Then when the cat attacks them they act surprised and can’t understand why the cat that they thought they tamed attacked. After these crisis (typically financial) the economists all get together and brainstorm why it happened. They then write books on these crisis and give ways on how next time they will tame the economy using new and better methods. Why can’t economists realize that the economy has allocated assets due to the efficient equilibrium? Every time you push it in the direction you want it fights back and makes a market correction. The Invisible Hand principle that the modern economists say they believe is being contradicted every time they try to manipulate the economy. The modern economist is ignorant if he claims to believe in the Invisible Hand and then manipulates the markets in an attempt to please the public.

In conclusion, if you are going to preach economics and use The Wealth of Nations make sure you understand what you are talking about before you preach it. If you ask me a question and I don’t know, I will either tell you I don’t know or I will voice it as it is my opinion. Just be honest!

Economic Thought

As Adam Smith states specialization is key to increasing productivity. The real question is how far should this idea be taken? As globalization increases and economies continue to grow larger and larger should specialization be divided by country, state, city, or corporation?

My thoughts on this topic are as clear as most economics. I feel as globalization occurs and economies continue to grow the spectrum of specialization should continue to narrow. If one was able to graph this idea it would look like a concave function. As civilization began and many people never traveled outside of their village I can see the idea of corporations or families trading or individuals within families trading due to specialization. As economies grew and globalization started to progress countries could benefit from trading those goods that they were good at. Many factors could dictate which goods or services a country was efficient at but the main factors being raw materials and available labor. Now as globalization continues and the movement of goods becomes cheaper and more efficient, specialization at the corporate level seems to be more efficient than other spectrums. I am not stating that only one spectrum is present but the most efficient form of specialization seems to occur more at the present time and in the future with corporate specialization.

This theory seems accurate to me but is my graph right or is it different? Maybe it cycles.