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Archive for the ‘Economics and Finance’ Category

Economics? Skip the Intermediate Step!

Posted by Michael Dickens on October 8, 2010

The purpose of economics is to allocate scarce resources among unlimited wants. Why do economists want to do this? There are some underlying assumptions behind this purpose.

Why would anyone want to allocate scarce resources? The reason is that more effectively-allocated resources will foster greater utility. People will be happier. It is impossible for an economist to try to figure out the best ways to allocate scarce resources without claiming that this system of allocation will have people be better off. The very act of practicing economics contains a hidden claim that we should increase happiness, and increasing their resources will increase their happiness. All economists — whether they realize it or not — are Utilitarians.

I happen to agree with the assumption that people should be made as happy as possible. But there is a second assumption underneath economics which almost everyone will disagree with. Economics assumes that people will be happier if they have more stuff.

This assumption is certainly true to an extent. But as we all know, money can’t buy happiness. If the purpose of economics is to maximize utility, but it can only do so in a very limited sense, then it is failing to fulfill its deeper purpose. Therefore, I propose that we skip the intermediate step and create an entirely new kind of economics. Why bother going to all this work to allocate resources when we could instead spend that time trying to maximize utility? There will certainly be some resource allocation involved in the process, but there will be many other aspects as well. What exactly those aspects will be, I do not know. But that’s part of what we’ll have to find out.

I am not the first person to think economically about happiness. A handful of influential people have worked on measuring the happiness of different groups or nations. But I don’t think we should have just a handful. Every economist should be trying to maximize utility, instead of just focusing on one small part of it (the part that money can buy).

A common objection to Utilitarianism is that it’s very difficult to measure happiness. This is exactly the sort of problem that would be solved if we had more economic manpower devoted to maximizing utility. Measuring people’s wealth is a difficult problem, too, but we’ve gotten quite good at it because we had a lot of people spending a long time on it. If we focused on happiness rather than just wealth, I have no doubt that we could come close to as good at measuring happiness — or even as good — as we currently are at measuring wealth.

Economics is useful, and even serves to make people happier, but it is limited to material goods and services. As it is, economics does not know how to maximize joy and minimize suffering. It only deals with what can be bought and sold. Instead of spending so much time and effort on maximizing wealth, we should be focusing on what’s truly important. And then we will start to see a better, happier world.

Posted in Economics and Finance, Ethics, Utilitarianism | 1 Comment »

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