Model economics

Not knowing about economics is hard. This is the main reason I want to start a degree in economy next year: I am going to absorb that knowledge and spread it as fast and wide as possible. The Foundation for Economic Education (fee.org) has the right name but, sadly, it turns out not to live up to it.

This article in the web page defends government regulation of the economy is unnecessary, as the market will self-regulate thanks to boycotts and consumers making the right moral choices (“Moral outrage makes markets work: social signaling makes top-down regulation irrelevant”). It is an extremely attractive theory, and it looks like it should work, all the more in a society where social networks and wide access to the internet makes it easier for citizens to share information. This is the kind of model economics taught in universities: they make for very nice and clean explanations.

There are two fundamental flaws, however: first, assuming consumers are absolutely free to choose and, second, that they have perfect access to information. This is so much not the case it really surprises me the author was able to ignore reality long enough for him to be able to finish the article. We are not free to choose. Our salaries, to start with, condition what we can buy. It would be absolutely in our best interest to buy free trade products, to only buy from companies that do not participate in human rights violations and do not exploit the poor. It’s just that we cannot. The price attached to those products makes it impossible. Furthermore, not everyone knows what is in their best interest, as even when the information is available it takes time and a previous education to be able to understand certain facts. What’s more, we are still influenced in a great deal by what the mass media say. These media know how to explain better, make it sound more convincing, influence more.

The consumer is seldom perfect, and this makes top-down regulation not only a good idea but a necessity for society to thrive.

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