"Economic theory is not rocket science. It is not like theoretical physics--conducting a relatively few crucial experiments to decide on basic theories and then working out the consequences of those theories from first principles. Economic theory is, instead, crystallized history. We take a bunch of historical episodes that seem relevant to the problems of interest of today. We boil down what seem to be their salient features. And then, from the resulting soup and bones, we construct simple stylized models that we think help us understand present and future episodes that fall into the same class."
--Prof. Brad DeLong, UC-Berkeley
When DeLong says that economic theory is not like theoretical physics, he is saying that it was not created out of the blue one day because someone was curious and did a couple of experiments. Economic theory goes hand in hand with history. Economists make decisions hypothesize, learn, and predict based off of history. Therefore, it was not created such as theories of numbers can be, but has evolved over time, and is still evolving.
People say "history repeats itself." That is why it is important for economists to look at history and what has happened in the past. With this information they are able to see how we came out of a recession, depression, or any problem before, and hopefully apply the same or similar solutions to the current problems. In the same way, the can look at what is going well presently, and see how to help encourage it and make it better based on a similar time in the past when the same occurred. While historical situations may be different, such as WWII helping to stimulate our economy during the Great Depression, there will still be similarities to be looked at.
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I really like DeLong's quote. Usually, whenever I hear 'economy' or 'economics' I only think about the financial aspect, which, to me, is a complete turn off. But, when DeLong says that economics is 'crystialized history' that proved to be of interest to me.
ReplyDeleteCierra, I like how you included WWII and the Great Depression. Because today's economy is in the worst state that it has been in since the Great Depression it is interesting to compare the two. While the United States is involved in a war it really isn't helping to boost the ecomony at all, unlike WWII did the Depression.
It would be nice if there were simple guidelines that the government could follow that would guarentee that theUnited States would a fast recovery, however, that is obviously not the case.
This comment was based on both experience and fact.
I'm no expert on the subject, but it seems that this is one case where history simply cannot repeat itself. This is a bittersweet moment as we reach the realization where war cannot solve economic woes. Where manual labor played a big role in the economic success of WWII, machines have now largely taken over the work force.
ReplyDeleteMaybe that's why we're having trouble recovering: if we shifted back from machines to people then unemployment would decrease. Obviously that's completely altering the current direction we're going in but, today's practices are what got us into this mess. I think that a shift is called for.
ReplyDeleteFor instance, I'm really interested in food issues. At this point, food is produced on an industrial level, which is less efficient than small farms and only appears otherwise because of government subsidies. If the government stopped giving giant food corporations tax breaks then the playing field between small farmers and industrial operations would be level and the price would reflect how much more efficient it is to produce food on small farms. This would force jobs back into the economy because it doesn't make sense to buy expensive equipment if food producers are operating on a smaller level. Plus, Mama Earth would be much happier.
Oh man, a liberal hippie activist communist socialist bleeding heart just suggested cutting taxes.
Cutting taxes are not the answer. Taxes were higher under the Clinton Administration than they are now. Food needs to be industrialized in order to provide excess amounts of foods so the United States can ship it around the world for U.S. Aid and scientific productions. Furthermore, how many people would be willing to become farmers? If taxes were raised to a level at the clinton administration it would provide more capital to pay back debts and wars. "Trickle down" economics might have worked for a while under Reagan, but we amasses debt as well by building up the military. Taxes are already low, but our spending is high. Either the country has to be willing to may more, or be ready to lose government institutions.
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