The Economy: An Institution of Human ChoicePosted: May 26, 2011
There is a reason why the Economics Department is housed in the Social Science colleges of most Universities. The economy, like politics, sociology and geography is susceptible to manipulation through human activity and choice. In fact, the economy is the aggregation of a specific kind of human choice, broadly the consumption of goods and services.
One thing that a financial crisis tends to reveal is that we are perhaps more tied to each other than we thought, where the daily judgment calls of key individuals can impact the lives of millions of people, as well as the global economy. The fact of interrelation in and of itself is not to be bemoaned. It is the result of a necessary shift away from tangible assets that backed transactions (bartering a goat for animal hides, for instance) as we increased our reliance upon representational value to facilitate business and personal transactions. The move to representational forms of value required sophisticated mechanisms to track and record the ownership of a new class of items such as stocks and bonds, currency not tied to physical deposits of gold, insurance policies, etc. While this representational value leads to gains in the economy due to an influx of previously latent capital, it also leaves some exposure to economic fluctuations which were mitigated when people’s activity was limited to dealing in tangible items. Thus the choices we make play out in ways that we may not know the full impact of in a modern economy, and the economic issues of our time – austerity, stimulus, industrial policy, fiscal controls – are then in some ways the refinement of our experience with this representational form of value and choice.
There are promising tools on the horizon, however, that may inform the economic policy levers that we pull. Efforts being championed by the Pew Center for the States, attempt to make sense out of state-level economic policy options by creating cost benefit models based on actual programs that have been implemented across the country, as well as the program’s results. So perhaps there is hope that we are not destined to relive mistakes of unintended economic impacts, but that future choice may be informed by experience based knowledge whose success is measured by results