Normative and Positive Analysis

An important distinction that is useful in our discussions is that between the positive and the normative. When you attempt to understand the way something is, that’s positive analysis; when you state how something ought to be, that’s normative analysis.

Normative statements generally have the word “should” or its equivalent. We should maintain good health. That’s a normative statement. Good health requires good nutrition. That’s a positive statement. That may or may not be true. Here the word positive is not a value judgement; it does not mean good. Continue reading “Normative and Positive Analysis”

All Questions Considered

Suppose there was a course on the Mahabharata. The Indian epic is really large–depending on the version you choose, it can be around 100,000 verses long. It would be practically impossible to even introduce that epic in a few hours, let alone get a comprehensive understanding of what it is about.

How the world works is a complicated matter at least as complicated as the Mahabharata. The best anyone can do is to scratch the surface, and even a mere introduction will have to be severely circumscribed. The good news is that it is possible to understand the fundamentals of how the world works if we are patient and are willing to pay the price in terms of time and effort.

Since this course is entirely voluntary on both sides of the exchange, it must be beneficial. If I didn’t get anything out of the time and effort I spend on it, I wouldn’t do it, and the same goes for you.

If you have questions, I am here to address them as best as I can. If you have questions, you are guaranteed to get answers. At the very least, you will know how to get answers. I certainly don’t know all the answers but I do know the process of how to get answers. But the questions have to come first.

Our online sessions are restricted to just one hour a week. Fortunately that time constraint doesn’t apply on this course blog. All questions posted on this blog will be considered and answered at length. Feel free to ask what’s on your mind. I encourage you to push back on any claims I make.

I am trying to persuade the participants of this course toward a certain point of view through argumentation and logic. If you find it unconvincing, I need to know that. This is a dialogue and its goal is to reach a shared understanding that is closer to the truth about the world we live in.

Let’s talk without reservations and hesitations. All questions considered.

Wealth, Cost and Price

This is required reading for the 2nd online session of Jan 22nd.

In the following, we continue to add to our vocabulary. In the ultimate analysis, it’s all about learning the meaning of words, and then using words to reason about the world. 

First wealth. Then the transformation of natural stuff into wealth by using energy and technology. Then cost and price of stuff. 

In the end, we will note that the cost (and therefore the price) of everything is decreasing all the time. The question we have is this:

What is the one exception to this decreasing cost trend?

Wealth

Wealth is a broad category of material objects. We will use the word to denote all things that people find useful and/or value. Note that people are intimately identified with wealth in the sense that only people — not non-human animals — create wealth and are the evaluating entities. Continue reading “Wealth, Cost and Price”

Hockey Stick of Human Prosperity

In the first session of this course, we noted that human prosperity is really recent in historical terms — only around 250 years old. It is an important point for us to understand since it explains a lot about what the world is like today, we should spend some time understanding it well. Here are a couple of brief videos.

The first is by the brilliant economic historian Deirdre McCloskey. I have immense respect for her. About her, the wiki says she is “the Distinguished Professor of Economics, History, English, and Communication at the University of Illinois at Chicago. She is also adjunct professor of Philosophy and Classics …”

Turn on close captioning (the CC button) in case you have difficulty following her speech. (Reason for her peculiar sounding voice is botched vocal cord surgery.)

The next video also addresses the same point. About the video:

“Professor Don Boudreaux explores the question economists have been asking since the era of Adam Smith — what creates wealth? On a timeline of human history, the recent rise in standards of living resembles a hockey stick — flatlining for all of human history and then skyrocketing in just the last few centuries. Without specialization and trade, our ancient ancestors only consumed what they could make themselves. How can specialization and trade help explain the astonishing growth of productivity and output in such a short amount of time—after millennia of famine, low life expectancy, and incurable disease?”

For those who are interested in more advanced understanding of the subject, here are two papers for your reference, both by Art Carden and Deirdre McCloskey.

NOTE: The videos are required viewing but the papers are merely suggested reading and not required for the beginner student.

Reading Assignment #2

For the 2nd session of our online meeting on Friday 22nd at 9 PM IST, this is the reading assignment. Click this link to open pdf file in a new tab, or right click to save file. The document is around 2,850 words long. The nominal reading time is 45 minutes.

Please have your questions and comments ready for class time. Talk to you on Friday.

I will publish additional material tomorrow.

Update: I have published additional reading material here.

Jan 15th Session Recordings

The recordings of our first Zoom online session of Jan 15th are here.

Click to download the following:

If you need to review the session, or have missed the first session, this may be useful for you. Please feel free to ask questions in the comments below.

UPDATE: The links above were not quite what I had on mind. They required permission. I have changed them so that they don’t need permission.

Why Economics

A bit of history. The systematic study of economics starts with the publication of a book in the year 1776. Adam Smith is the celebrated father of modern economics. He was one of the greatest minds of what is known as the Scottish Enlightenment. About 250 years ago he wrote a book titled “An Inquiry into the Nature and Causes of the Wealth of Nations.”

At that time, there was no discipline called “economics.” It was called “political economy” which was a part of “moral philosophy.” Adam Smith was a moral philosopher. In that tradition, economists have been called “the worldly philosophers.”

This course is not directly about economics. So why this chatter about economics? This course aims to introduce the subject of how the world works. A great deal of how the world works is explained by economics.

Let me stress that. Economics explains some aspects of how the world works. It doesn’t seek to explain all aspects of the world. The world is far too big and far too complex for any one discipline to explain it all.

Economics explains an important part, as you will eventually see. Learning how the world works is a rewarding exercise. You get answers to some questions that may have puzzled you. But there’s more. You will learn answers to questions that you didn’t even have.

Here I am going to make a bold claim. It is this: Most people don’t know how the world works. But it’s worse than that. What most people believe they know about how the world works is actually wrong.

How do I know that? I know that from personal experience. Only after I began learning economics did I realize that much of what I thought to be true was actually false.

The one important thing that a study of economics does is that it makes you less wrong. I think there’s utility in being less wrong. Because if we are wrong, people who know better will think we are stupid when in fact we are just ignorant. Stupidity cannot be cured but ignorance can be easily fixed.

But we are ignorant of a vast number of disciplines. So why this focus on economics?

Fact is that economics is different from other domains in one particular sense. People have preconceived notions about economic matters but not in other matters.

A person who has never studied quantum mechanics (or evolutionary genetics or whatever) does not hold wrong ideas about quantum mechanics (or evolutionary genetics or whatever.) Why? Because he simply does not hold any ideas about any specialized subjects outside his expertise.

But everyone has some ideas of how the world works. And nearly all of those ideas are related to economics. And they are generally wrong — unless of course one has studied the subject. Our naïve intuition (common sense) is a very, very poor guide when it comes to understanding how the world works. 

Economics helps us develop our common sense. In fact it is fair to say that all the fundamental truths of economics are nothing but common sense. Fortunately, we all have the mental capacity to get a very strong grasp of those fundamental truths. This is not true of quantum mechanics. Most of us — including yours truly — are just not capable of understanding QM even if we were taught by the great Richard Feynman. (Video of Feynman talking about QM.)

To understand how the world works, we have to exercise our common sense muscles. That involves looking at the world through different sets of “optical instruments” (if you would pardon the mixed metaphors.)

Normally we just use our unaided eyesight to examine the world, so to speak. But sometimes you have to use a microscope and look at tiny details; and sometimes you have to use a wide-angle lens to capture the big picture. Then you combine the microscope view (or ground level view) with the wide angle view (or 40 thousand feet view) to understand a bit of how the world works.

Among other things, this course will introduce a set of tools that will help us understand how the world works. Here’s a hammer, here’s a saw, here’s a screw driver, here’s a tape measure, here’s a spirit level, here’s a circular saw. Here’s how to use those. Practice using them and soon enough you will be able to construct something that’s useful and elegant.

So too this is just an introduction to a few tools on how to think about the world, and a bit of demonstration of how to use them. You’ll be surprised how elegant the product is.