Knowledge of Economics

In this very short course the attempt is to introduce a few basic economics concepts. As is true of all practical and academic disciplines, a deep study of economics requires a lifetime. But the good news is that knowing the really fundamental bits has very high return on investment. The investment is a few hours of study and reflection, and the return is a better appreciation of the magic of our world. That investment is forthcoming only if there is an interest in understanding the world.

I think part of the misery that humans suffer is entirely the consequence of plain ignorance and stupidity. Ignorance leads people to do things that increase suffering. Individual ignorance has externalities — not only the person suffers but he makes others suffer too. And when there is a lot of ignorance in a population, that society ends up suffering.

However, I have made it clear previously that one can live a perfectly good and enjoyable life without knowing anything about how the world actually works. One can be totally ignorant about basic facts of the world and still cause no harm to themselves or others.

But the problem is that in general if a sufficiently large segment of the population believes in wrong ideas, they’ll end up making stupid demands and that leads to bad policies and to misery all around.

Examples of policies: minimum wage laws, rent control, anti-discrimination laws, licensing laws,  etc. These policies are demanded by ignorant voters and imposed on society by self-seeking politicians and bureaucrats.

Among the worst things that a country can have is a big government. Big government happens because people want the government to be big. People are like Dr Frankenstein and they create the monster that is big government.

That is why we should be afraid of having too many ignorant people in any society that is democratically run. Democracy and ignorance is a dangerous combination.


In the next online session, we will discuss a number of related concepts.

        • The Water Diamond Paradox
        • The Marginal Revolution
        • Subjective Theory of Value
        • Comparative Advantage

Homework? Watch this brief presentation.

Hayek on the Impossibility of Designing Society

Societies are not machines made of inert matter engineered by designers; societies are ecosystems of organisms that have minds which have volition and act purposefully to achieve their goals.

Social engineering — the deliberate transformation of an entire society according to some design — is doomed to failure because people are not inanimate objects that can be manipulated at will. The basic difficulty boils down to a lack of knowledge and the open-ended nature of the future. Nobody has the required knowledge of the present conditions of every person in society and the future state of the society. Continue reading “Hayek on the Impossibility of Designing Society”