The Economic Story so Far

We are done with around half the course so far. In trying to understand how the world works, we looked at the world as it exists today through the lens of economics. There are multiple ways of looking at the world — historically, socially, culturally, geographically, scientifically, and so on. Why the focus on economics then? The trivial reason is that economics is the primary tool I have to explain the world.

The less trivial reason is that economics is the singular discipline that comprehensively explains how the world of humans works and why it works this way and not another. The hard sciences do a great job of explaining the world of inanimate matter. Economics explains the way the world of humans works. Continue reading “The Economic Story so Far”

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”

More People, Better Earth — Part 4

{Read part 3 here.}

In his extended comment, Ghost of Hamlet wrote:

…  More innovation leads to better quality of life. … But is this relationship truly infinitely scalable? Can we have 50B people on earth and have an exceptionally advanced society ?

Is anything infinitely scalable? No but some things can be indefinitely scalable for practical purposes. With 10th century CE technology, the world could not have supported even 10 million people at the average level of consumption that 7.8 billion people currently enjoy. And with 21st century technology, it is reasonable to expect that the average standard of living (which is another way of saying consumption) will continually increase — barring the insanity of some global nuclear conflict.[1] Continue reading “More People, Better Earth — Part 4”

More People, Better Earth — Part 3

{Read part 2 here.}

How much of the great scientific advances involve random guess work and wild conjectures? Would that be zero percent or 10 percent? How much of technological progress depends on luck, serendipity and accidental discovery? Would that be 20 percent?

The answer is 100 percent. Scientific progress is made by pure guesses. The process is simplicity itself. Some random person makes a random guess about some random subject that happens to interest him. Then he works out the logical implications of that guess, and then announces that the world is this way, and people try to prove the whole thing wrong, and if nobody is successful in proving it wrong, it gets accepted to be true of the world, and the guy who started with that random guess is called a scientist.

The popular perception of science and technology as enterprises where luck and guesswork are not involved is 100 percent wrong. Continue reading “More People, Better Earth — Part 3”

More People, Better Earth — Part 2

{Read part 1 of this series.}

There is a pervasive persistent popular misconception. It goes this way: that the world is like cows grazing on a pasture. If there are a lot more cows than the pasture can sustain, then at some point given enough time, the cows will deplete the available grass and the pasture will be exhausted and that will be the end of the story.

This is obviously logically true. But that’s because cows don’t increase the capacity of the pasture; they only deplete it. Cows don’t have the ability because they don’t have brains that develop technology to increase the carrying capacity of the pasture. But humans are not cows. Humans have the ability to increase the capacity of the land they have by inventing resources they need.

Recall that resources don’t exit in nature. All resources are human-made. Sure nature provides the raw materials but they only becomes resources after humans invent appropriate technology that transforms stuff into resources. Continue reading “More People, Better Earth — Part 2”

More People, Better Earth — Part 1

One of the more compelling reasons for understanding how the world works is that it helps in reasoning ourselves out of wrong ideas. I speak from personal experience. Among all sorts of wrong ideas, I used to think that overpopulation was one of the reasons that some countries are poor. The logic was not wrong — only the underlying assumptions were wrong. I wasn’t any stupider than I am today. I was only less informed about what the world is about than now. Now I know better only because I have had the time and the inclination to learn how the world is.

The logic of something can be water-tight but if you begin with wrong premises, the conclusion will be wrong. You have to get the premises right to have any hope of reaching correct logical conclusions. Continue reading “More People, Better Earth — Part 1”

Freedom to Discriminate

Anirudh asked:

What about a hospital that denies treatment to a person based on their race/religion? What about a hospital that agrees to treatment or waive off the bill, subject to the condition that the customer convert to their religion?

That was in response to my post on “Anti-discrimination Laws” where I stated my position on the matter  —

I have two, and only two, rules with regards to discrimination: First is that every entity (individual and collective) should have the freedom to discriminate to its heart’s content without interference from third parties. The second is that the government must be strictly forbidden to discriminate against any person or group. Continue reading “Freedom to Discriminate”