Wednesday, March 18, 2009

wrong economic theory fundamentals

I've been thinking about economics recently. Specifically about how it's foundation is a bit backwards. I don't really have time to write much, but the general idea goes a little something like this:

Classical economics states that the purpose of an economic system is to distribute scarce resources.

This was thought up at a time when resources meant something. When they were a limiting factor. When engineering, marketing, branding, and science barely existed.

I think that today, there virtually are no scarce resources. I'm wrong about this, obviously. Energy is a scarce resource. But, with energy, basically everything else becomes plentiful.

Instead, the vast majority of wealth creation has nothing to do with scarce resources. Wealth is created via added value actions. Specifically, humans modifying or creating things out of basic materials to male them more valuable to other humans.

If the vast majority of value is added by humans, rather than fundamental to the resources themselves, then economics that focus on the resources are missing most of the picture.

An example of why this matters:

From the classical perspective, poor countries are a good thing because they mean that the physical resources of that country can be exploited by he wealthy countries.

From my perspective, poor countries are a lost opportunity because each unemployed person is unable to add value to the system. Each untrained mind and underutilized pair of hands is a lost opportunity for humanity. There is no telling what great works of art or scientific discoveries aren't being made by the billions living hand to mouth right now.

I'm at a Power Systems Conference and Expo right now that brings this point home. I've listened to about 20 technical presentations on details of wind integration, turbine modeling, power system planning, etc and at least 80% of them have been given by PhD's whose parents or grandparents were (or are) probably subsistence farmers.

Naturally, there is also the problem of the selfish materialistic assumptions of modern economics that helped prepare investment bankers to create the mess we're struggling through right now, but I have no time for that right now.

It should be noted that I barely know what I'm talking about when it comes to what is an isn't classical economics, so it may be that there is a branch of it that believes as I do. If anyone can provide a reference, I'd be interested in reading it.

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