| I thought the article made a lot of noise about very little. Sure, inflation reports the change in price of an average basket, and some prices in the basket might have gone up a lot, and some down a lot. But that is a different issue, and not inflation. The basket is carefully constructed to mirror what the average consumer consumes. Thus, the inflation of the basket measures how much more the average consumer has to spend on his consumption. That is certainly a useful number. To your further points: - [...] The models are not made properly, and there's a lot of hand-waiving. I'd disagree, you must have come across the wrong models. Theoretical economics has many beautiful models precisely laid out. For example, the Arrow-Debreu equilibrium model [1] utilises "the Kakutani fixed-point theorem on the fixed points of a continuous function from a compact, convex set into itself." I doubt that any engineer can find fault with the specification of that model. Similarly, the Heckscher–Ohlin model of international trade is well specified and yields five informative theorems [2]. To which extent those models reflect, or can be applied to, the real world is an entirely different question of course. Then there is empirical economics, a whole different ball park. But if you look at national accounts [3], for example, all those measurements are defined in excruciating detail, and there are books just dedicated to define the terms correctly. - The pop-sci version of economics is a bunch of easy quips Agreed. Some of them are more informative than others. - The econ 101 version of economics is dominant in popular thought. Yes, and that is quite bad, and is often exploited particularly by the political right, the business-friendly laissez-faire libertarians. James Kwak calls this Economism, and he has a great book about it [4]. - Inflation [...] can't look at it as a single figure. Again, to the extent that it reflects the price increase for the consumption basket of an average consumer: yes, it is an interesting and important number, and in particular, it is one number. Obviously, with more numbers a more nuanced discussion is possible. - Relative price changes are what matter in society. Sure, they matter. But inflation in itself really matters also, per se. By the way, Keynes pointed out that inflation need not be a bad thing. One thinks it is obviously bad because the average consumer has to pay more for his basket, thus can afford less of it. However, if there was, for example, a fiscal stimulus in the wake of a recession, and that leads to everyone having more money at their disposal, and aggregate demand rising, then there will be a new equilibrium with more demand, more supply, and higher prices (=inflation), but the average consumer having more of their basket than before. Good, not bad. [1] https://en.wikipedia.org/wiki/Arrow–Debreu_model [2] https://en.wikipedia.org/wiki/Heckscher–Ohlin_model#Conclusi... [3] https://en.wikipedia.org/wiki/National_accounts [4] https://economism.net/ |
There's a lot of theorems in economics that I basically think of as math theorems. Arrow's Impossibility Theorem for instance. Various things in game theory as well, just about all of Tirole's book (IO? Can't remember).
But I think of them as math, with the very particular term "theorem" precisely because they are defined like math problems, with very specific assumptions.
They are really math theorems that are dressed in economics words like "demand function" in the same way that you can have a theorem in physics, eg the Bubble Theorem about what angles arise. Or that theorem that says you can't balance a magnet statically.
> To which extent those models reflect, or can be applied to, the real world is an entirely different question of course.
That's what engineers tend to care about though.
Now about averages, I think the point really does matter that the person who spends the average basket isn't representative. The guy in the 1% just doesn't care much at all about his beans and rice getting expensive. The family in the bottom 1% may well end up not eating for a day. Sweeping everything into one number causes some real problems with our decision making.