A new economic theory

[Kytro]

I'm not talking about some theory that already exists.

I have a problem with the idea on an isolated economic system in terms of treating the economy as though it is not connected to anything.

Rules are put in place for inflation etc but most system treat them merely as numbers to be shifted around regardless of real-world effect.

I am proposing that a theory be formulated, not based on on numbers but based on median standard of living. The theory should not be idealogical in and of itself.

The key is to ensure that any such system avoid the pitfall of the system being more important that the goal.

In order to create a working system it would require a great deal of study to be undertaken and the system world need to be mostly free of political influence.

[TheScatman]

ever looked at Austrian economics? it based on the idea that society is just made up of individuals and tries to understand human action from that point of view.

[Kytro]

Interesting. I'm not sure it is exactly what I mean, but it does include elements of what I was considering.

[TheScatman]

Originally Posted by Kytro

Interesting. I'm not sure it is exactly what I mean, but it does include elements of what I was considering.

what parts of it interest you? check out Ludwig von Mises Institute Home for more reading if you want

[6SpeedTA95]

Austrian economics has some significant flaws. Until recently it was rooted in a static analysis which ignores many macro factors and also relies on the "rationality" of human behavior.

[Ardentfrost]

Originally Posted by 6SpeedTA95

Austrian economics has some significant flaws. Until recently it was rooted in a static analysis which ignores many macro factors and also relies on the "rationality" of human behavior.

No no, it relies on the PREDICTIBILITY of human behavior. It has nothing to do with rationality. And it's so open ended that if people start doing something that wasn't predicted (for instance, how the environmental movement changed people's spending habits), the economic model is easily adjusted (you just add that into the predictibility).

There's nothing static in Austrian School economics except that human behavior isn't static, but predictable.

Plus there are some great conclusions that can be drawn using that school of thought. For instance how any money taken from the pocket of a citizen is less money he has to spend (makes sense) therefore he will have to prioritize his expenditures (makes sense) therefore those industries which sell the items that got cut from his expenditure list will then have less money (makes sense) which is less money in their pocket (makes sense) which brings us back to state 1, eg., this whole line of reasoning is recursive which means that the economy as a whole is destimulated by the amount taken out of the original person's pocket. Now, the $15k they take out of MY pocket via taxes every year isn't destimulating the economy that much compared to the whole, but look at the total tax collection in the US, and you can start to see a problem. This brings up a good reason why taxes should be minimized to maximize the efficiency and growth of our economy.

I'll go ahead and give you what most people will counter with: the government takes the money and puts it back out in the economy, so the net destimulation is zero. But that simply isn't true. The industries affected by the original citizen having less money still have less money unless the exact amount taken from him that he would have spent in that industry is the exact amount given to that exact industry from the government (I shouldn't have to say how unrealistic that is). So, since an industry is getting the citizens money that he wouldn't have normally spent his money on, a need (which the citizen prioritized out) starts to fail and a false need (one the government spends the money on) arises. That false need takes resources, money, labor, etc... from other industries that the citizens would and do spend their money on (not to mention the overhead costs).

It's the Broken Window Fallacy. If you don't know what that is, check it out here:

Parable of the broken window - Wikipedia, the free encyclopedia

That fallacy is often cited by Austrian School Economists, though often shruged off by Keynsians and more liberal economists by insisting that the government can help the economy, despite the parable

[RMNIXON]

Liberals are experts at ignoring "unitended consequences" and not just in economics, but in all social policy.