2.5 – Confronting Objections to the Orthodox Economic Approach
2.5 – Confronting Objections to the Orthodox Economic Approach
Learning Objectives
- Analyze arguments against orthodox economic approaches to decision-making
- Interpret a tradeoff diagram
- Contrast normative statements and positive statements
It is one thing to understand the orthodox economic approach to decision-making and another thing to feel comfortable applying it. The sources of discomfort typically fall into two categories: that people do not act in the way that fits the economic way of thinking, and that even if people did act that way, they should try not to. Let’s consider these arguments in turn.
First Objection: People, Firms, and Society Do Not Act Like This
The orthodox economic approach to decision-making seems to require more information than most individuals possess and more careful decision-making than most individuals actually display. After all, do you or any of your friends draw a budget constraint and mutter to yourself about maximizing utility before you head to the shopping mall? Do members of the U.S. Congress contemplate production possibilities frontiers before they vote on the annual budget? The messy ways in which people and societies operate somehow doesn’t look much like neat budget constraints or smoothly curving production possibilities frontiers.
However, the orthodox economic approach can be a useful way to analyze the tradeoffs of certain economic decisions. To appreciate this point, imagine for a moment that you are playing basketball, dribbling to the right, and throwing a bounce-pass to the left to a teammate who is running toward the basket. A physicist or engineer could work out the correct speed and trajectory for the pass, given the different movements involved and the weight and bounciness of the ball. But when you are playing basketball, you do not perform any of these calculations. You just pass the ball, and if you are a good player, you will do so with high accuracy. Indeed, if you were a professional player, the competition you engaged in to get to that level almost certainly ensured that high level of skill.
At the same time, the fact that a good player can throw the ball accurately because of practice and skill, without making a physics calculation, does not mean that the physics calculation is wrong.
Similarly, from an orthodox economic point of view, someone who goes shopping for groceries every week has a great deal of practice with how to purchase the combination of goods that will provide that person with utility, even if the shopper does not phrase decisions in terms of a budget constraint. So, when thinking about economic actions it is reasonable as a first approximation, to analyze them with the tools of orthodox economic analysis.
Second Objection: People, Firms, and Society Should Not Act This Way
The orthodox economic approach portrays people as acquisitively self-interested. For some critics of this approach, even if acquisitive self-interest is sometimes an accurate description o