Real Economics

There’s nothing technically wrong with the idea behind this post, but I have mixed feelings. There are few concepts more basic to economics than the notion utility maximization and that people respond to incentives. When Barry is debunking those notions, he is actually debunking a mistaken understanding of those notions. I agree that you can’t understand what’s going on if you believe people strictly maximize profits – that’s too narrow a view of utility maximization. When economists speak of utility, they should be speaking of all the things that motivate and drive us, all the things that make life worthwhile. This includes, but is not limited to, financial profits. Similarly, incentives are not limited to financial incentives. This larger understanding of utility and incentive is essential to drawing the right conclusions from economics. But I can’t deny that many people, including many economists, fall into the trap of an overly narrow interpretation. But that doesn’t invalidate the correctness of a better understanding. You can understand much about the world by understanding that people really do try to maximize utility (perhaps happiness is a better word) and people really do respond to incentives.

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