Tuesday, November 2, 2010

Invisible Hand aka god?

After reading over the article for this week I feel like the Invisible Hand sounds like a made up, oversimplified model for trying to understand a deeper more complex issues. The more I think about it the more the Invisible Hand sounds like religion to me. Instead of maybe trying to observe and make scientific conclusions, early humans thought it would be easier to believe in a supernatural power. Im not calling the Invisible Hand supernatural, but I do think it is an overly simplified model for economics. It almost seems like an explanation to soothe economists or people into thinking that, oh well this invisible force is guiding us, all we need to do is have flat tyres, listen to our stupid whiny kids, max out our credit cards, and somehow all the dumb decisons we make will aggregate out ok, becuase some people make good decisions and other makes bad ones.
The article also brought up banks and how money lending worked before the crazy banks came in and ruined our lives. However, I know for a fact that moneylenders in many rural areas in India charge 50% interest, and sometimes even harm borrowers if all the money is not paid back in time. State and federal banks are the only way villagers get fair loans because multinational banks just do not have any incentive to into the villagers to work. Are we still to beliieve that somehow the invisible hand we idolize will solve these problems, just with no management from the outside. The bigger question I have, that maybe someone could help me with is, do we believe that as an aggregate the decisions we make will all lead us towards a more stable economic state without any monitoring?


  1. Name one scientific model that isn't an oversimplification of reality.

    Spoiler: You can't.

    That's because all models are gross oversimplifications and reality is too complex to be condensed to a convenient little model. Pretty much all of modern science is an exercise in the strategic oversimplification of reality. That doesn't make it a religion. That doesn't mean it's not useful. Try again.

    And what makes you think the Invisible Hand should be soothing? Why would it make people complacent? Perfect competition is likely to make firms complacent now?

    Is that all ya got?

  2. richard do you want to punch me?