Friday, December 30, 2011

Quote On How Economists Measure and Compare

Don Boudreaux quotes David Friedman’s 1996 book Hidden Order:

Economists are often accused of believing that everything  – health, happiness, life itself – can be measured in money.  What we actually believe is even odder.  We believe that everything can be measured in anything.

There you have it: it isn’t about how we measure, it’s about the fact that we measure comparatively: everything is relative.

That actually might be a test for whether someone you’re arguing with is open to the economic way of thinking, or whether that mental door is already closed: do they object to making certain relative valuations?

In a nutshell, that’s the problem with our two measures of poverty: absolute poverty is measured by comparing to a standard of what someone had, while “relative” poverty is measured by comparing only to those we can see right now.

In a nutshell, it also addresses the political problem about how to interpret the scale of Obama’s stimulus package. Is it large relative to some standard stimulus package. Yes, so the Republicans are pushing something analogous to absolute poverty. But, Is the Obama stimulus large relative to recently observed stimulus packages (like Bush’s). Not so much. Thus, the Democrats position is more akin to relative poverty measurement.

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