Sunday, March 16, 2014

Marginal Revolution of Economics

Economics is not a science but it has some basic premises/ assumptions, from which economic theories stem. These are:

  1. Assumption that people are rational
  2. Assumption that people will chose to do something only if it increases their 'marginal' utility (i.e., people will do things that increases their satisfaction) 
  3. Assumption that more (consumption) is better than less (consumption)

Point 1 & 2 seem valid and are widely accepted by all thinkers. But many schools of thought reject the notion that more is better than less. Spiritual, religious and even educational institutions propound that consumption has no impact on happiness. More chocolates does not means less depression. Retail therapy is not instant nirvana. 

If point 3 is indeed debatable, then someone needs to re-write Economics. Since the Economic slow down of 2008, interesting new concepts like 'Buddhist Economics', 'Gross National Happiness not Gross National Product' have gathered momentum. And this slowdown of 2008 refuses to end.  So is consumerism really an outdated concept now?

Perhaps, Economics is on the verge of a true marginal revolution.

1 comment: said...

Interestingly economics is not that old a science. SIr william petty developed it in 17th century (including the first GDP computation).

However people are neither rational nor they always seek improved marginal utility.