The Productivity Commission celebrates the tenth anniversary of its formation this year. It was formed through the amalgamation of three predecessor bodies. These were the Industry Commission, the Bureau of Industry Economics and the Economic Planning Advisory Council. It is worth noting that the Industry Commission itself was formed from the former Industries Assistance Commission, which had earlier been formed from the former Tariff Board.
The Productivity Commission and its predecessor bodies have made many important contributions to the research and analysis of microeconomic issues facing the Australian economy. A nice discussion of the quantitative techniques used in some of the microeconomic research conducted by the Productivity Commission can be found in the following paper by Dr Philippa Dee, a former head of the Productivity Commission's Trade and Economic Studies Branch:
Dee, P (2005), Quantitative modelling at the Productivity Commission, Productivity Commission Consultancy Paper, Productivity Commission, Melbourne.
This paper is available online at this part of the Productivity Commission's website.
Disclosure: I have previously worked for the Productivity Commission on two separate occassions.
Update: As a further disclosure, I should probably note that during one of the occassions that I worked at the Productivity Commission, I was located in the Trade and Economic Studies branch while Dr Philippa Dee was the head of that branch.
Friday, March 28, 2008
Friday, March 14, 2008
Editorial policy
Please note that I reserve the right to edit blog posts after they have been published on this blog. Furthermore, I reserve the right to delete blog posts after they have been published on this blog. In the event that such edits or deletions are made, I am not obliged to indicate this. Finally note that this policy applies retrospectively. Indeed, it has already been applied retrospectively. Earlier today, I deleted two blog posts and made a minor edit to one other post. The minor edit consisted of adding a single word ("tell") to the end of a sentence ("Only time will tell") in the first post on this new version of my blog ("A new beginning").
Saturday, March 1, 2008
What economics means to me
The following is a short essay on "what economics means to me". It has previously appeared on the original version of this blog and in the series of short essays about "What economics means to me" on the website of the Department of Economics at the University of Texas at Austin.
Short essay
"I am an economist by trade, training and choice. Economics is both a career and a hobby to me. In this short essay, I briefly set out some of my thoughts on the nature of economics, where it has come from and where it is going. Economics is a social science. Like other social scientists, economists attempt to understand the forces that shape the behavior of individuals, the formation of institutions and the structure of societies. The factor that differentiates economics from the other social sciences is a focus on scarcity. If scarcity is present, and it almost always is, then economic analysis is likely to shine some light on the phenomenon being considered. Scarcity forces trade-offs. As the saying goes, there is no such thing as a free lunch!
Economics began as a distinct discipline with the publication of Adam Smith's An inquiry into the nature and causes of the wealth of nations in 1776. This publication introduced the concept of the invisible hand, referring to the process by which the interaction of agents in unimpeded markets resulted in an improvement in social welfare. The logic underlying this result is incredibly simple. If two people choose to trade with each other, then both of them must be better off. After all, if this were not the case, then the agents would not agree to trade in the first place. Despite the simplicity of this idea, it took the best part of two centuries for economists to formally establish the conditions under which this result is true. During that time, the primary focus of economics was on the operation of markets in a competitive setting and the properties of the resulting allocation of resources. This work culminated in the establishment of the existence and welfare properties of a general competitive equilibrium. These results are incredibly important because they provide a benchmark model of the operation of an economic system. This benchmark model establishes the conditions under which Adam Smith's invisible hand actually works. It also provides a starting point for the analysis of what happens when these conditions are violated.
While the general competitive equilibrium model of an economy provides an important benchmark, it leaves many of the most interesting questions unanswered. In particular, it does not provide an explanation for the existence of many economic and social institutions. These include families, firms, clubs, retailers, unions, governments, money and even markets themselves. Furthermore, the general competitive equilibrium model of an economic system does not provide an analysis of the nature of competition when economic agents are neither so small that they have no influence on the markets in which they participate nor so big that they completely dominate the markets in which they participate. Nor does it provide an analysis of the process of price formation. An analysis of the existence and operation of institutions, the nature of competition and the process of price formation all require the use of game theoretic techniques. Many of these techniques have only recently been developed to a point at which they can begin to be used in analysing these phenomena. The potential for game theoretic techniques to shed light on some of these important aspects of societies that we do not yet completely understand ensures that it is an exciting time to be an economist."
Short essay
"I am an economist by trade, training and choice. Economics is both a career and a hobby to me. In this short essay, I briefly set out some of my thoughts on the nature of economics, where it has come from and where it is going. Economics is a social science. Like other social scientists, economists attempt to understand the forces that shape the behavior of individuals, the formation of institutions and the structure of societies. The factor that differentiates economics from the other social sciences is a focus on scarcity. If scarcity is present, and it almost always is, then economic analysis is likely to shine some light on the phenomenon being considered. Scarcity forces trade-offs. As the saying goes, there is no such thing as a free lunch!
Economics began as a distinct discipline with the publication of Adam Smith's An inquiry into the nature and causes of the wealth of nations in 1776. This publication introduced the concept of the invisible hand, referring to the process by which the interaction of agents in unimpeded markets resulted in an improvement in social welfare. The logic underlying this result is incredibly simple. If two people choose to trade with each other, then both of them must be better off. After all, if this were not the case, then the agents would not agree to trade in the first place. Despite the simplicity of this idea, it took the best part of two centuries for economists to formally establish the conditions under which this result is true. During that time, the primary focus of economics was on the operation of markets in a competitive setting and the properties of the resulting allocation of resources. This work culminated in the establishment of the existence and welfare properties of a general competitive equilibrium. These results are incredibly important because they provide a benchmark model of the operation of an economic system. This benchmark model establishes the conditions under which Adam Smith's invisible hand actually works. It also provides a starting point for the analysis of what happens when these conditions are violated.
While the general competitive equilibrium model of an economy provides an important benchmark, it leaves many of the most interesting questions unanswered. In particular, it does not provide an explanation for the existence of many economic and social institutions. These include families, firms, clubs, retailers, unions, governments, money and even markets themselves. Furthermore, the general competitive equilibrium model of an economic system does not provide an analysis of the nature of competition when economic agents are neither so small that they have no influence on the markets in which they participate nor so big that they completely dominate the markets in which they participate. Nor does it provide an analysis of the process of price formation. An analysis of the existence and operation of institutions, the nature of competition and the process of price formation all require the use of game theoretic techniques. Many of these techniques have only recently been developed to a point at which they can begin to be used in analysing these phenomena. The potential for game theoretic techniques to shed light on some of these important aspects of societies that we do not yet completely understand ensures that it is an exciting time to be an economist."
The subject matter of economics
My favourite definition of economics is the following one:
"--- economics is the science which studies how scarce resources are employed for the satisfaction of the needs of men living in society: on the one hand, it is interested in the essential operations of production, distribution and consumption of goods, and on the other hand, in the institutions and activities whose object it is to facilitate these operations." (Italics in original.)
This definition comes from page 1 of Malinvaude, E. (1972), Lectures on microeconomic theory, Advanced Textbooks in Economics Volume 2, North Holland Publishing Company, Scotland(translated by Mrs. A. Silvey).
One reason that I like this definition is that, in addition to emphasising the importance of scarcity, it actually goes on to discuss the types of questions that are addressed by economists. In particular, I like the fact that it mentions institutions.
As I see it, the key components of the subject matter of economics are:
1. The presence of scarcity;
2. The behaviour of individuals who are faced with scarcity;
3. The interaction of individuals who are faced with scarcity; and
4. The existence and operation of institutions to facilitate the interaction of individuals who are faced with scarcity.
Note that the presence of scarcity is the central defining feature of the subject matter of economics. In the absence of scarcity, economics would not exist. There would be no need for it!!!
"--- economics is the science which studies how scarce resources are employed for the satisfaction of the needs of men living in society: on the one hand, it is interested in the essential operations of production, distribution and consumption of goods, and on the other hand, in the institutions and activities whose object it is to facilitate these operations." (Italics in original.)
This definition comes from page 1 of Malinvaude, E. (1972), Lectures on microeconomic theory, Advanced Textbooks in Economics Volume 2, North Holland Publishing Company, Scotland(translated by Mrs. A. Silvey).
One reason that I like this definition is that, in addition to emphasising the importance of scarcity, it actually goes on to discuss the types of questions that are addressed by economists. In particular, I like the fact that it mentions institutions.
As I see it, the key components of the subject matter of economics are:
1. The presence of scarcity;
2. The behaviour of individuals who are faced with scarcity;
3. The interaction of individuals who are faced with scarcity; and
4. The existence and operation of institutions to facilitate the interaction of individuals who are faced with scarcity.
Note that the presence of scarcity is the central defining feature of the subject matter of economics. In the absence of scarcity, economics would not exist. There would be no need for it!!!
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