Macroeconomics is the study of economies no smaller than a nation-state. Microeconomics is alternatively known as The Theory of the Firm. Both of these rely on assumptions about how people make economic decisions and make claims based on aggregate measures of bunches of people. Behavioural economics purports to measure how individuals actually behave in “the market place”. The idea that economics could be based on empirically determined behavior rather than high altitude assumptions is encouraging. One wonders what took them so long.
Complicating the problem of observation vs. assumption is the fact that the object of study – the economy – is evolving at least as fast as ‘progress’ in understanding it. For example, there is one really, really significant change since Adam Smith analyzed the making and using of pins – as in sewing. It’s a lot harder for a person to figure out if a piece of software is going to do her any good than it is for a sewing pin. It’s a lot easier to get another kind of pin if the first one doesn’t work out. Most importantly it takes a lot longer to learn to use it effectively. Suppose I’m comfortable using one program. How do I know when, if ever, a new program will pay me back in productivity and convenience for the time I must spend to learn it. It’s not easy even for people with technical degrees and experience in the software business.
I’ll come back to this.