Economist:  “Assume You Have a Can Opener”*

Everything I learned about economics at Stanford turned out to be useless.

economicsIn fact, worse than useless, because it was wrong, and therefore had to be flushed (unlearned).

(Sorry, Mom; sorry, Dad.  Thankfully, not everything I learned in college was for naught.)

Economics’ Dark Age

In Stanford’s defense, once upon a time (in the late ’70’s/early ’80’s), economics students everywhere were taught flawed theory.

The fundamental flaw?

The assumption that individuals are rational, utility-maximizing actors.

Whether the “utility” was money or pleasure or some other benefit, people could be assumed to conduct their affairs to get more of it.

Except, of course, that people demonstrably behave irrationally much of the time.

To disinterested third parties, their behavior appears unpredictable, and therefore difficult if not impossible to model, let alone forecast — heretofore economics’ holy grail.

Further complicating economic forecasts:  the point of view — famously expressed by Steve Jobs and others — that people don’t know what they want, at least until you show them.

Still others note that people often behave altruistically, focused on maximizing the welfare of others (their immediate family, community, etc.).

Obsolete Assumptions

Why does any of that matter in late 2015?

Because it begs the question, “what else might mainstream economics be wrong about, now?”

My candidate:  the presumption of scarcity.

Even more than human rationality, scarcity underpins the study of economics — which, after all, is devoted to how best (efficiently, fairly, etc.) allocate scarce resources such as capital, labor, and raw materials.

From Capital, Labor, and Raw Materials to Software & Algorithms

That approach made sense in Adam Smith’s 18th century world — a world that preceded steam engines, let alone computers.

But in today’s virtual, software driven world, more and more things are the opposite of scarce.

Take software itself.

Digital algorithms can be replicated infinitely for zero marginal cost.

While fossil fuels such as oil and shale are ultimately finite, solar energy is theoretically unlimited, should mankind ever master fully harnessing it.

Economics in the Long Run

Combine renewable energy, free software (or at least marginal cost), and infinite labor (think, robots), and suddenly the future promises abundance, not scarcity.

Add it all up, and what does the proverbial long run hold for economics?

My guess:  the “dismal science” goes away, absorbed perhaps by Psychology (the nascent field of Behavioral Economics being a precursor).**

*Punch line to a famous joke about a physicist, chemist, and economist stranded on a desert island with one can of food, and no way to open it.

The physicist and chemist each draw upon their backgrounds to open the can, whereupon the economist proclaims, “assume you have a can opener!”

**If so, it would be fitting turnabout from the days when seminal thinkers like Freud and Carl Jung were taught in Stanford’s Religious Studies department.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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