Monday, February 27, 2006

Political Boundaries Are Not -- and Ought Not Be -- Economic Boundaries

Don Boudreaux:
"Obviously, I would be better off if I or someone in my family were the bondholder. But my being an American doesn't mean that I benefit if the bond is owned by another American -- or that I suffer if the bondholder is not American. To imagine the contrary is to mistake the nation for the self or the family. It is neither.

Indeed, the nation isn't even the economy -- a fact that explains my indifference to the nationality of economic actors. Our economy isn't American; it's global. It should be reckoned as such."
It is very important to understand how aggregation hides relevant information and often distracts our thinking and analysis. Boudreaux's commentary is a useful illustration. There is no national economy that should be described in our conversations and analysis as an economic decision maker. Individuals are the economic decision makers in the world of economic affairs. Even when there are policy decisions taken by our national government, the decisions are the outcome of a political process by which the choices of many government officials determine the choice government makes. Perhaps thinking of a national economy, or thinking of society, as a decision maker need not lead to faulty analysis. But, it frequently does. It seems to me better, in general, to focus analysis on the choices of individuals.

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