30 May 2007

Individuals make mistakes, but governments' are worse

Jonathan Rowe hits the nail on the head:

The supposed “rationality” of homo economicus is necessary for the computer models. But in terms of reality it’s out to lunch. ... Th[e] ultimate metric is the Gross Domestic Product or GDP, which is more commonly known simply as “growth.” But growth is just the sum total of all our buying, much of which is questionable even by the people who do it. Spend a fortune on cigarettes, develop lung cancer, spend another fortune on medical treatments – and voila, growth up the kazoo. ... That there is waste in government is obvious; but the question is compared to what? We individuals are wasteful too. Corporations are paragons of waste, as a glance at executive compensation packages would suggest, Without waste, this thing we call an “economy” would grind to a halt.
One difference, though is that, as I think Milton Friedman pointed out, individuals learn, governments don't. But the point about flawed nature of the GDP metric is well made. It's not only a metric, it's a de facto target of governments the world over. Individuals have more of an excuse for their waste: it's their own money after all, and the consequences mainly fall on themselves. Government, with its teams of officials, advisors, committees and access to academic experts has less of an excuse, and its mistakes have impacts on all of us.

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