Sunday, July 17, 2005

James McCusker in the Right Direction

From: The Everett Herald, Everett, Washington (State), USA. Sunday, July 17, 2005

"Point A to Point B is about efficiency
By James McCusker

“From the beginning, economics has been about efficiency.
From Adam Smith's "Wealth of nations" to the latest pages of incomprehensible math squiggles in the "American Economic Review," the focus of economics is on the efficient allocation of resources - getting the most out of what we've got.

If your lifetime focus is on efficiency, it's understandable why chalkboards, textbooks and equations might be more attractive than the real world we live in. Forced to contemplate how our commercial airline system actually works, for example, a trained, experienced economist might still be unable to decide whether to laugh or cry.

One of the areas, and there are several, of inefficiency plaguing commercial airlines is the ticketing process. It has been a major source of misallocated resources since the dawn of commercial aviation. And while deregulation and more recently the Internet have helped matters, there is still a mismatch between supply and demand. Here we are, 10 years after, 10 years after Google, 10 years after eBay, and we still have scheduled commercial jetliners cruising the skies with empty seats and lost revenue that can never be recovered."

James McCusker is a Bothell economist, educator and consultant. He also writes "Business 101," which appears monthly in The Snohomish County Business Journal.


What good sense McCusker writes. His analysis of the 'economics' of air travel is informative and worh reading. Economics as it should be: about efficiency. The options for how society might be is about morality nd markets in theri historical context. How correct McClusker is about the way economics has drifted into a sub-branch of mathematics from Adam Smith’s “Wealth of Nations”. Economics long ago ditched Adam Smith’s political economy and preserved wholly incorrect parts of it. However, that is not the only problem.

Economics became a ‘science’ after Ricardo (and in losing its literary roots, it became less readable or understandable, a process finally completed in abstract equations). Once it lost its historical perspective, it lost its way. Regular events became instant ‘problems’, the merest perturbation in an economy and a world crisis became imminent according the the media, and the need to ‘manage’ politicaly the economy emerged with no understanding of political economy and forgetting Adam Smith’s advice to fanatics (and what else is someone who believes he or she can direct the activities of people as if they are “pieces on a chess board”) to desist from their fantasies.

Instead, support the conditions for wealth creation and suppress the conditions that undermine it (largely by not allowing non-competitive policies to take root, such as monopoly, protection, subsidies and tax breaks) and direct such public expenditures as are necessary to encourage education, health and citizenship. Apart then, for the expenditures on defence, law and order and government (including the strict separation of powers, not yet achieved in the UK), lower taxation levels should be a major barrier to increasing public expenditure in ‘schemes’ of unproven value but predictable unexpected expense.

The institution of a Flat Tax would go some way to making public debate on the appropriate level of taxation focus on a simple notion (‘should it be 15, 20, or 25 percent?’) and the impact of fiscal probity and incentives to be productive would have positive effects on the foundations of society.


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