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LOVE - Essay Example

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Economists have long used two assumptions—(a) that humans are highly rational and informed, and (b) that humans act in their own self interest—to design policies. What are the benefits of these assumptions and what are the limitations? Should we continue to approach…
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Download file to see previous pages The implementation of Adam Smith’s ideas of a free market economy, where the invisible hand would determine how, what and how much to produce in what quantities was a radical concept, as was his assertion that saving is better than consumption, giving rise to a capitalist economy. It was supported by David Ricardo’s Theory of Comparative Advantage as the basis for international trade and exchange. Modern societies depend on elected leaders and thinkers as they try to find solutions to our communal problems and bring a sense of order and belonging to our daily lives. This involves the formulation of policies that are in the public interest. In fact the degree of evolution of society can be traced to the quality of its laws, policies, procedures, ethics and morals that define and perpetuate its existence. A qualifying criticism that can be leveled against policy makers is that they tend to act in their own self interests rather than in the public interest. In other words, power tends to corrupt the best of individuals as they tend to seek what is best for them rather than society at large. F.A. Hayek saw these deficiencies in the mechanism of socialist economies as well as a capitalistic system. He argued that it was liberalism that needed to be included in the system to make it work better (Hayek, 23). Ronald Coase would interject that social costs would also enter into the equation of deciding the price of a good, as few entrepreneurs or capitalists have the capacity or talent to produce goods themselves (Coase, 12).
The answer to this quandary would therefore lie in public and private watchdogs, professional and private agencies that make it their duty to point out the good and bad points of evolving laws and policies- much like a Board of Governance in a modern organization. The only caveat is that they should be answerable to no one but society at large. If we truly acted principally in the public interest and not just our own, we would soon realize that ...Download file to see next pagesRead More
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