“Textbooks describe economics as the study of the allocation of scarce resources,” said Ben Bernanke on Monday morning. “That definition may be the ‘what,’ but it certainly is not the ‘why.’” He was speaking to the International Association for Research in Income and Wealth, and “why” is not a question that Federal Reserve chairmen tend to ask in front of any audience. The Fed is charged with two precise, measurable tasks: Keep unemployment low and prices stable. These are indexes, numbers on a scale, and if a Fed chairman can keep them where they should be, he can be satisfied that he has done his job. In that sense, Bernanke is playing the world’s most complex video game.
But in Monday’s speech, Bernanke wandered outside the game. He asked why he should keep prices stable and unemployment down. Those numbers mean things to humans. They mean satisfaction, the ability to live within means. They mean happiness. These kinds of words make economists uncomfortable. Happiness resists measurement. When things cannot be measured, they cannot be modeled, and if economists aren’t using models, then they aren’t scientists.
On Monday, Ben Bernanke wasn’t talking like a scientist. He was talking like a philosopher. “The ultimate purpose of economics, of course, is to understand and promote the enhancement of well-being,” he said. To a roomful of economists, he suggested that the measurements they were using, like gross domestic product and personal consumption expenditures, were inadequate to that understanding. “Aggregate statistics can sometimes mask important information,” he said. Translation: People are unhappy, and we don’t know exactly why. “We should see better and more direct measurements of economic well being,” he said, “the ultimate objective of our policy decision.” Translation: I know it’s hard to measure happiness. Start doing it, anyway.
Economeka by Kampamba Shula
If I haven't indicated on this site before I am a Big fan of Ben Bernanke.He exudes an aura of insight that is unparalleled in economics.
After reading this Bloomberg article I couldn't help but agree with the overall sentiment implied by Bernanke.
Economics is meant to improve the lives of people but the metrics used such as GDP don't fully represent the interests of society.This is the reason many people complain that the benefits of higher GDP don't trickle down to the ordinary Jim and Jack.
In short I must agree that we need better and more accurate measurements of economic well being.This calls for a revolution of economics from its academics to its application.
To do this Economics has to shift from the "what" is allocated from scarce resources but more importantly to the "why" it is allocated.This requires a paradigm shift of perception.
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