Tuesday, May 31, 2005

I'll Have a Screwdriver

Here’s Tyler Cowen on his favorite microeconomics analogy, the microscope:
Economists like to study one relationship or one mechanism at a time. We place that relationship under a kind of microscope, and examine the possible ins and outs. At the same time we abstract from many -- indeed most -- other features of the real world.

The economic method therefore is frequently misunderstood. The "collective wisdom" of economics is not found in any single model, article, or book. All of these present very particular microscopic views. Rather it is the body of economics, combined with the wisdom of the other social sciences, that represents the impressive achievement.
I like the conclusion, but I prefer a different analogy: the toolbox. Microeconomics consists of a box of tools, each one suited to a particular task. Simple microeconomic tools can be used individually for small problems, or they can be combined to explain more complex phenomena, just as the six simple machines can be combined to create more sophisticated machines. No single tool will work for every job – although, as the adage goes, everything looks like a nail to the man armed with only a hammer. The hammer in this case is probably the supply-and-demand model. That’s not a criticism of the hammer per se; it’s an indictment of an inadequate toolbox.

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