By Collin Li
When an economic debate descends into something along the lines of “the economy exists in order to benefit the people – not the other way around,” you should reply:
But what is an economy other than many millions of people interacting daily?
Let’s not understate the reach and application of economics – it infects every facet of society.
(By definition in economics, individuals in a marketplace trade according to their “utility” – a term used to capture the personal values of each individual, thus allowing the individuals to maximise their well-being in the marketplace.)
I certainly agree with the notion that the economy should serve to benefit its people. However, the initial retort above suggests the economy and society are separate. This is nonsense.
“Markets improve the ability of economies to serve society.”
In fact, we are actually let down when markets are overridden and distorted by government spending intended to “prop up the economy,” rather than to serve society. When the government spends a lot of money on our behalf, apparently it is good for the economy, with proponents citing improved GDP and the multiplier effect. However, one must also remember that government spending must be funded by some kind of taxation (whether directly or indirectly). So when the government spends our money on our behalf, they are more likely to be spent on things that we may not even want, and thus there is an opportunity cost.
Economies are much better stimulated by allowing people to spend their own money, because they use it the best, and that, in turn, helps the economy provide the most useful services to society. After all, the economy is supposed to serve society, not the other way around, isn’t it?
So when we let the market work, instead of the government, the benefits for society are maximised.