Limitation of managerial economics essay

Electronic conomists certainly are a paragon of virtue, rationality and sound judgment amidst a sea of lack of knowledge, superstition and irrationality. They can be probably proper, but , it is sometimes good to state a case in strong terms, to make persons think. Yet , I feel there is also a need to redress the balance and point out the countless mistakes and limitations of Economics which are stated under. Economics is definitely difficult John Maynard Keynes said economics is very difficult and many persons underestimate how difficult it is.

In Maths 2+2 constantly equals some, but in economics it generally depends on countless variables practically too hard to take into account. To give one example, the web link between the Funds supply and inflation. The quantity theory pounds MV=PY or perhaps MONEY OCCASIONS VELOCITY EQUATES TO THE PRICE LEVEL TIMES RESULT. This formula can be used to define a link between money expansion and pumpiing that depend upon which evolution of money. Velocity pounds suggests there is a correlation between money supply and inflation. (As the majority of non economic analysts would let you know if you printing money you can cause inflation).

But , in practise the expansion of the funds supply is influenced simply by so many factors such as technological change, speed of blood flow and customer behaviour that M3 expansion statistics started to be almost useless. MV=PY is great in theory in practise it is difficult to make nearly anything out of it. Predicting the Future It is difficult to prediction the future, but in financial policy making, it becomes crucial. Go back to May 2007 and how many economists were predicting a fall in UK residence prices of 25% and the deepest economic depression since the conflict?

I isnt and in no way one of the treasury economists, who had been predicting secure growth of 2% and a reduction in the governments borrowing. Of course , there were people predicting a house price break and they have been completely proved right. (Though some of them started forecasting a house price collapse back in 2000. ) Difficult in knowing where you stand One of the wonderful challenges can be knowing the current state of the economy. For instance , Chinas expansion and lack of employment figures are viewed with suspicion. There is certainly great issue about what the US inflation rate is it will depend on which unit you use.

Recently, the US GDP statistics had been revised meaning that the economy was at recession much earlier than recently thought. How may you make good policy when you dont also know what occurred in the past? Aside from predict the future. Using Older Models In many ways, this economic downturn is strange in that this wasnt preceded by a great inflationary boom. The government felt that so long as inflation is usually under control, our economy must be eco friendly. However , concentrate on was to dismiss an asset and lending bubble. The problem is that it is not sufficient to rely on previous experience.

As the economy develops older models become less relevant as they follow old customs and info which is useless. Ideology A great economist will be free from ideology and have a willingness to revise theory in light of empirical proof that will not match up to their beliefs or expectations. Nevertheless , in practice many detest evidence which usually doesnt believe their standpoint. For example , some economists place great trust in the virtues of the free of charge market and thus take a lazy attitude in assuming cost-free markets will usually lead to increase economic wellbeing. The problem is that free marketplaces can often be beneficial.

But , as well, there will always be conditions, you cant make generalisations that cost-free markets are always best nor can you produce generalisations that free market segments are always incorrect. Another example of ideological economics could be the supposition that if perhaps privatisation performs in one region it must be great for other countries too. Totally free trade is another example. Many economists think free operate is beneficial. However this will not necessarily mean expanding countries should always stick to the free trade rule. There can be exceptions to every guidelines, for example the toddler industry argument.