Nobel Prize winning economist Paul Krugman wrote the following in Slate magazine back in the 1990s:
“Economic theory is not a collection of dictums laid down by pompous authority figures. Mainly, it is a menagerie of thought experiments--parables, if you like--that are intended to capture the logic of economic processes in a simplified way. In the end, of course, ideas must be tested against the facts. But even to know what facts are relevant, you must play with those ideas in hypothetical settings.”
Here is the link to the article the quote is from: The Accidental Theorist. He has a brilliant example of how labor saving technology does not increase unemployment.
University of Rochester economist Steven Landsburg wrote the following in his book The Armchair Economist: Economics & Everyday Life:
“But as Aesop discovered some time ago, the details of reality can disguise essential truths that are best revealed through simple fictions. Aesop called them fables and economists call them models." (p. 34)
And
"Economists love fables. A fable need not be true or even realistic to have an important moral. No tortoise ever really raced against a hare, yet “Slow but steady wins the race” remains an insightful lesson.” (p. 40)
So when
you see an economics professor draw PPFs on the board which show the
tradeoff between houses and cars or when we draw supply and demand
curves, we know that these are "simple fictions." But, by assuming, for
example, that there is a society that makes only two goods and has one
resource (labor, say), we can learn something important, like the The Law of Increasing Opportunity Cost.
Also see my blog called Dollars and Dragons: A look at the intersection of economics and mythology. It has many posts on economics and storytelling.
Related posts:
Is good business as much about storytelling as the stock market? (2023)
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