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Dear POEconomists: Explain a thing to me.
crote 11/30/09, 03:09 | 
0 | OK so I don't actually know very much about economics. I took macro in college
and had a job last year that gave me a lot of time to read a bunch of wonky
blogs and read the occasional polemical paper in a journal, but that's about it.
Enthusiastic amateur. So remember that when I say something dumb.
My question is:
How the hell is conservative (especially classical liberal) economic thought
even remotely defensible? Maybe I'm way off base here, but as I understand it
most conservative econ thinkers tend to believe that unregulated markets are
best, because direct, unfettered competition creates the most efficient price
and production outcomes. Buyers are able to ascertain the quality of various
goods and services, and supply and demand drives prices and production to a
highly efficient equilibrium. Thus, the more unfettered and robust the
competition, the more efficient the market and the better the outcome for
society.
Is this a fair cartoon version of what Chicago school people believe?
Assuming it is, how does this not get bullshit called on it from every
direction? The entire thing is premised on 1. the buyer having perfect or near
perfect information, and 2. low transaction costs that allow buyers to easily
substitute one seller for another. Outside of textbook abstractions and
supermarkets, it seems like the kind of conditions conservative economics are
implicitly built around occur only very rarely.
Even moderately complicated exchanges have conditions incompatible with the
model market above. How can you say markets produce the most efficient outcomes
when buyers so often lack the expertise to assess the quality of the good
they're purchasing (e.g. healthcare), or the switching costs are so high that
there is no real ability to shop around (hey, healthcare again)? Didn't the
collapse reveal these exact problems even with sophisticated buyers like
investment banks?
Basically, is it fair to say that conservative economic theory is based around a
weird cartoon picture of the world that assumes real life functions exactly like
graphs in textbooks and ignores the fact that things are complicated far more
often than they are simple? | | Next | Reply - Reply With Quote | | | | |
uh ok (nocash) 12/01/09, 11:46 |
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