Arnold Williams (notebuyer) wrote,
Arnold Williams

Scientific American Displays Determined Ignorance

Scientific American has done me a favor, though: in the current article on economics it gave a great example of the genetic fallacy, which is so common that I find myself answering it frequently. Here's the relevant passage:

The 19th-century creators of neoclassical economics—the theory that now serves as the basis for coordinating activities in the global market system—are credited with transforming their field into a scientific discipline. But what is not widely known is that these now legendary economists—William Stanley Jevons, Léon Walras, Maria Edgeworth and Vilfredo Pareto—developed their theories by adapting equations from 19th-century physics that eventually became obsolete.

His criticism boils down to the idea that the model does not include externalities, and therefore is rubbish. Sadly, this critique has been out of date for about thirty years, certainly since Baumol's work in the 1970's, and he cites as criticisms a number of statements that would lead to him failing university economics work.

The author, Robert Nadeau, appears to be hyping his forthcoming book on economics and the environment. Based on his article here, it may be too late to stop the presses so he could learn enough to write on the subject he's tackling: but he might find it profitable to talk to a fellow prof in his university, Tyler Cowen, who once commented

On average market solutions have positive Pareto-relevant externalities, if only through supplying experimentation and strengthening social norms in favor of commerce. That's true even for the market in thumbtacks, if you consider it as feeding into a broader social stream. Externalities are virtually everywhere and often I prefer to think in terms of Hayek's theory of spontaneous order. Where markets should be allowed to operate, markets are usually too weak in their reach and scope. Yes there is a continuum of social returns but only rarely are we close to an optimum.

But I don't mean this as a plea for laissez-faire. Governments must produce public goods, maintain social order, and of course support markets. At the margin, those activities, such as imposing accountability under the law, are also largely underprovided. For the appropriate selection of policies, government is also better-than-first-best, despite its apparent static inefficiencies.

Which displays considerably more understanding of the things Mr. Nadeau wishes to discuss, and more, alas, than I can likely hope for in his book, based on this article.
Tags: economics

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