> Jim Devine writes: > >>> I don't know much about "Masonomics" (having thought that it was just >>> a more extreme and puerile version of the Chicago school). But the >>> slogan saying that "Markets fail. Use markets" is like Stalin saying >>> "Central planning fails. Use central planning." It's crazy. If a GMU >>> insider thinks that represents their point of view, it's quite >>> telling. > > I am not sure why you jump to such a harsh conclusion based upon a > bumpersticker, especially when you show no inclination to understand what > the bumpersticker is supposed to reflect, If you had clicked on the link > and read the short article, you would have read: > > --------- > "Somewhere along the way, mainstream economics became hung up on the > concept of a perfect market and an optimal allocation of resources.
Talk about jumping to harsh conclusions with no inclination to understand what the underlying argument is supposed to reflect. Most mainstream economists I know treat the scenario of "perfect markets" only as a reference case. In percentage terms, most mainstream research is on various departures from perfect market conditions. > The > conditions necessary for a perfect market are absurdly demanding. > Everything in the economy must be transparent. Managers must have perfect > information about worker productivity and consumers must have perfect > information about product quality. There can be nothing that gives an > advantage to a firm with a large market share. There cannot be any > benefits or costs of any market activity that spill over beyond that > market. > > The argument between Chicago and MIT seems to be over whether perfect > markets are a "good approximation" or a "bad approximation" to reality. > Masonomics goes along with the MIT view that perfect markets are a bad > approximation to reality. But we do not look to government as a "solution" > to imperfect markets. > > Masonomics sees market failure as a motivation for entrepreneurship. As an > example of market failure, let us use a classic case described by a Nobel > Laureate, which is that the seller of a used car knows more about the > condition of the car than the buyer. Masonomics predicts that > entrepreneurs will try to address this problem. In fact, there are a > number of entrepreneurial solutions. Buyers can obtain vehicle history > reports. Sellers can offer warranties. Firms such as Carmax undertake > professional inspections and stake their reputation on the quality of the > cars that they sell. And a quick review of EconLit shows that mainstream economics explored these possibilities (in particular, warranties) with care, and probably before "Masonomics" ever got around to reading the Akerlof article on lemons. Nor was Akerlof blind to such possibilities, but he would probably be less unconditionally committed to the idea that there must be a suitable entrepreneurial solution in every case of information-based market failure. For example, one doesn't see entrepreneurs providing much in the way of unemployment insurance or employee insurance against employer bankruptcy. > > Masonomics worries much more about government failure than market failure. Indeed it does, in fact taking as presumptive, without careful empirical demonstration, that government failure must be worse than market failure in all cases. See below. Governments do not face competitive pressure. They are immune from the > "creative destruction" of entrepreneurial innovation. In the market, > ineffective firms go out of business. In government, ineffective programs > develop powerful constituent groups with a stake in their perpetuation." > ----- > > Personally, I would put it this way. No matter how many flaws in markets > you can identify, the existence of such flaws do not logically lead to the > conclusion that the absence of markets (i.e. government intervention) > would lead to a preferable result. Not "logically lead" in a strictly deductive sense, perhaps, but maybe in an inductive sense. Let's begin with two scenarios, national defense and and a justice system. What's the argument and evidence in favor of market solutions in these cases? Gil > David Shemano > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > > _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
