Michael Nuwer wrote: > Endogenous preferences create the same kind of problems for a demand > curve as as investment create for a supply curve. It basically means > that the curve doesn't exist.
Do endogenous preferences really mean that the "demand curve doesn't exist"? the demand curve for an item (such as a house) simply says that at the price rises the quantity demanded falls, all else constant. (I see utility maximization and the like as mere rationalizations of this real-world phenomenon.) The problem is the "all else constant" clause: if my neighbor builds a McMansion next door, that changes my tastes (maybe to drive me out of the neighborhood?). But that introduction of endogenous tastes simply _shifts_ the demand curve, a phenomenon just as important to NC economics as moving along it. Even if we drop this rationalization (movements along vs. shifts of D) and realize that shifts of demand sometimes occur _because of_ movements along it, didn't Leibenstein show that bandwagon and snob effects don't abolish the downward-sloping demand curve as much as they _change its slope_ (making it flatter or steeper)? The scandal here is that the NC economists didn't _embrace_ these effects and this conclusion, saying "hey, we don't have to assume that people are totally individualistic! the demand curve still slopes down" (just as the Earth continues to rotate around the Sun even though the other planets pull it away from a perfect elliptical orbit). But they're chained to methodological individualism at the wrists and ankles (cf. MF's dogmatic rejection of Duesenberry). They not only want consumers to be sovereign but to think of that sovereignty as a good thing (i.e., that consumers know what's best), so that all of the NC normative crap works. Similarly, I think that the role of positional externalities and Duesenberry's relative income hypotheses is to knock down the normative connotations of the NC theory. They really don't knock down a pragmatic view of demand (with no normative baggage). By the way, is the Veblen effect -- which makes the demand curve have the "wrong" slope -- really important, empirically speaking? Sure, there are people who buy a Rolex watch because it's expensive (and can thus impress others), but how important is that market?[*] It seems to me that the Veblen effect (and Giffin goods) says that we can _usually_ talk about a downward-sloping demand curve -- but not take it too seriously, not treating it as some sort of "law" (of the sort that physicists use), while eschewing the normative nonsense. (I don't think of the positive/normative distinction except as a preliminary step which must be dropped later. Further, those economists who attach the most value to the distinction are also those most likely to attach normative value to markets.) -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. [*] Doesn't some of the Veblen effect leak out to create a market for knock-off Rolexes? _______________________________________________ pen-l mailing list pen-l@lists.csuchico.edu https://lists.csuchico.edu/mailman/listinfo/pen-l
