From: ald@clipper.ingr.com (Al Date)
Newsgroups: ca.politics,ba.politics,sci.econ
Subject: Re: Distracted Economic Theory
Date: 20 Aug 92 19:06:24 GMT
Organization: Intergraph Advanced Processor Division - Palo Alto, CA

In article <l90h36INN6cd@exodus.Eng.Sun.COM> chased@rbbb.Eng.Sun.COM (David Chase) writes:


>
>There are other instances of this as well -- for instance, it appears
>to be a Libertarian article of faith that the Free Market will cure
>most (if not all) ills, or at least bring things into a tolerable
>approximation of fairness and equal opportunity.  Principles of
>economics, and supply-demand relationships are cited to justify this.
>

Straw man erection alert!  (8-)   
The justification for a free market is to maximize material wealth
and opportunity, not to make wealth and opportunity "equal."
The justification is utilitarian, not egalitarian, in capsule form.

>Yet, in my fairly distracted following of economics, there are many
>instances where these basic principles seem not to hold.

Emphasis on the word "distracted" and "seem."

> Sometimes it
>seems that our markets converge on a local optimum, rather than a
>global optimum (Ken Arrow's work, which I believe appeared in some
>form in Scientific American within the last 5 years).

Good reference!  (8-)  For the sake of argument, let's assume that
this phenomenon is real.  If it is, then it provides yet
another argument for removing trade barriers between the local
entity and the global entity.  Barriers will always exist, such
as language, values and culture, but that is no reason to add
more artificial legal barriers between remote economic systems.

> Several of the
>theories assume perfect information about the market, which is
>certainly far from the truth.

The best arguments *for* an unhampered market
are *because* of imperfect information, because it requires a continual
adjustment process, which can only be impeded by the addition of
legal interference.

Please, read some Hayek, Mises, or Popper.  On second thought, better
start with Hazlitt.

> Transaction costs seem to also cause deviations from theoretical perfection.  

Which libertarian economist ever used the word "perfection?"
Mises rejects the hypothesis of "perfect competition" as an oxymoron.
Actually, Nobel winner Coase is the expert on transaction cost analysis, 
and he falls into the free market category, so I fail to see
that transaction costs are some kind of fly in the ointment.

>There was a recent (within
>the last year) article, in either Science News or the NYTimes, about
>violations of the assumed relationships between supply, demand, and
>price in restaurants.

Another great reference!  Again, assuming that the phenomenon is real,
why is this immutable?  Have the restaurant owners succeeded in
appealing to their legislators to make grocery stores illegal so that
consumers have no choice where they eat?  Isnt it possible that
what the study is failing to account for is the high degree of
intangible psychological value which some consumers place on eating in 
fancy restaurants?  

Free market economists try to see humans as they are, and not
as they "should" be (according to what can only be considered 
arbitrary concepts, economically speaking).

>There's some recent talk that perhaps the
>people who manage publicly-held companies don't act in the best
>interests of the people who own the companies, and actually erect
>barriers to help maintain their control of the companies.  

No kidding!  Control of large organizations is not a simple matter,
is it.  Often, disputes arise which must be resolved in court.
I dont know of any libertarian economists who do not agree that
a system of law needs to be established to protect individual rights
and settle legal disputes.  There are some who question the entire
basis of the limited liability corporation.

What this has to do with the idea that free and open markets produce the
most goods at the cheapest price eludes me.

>All very
>interesting, and all somewhat contrary to the notion that the free
>market will find an "economic optimum" without outside interference.

This is another misstatement.  Markets never reach optima, because
there is constant change, which requires constant adjustment.  The
correct terminology is that markets strive toward economic optima,
but they never find it.  In the process of striving, they throw
off jobs and goods in abundance.  They also throw off pollution,
which might require some governmental action, but I see this
as a justifiable part of minimal govt vis a vis the
protection of human rights.

And free market economists would ask just what kind of "outside
interference" will help the markets.  Wage and price controls?
Subsidy to favored industries?  Regulation of market access?  
Trade barriers?  The burden of proof is definitely on the
interventionists.

The one thing that 97% of economists agree on is that free trade
is a wealth enhancer.

>I'd think this would also be very interesting to Libertarians, but I
>sure don't see much discussion of it here.
>

Try sci.econ, which is where I have cross-posted this, in hopes
of inciting some controversy.

>As another example, occasional attacks on "intellectuals" (whoever
>*they* are) seem to only apply to those intellectuals with whom the
>attacker disagrees.  Bloom and Boskin are OK; Thurow and Reich are
>not.  Why the distinction?

I agree that an attack on intellectuals, per se, is not warranted.
What is worthy of attack are the IDEAS which some intellectuals
have promulgated, of which economic interventionism by the govt
is only one example.

>To give equal to time the hard (verifiable) sciences, check out the
>first article in the December 1990 issue of SIAM Review.  Apparently,
>conventional analysis of suspension bridges assumes that ropes can be
>pushed.  One assumes that no bugs of similar magnitude lurk in (say)
>our understanding of economics :-).
>

Why dont you do some reading of those you criticize 
and make up your own mind, instead of 
smirking away in a position of self-admitted ignorance?  (8-)


--Al Date

Al's First Law of Net Dynamics:  He who begs for flames will usually 
                                 receive them.