Is Another Economics Possible–This article attracted my attention because I have been thinking, for a couple of years now, that another economics is necessary.
Disappointment followed as I read through the article. The views described are those of the World Social Forum, “based on more cooperative, sustainable, egalitarian and democratic institutions than those favored at (the World Economic Forum in) Davos, Switzerland.”
Textbook economics treats individuals as selfish optimizers, unconcerned about the welfare of others. Only recently have economists begun to explore the importance of fairness, reciprocity and altruism, and to consider the possibility that incentives to behave selfishly can undermine both moral norms and altruistic preferences.
Textbook economics also largely ignores worker-owned businesses and consumer cooperatives, although these are geographically widespread in the United States. Recent research suggests that many workers would like to play a larger role in the management of their companies and that “shared capitalism” works remarkably well.
Of course these views are only valid for a superficial sort of economics. In real economics, being a “selfish optimizer” includes our desires to help our friends and communities.
While I like the idea of encouraging cooperative enterprise and egalitarianism, those are not new ideas and there is not a new economics being introduced. only old ideals reborn.
A new economics needs to explain how the world’s markets are working, and how government policy can help or hurt social welfare. My opinion? We need to get away from the Keynesian measures of growth and employment. They are not the best measures of welfare and happiness and satisfaction with our lives. Ultimately, those are much more important than how much money and stuff we have.
This is a great article and a must-read for economics students. The title–Markets fail. That’s why we need markets–pretty much tells the story, but you need to be at least slightly familiar with market economics to understand.
The article begins by describing the never ending macroeconomic debate–classical market theory, where the market can do no wrong–vs. interventionist theory, where government is needed to prevent market imbalances.
markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight.But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation.
When governments attempt to impose order on this chaotic and inherently risky process, they immediately run up against two serious dangers.
The first is that they strangle new innovations before they can emerge. Thus proposals for a Consumer Financial Protection Agency, a systemic risk regulator, a public health insurance plan, a green jobs policy, or any attempt at top-down planning may do more harm than good.
The authors claim that both sides of the debate are wrong and that a new view is taking hold–market economics is good because it allows failure.
I would argue only that this is not new at all, but has always been a part of classical theory, at least since Carl Menger and the rest of the Austrian school.
This article claims that Ben Bernanke has probably been reappointed chairman of the Federal Reserve. However, the article’s real topic–the real argument–is that Bernanke and the Fed. are the most likely source of meaningful help for the economic downturn.
As my students will recognize, this is a very monetarist argument, dependent finally on the Quantity Theory of Money, where money supplies are the final determinant of production.
Another perspective (Keynesian) might argue that monetary policy is ineffective if people are unwilling to borrow even at low interest rates. The following bit suggests that the Fed. recognizes this as a problem, but not much of an argument that these problems can be overcome.
He has ordered the Fed’s bank examiners to muscle banks into boosting their lending. This often requires an examiner to tell a bank that it should value a property used as collateral higher than it may want to. The Fed is also reviving the market for the bundling of loans for small businesses. And it is bending the arms of potential investors to put more capital into banks to increase credit.
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