Wednesday, September 08, 2010

A Heavy Dose Of Economics

1. I recommend this book review on the causes of the imploding financial markets worldwide. It can be heavy going at places but it's worth it. Think of it as your daily dose of bran and yogurt from feral goats. Good for you, ultimately, if you survive it.

Note that I might not agree with everything that review concludes, but it's a very good survey of many of the issues and it leaves us hanging, waiting for Part 2 with the solutions. Life does that, too. Leaves us hanging, waiting for the solutions.

2. This post is fascinating on the intersection of ethics and basic economics teachings and how the latter seem* to affect students who take only the prep levels of economics courses.

Sadly, the better stuff is in the later courses. Most introductory economics courses focus far too much on the competitive market model, the one with the Marshallian scissors of supply and demand, the one where all information is known to everybody, the one where very many sellers meet very many buyers exchanging money for some simple commodity which everyone can completely understand and evaluate.

It's very, very wrong to apply that model as a picture of reality. It's taught as a starting point (unless you are being taught by a wingnut), something to use as a basis for comparisons later on when the models get more realistic and less clear-cut.

Also note that the basic competitive model doesn't lend itself to the snow shovel example, either, because those sellers have market power, caused by the snow storm which makes getting an alternative and cheaper shovel harder. In thinking about the ethics of all this one should take into account that market power and not apply the normative rules (that the outcome is efficient) which are derived from the perfectly competitive model.

Both of these links are via Eschaton.
*I write "seem", because students may self-select to courses which reinforce their initial value judgments.