Elephantstrunk

More that 300 comments on “Economics and Ideology” at Crooked Timber show there’s something to talk about.

It would be disappointing if learning systematically about the economy for the first time didn’t inform a political outlook. Many young and left wing have only thought about the fairness of outcomes  and not the practicalities of achieving fair ones. That might give a rightward push without any bias.

Still there are some candidates for bias and it is mostly rightwards.

1. No One Makes You Shop At Wal-Mart. Simple examples from game-theory show that individuals optimising their choices individually can produce outcomes that are worse than if they had accepted certain apparently suboptimal options as for example in the Prisoner’s dilemma. That doesn’t come out much in discussions of equilibrium and markets that emphasis Pareto optimality in a framework where such models are very difficult to set up and more or less assumed away.
2. Who owns the status quo? Technological change, the abolition of trade barriers and other developments can lead to non-Pareto improving outcomes. That’s at odds with the potent Edgeworth box picture. The discrepancy might be resolved by complete markets but no-one owns the xisting arrangement in any real situation so markets are often significantly incomplete. Similar issues apply to the soi-disant “Coase Theorem” too.
3. Govenments are not the only rent collectors Redistribution brings dead weight losses. Fair enough but so do all debt servicing payments and most of the wealth of the wealthy is in the form of some kind of rent and therefore also imposing some form of dead weight loss. The policy implications of the two observations are very different but only one angle seems regularly taught.

Several reasons why that might be so.

1. Teaching only models with conclusions economists agree with.
2. Bias towards models with clear conclusions, not confusion even if the latter better reflects reality. Perhaps caused by
3. Out of date models with changed relationship to reality. Economic models in some sense behave like boiled frogs. Models are a sketch of a situation and their value in not wholly included in the model but the also in the implicit approximation to reality. Over time that changes but the model gets taught the same way.