Archive for March, 2013

Economics is painfully incomplete— discuss

March 7, 2013

“(Neo)classical economics is so appealing because it accurately describes the short term mechanics of how humans exchange goods and services, is remarkably self-consistent, and its language and logic are so versatile in application.”

But— for the invisible hand to work well [1], it has to operate within a particular set of parameters (see conditions for ideal market [2]) that in practice are rarely achieved, and sometimes so far off being achievable that a better understanding of reality may be achieved by setting aside the (neo)classical perspective entirely. The global financial system and health care are examples that immediately come to mind.

I suspect and hope there is a big socioeconomic/human collective behavioural meta-theory out there which will eventually supersede current economic theory, that incorporates its insights while providing a much deeper account of long-term human phenomena.

If you uncover it, I will buy you a pint.

[1] The meaning of “work well” is of course open to discussion. Economists would describe it as something like “the efficient allocation of goods and services according to the agents’ preferences (utility).” Sadly they don’t seem to have much useful to offer in answer to the ensuing cascade of obvious follow-on questions; the logic starts to look very circular.
[2] Conditions for a perfect market
[3] See this thread on stoat for the indirect inspiration for this post