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Quotation of the Day…

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… is from pages 156-157 of Steven Medema’s fine 1994 intellectual biography of Ronald Coase, Ronald H. Coase [2]; here Coase (and Medema) are speaking chiefly of economics circa the mid-1960s – the heyday of Keynesianism and of the related heady belief in the policy prowess of the best and the brightest:

The reason that economists fall into this trap [of sometimes offering poor policy advice] is that they have become enamored of what Coase calls ‘blackboard economics’, an economics wherein economic policy is implemented on a blackboard in a world where the teacher has full information and plays the part of an omniscient government in imposing taxes, subsidies, regulations and programmes of redistribution, all of which serve to enhance societal well-being.  The problem, says Coase, is that the teacher has no counterpart in the real world.  The taxes, subsidies, regulations and redistributions are carried out by disparate and disconnected government agencies, each seeking to serve its own interest.

Economics has improved over the past 50 years, in no small part because of the influence of Coase [3] himself, as well as of public-choice scholarship [4] and of a greater appreciation for Hayekian insights into the dispersion of knowledge [5] and the limitations of even the best theories [6].  But the “blackboard economics” that Coase warned against remains with us in no small measure [7] (even if it is today seldom done on actual blackboards).