The Essence of a Masonomist

by Don Boudreaux on October 19, 2007

in Economics, Education, Weblogs

Arnold Kling very eloquently explains the uniqueness of economics as taught and researched at George Mason University.  Here’s an excerpt:

At MIT and other bastions
of mainstream economics, most economists are to the left of center but
to the right of the academic community as a whole. These economists are
known for saying, in effect, "Markets fail. Use government."

Masonomics says, "Markets fail. Use markets."

along the way, mainstream economics became hung up on the concept of a
perfect market and an optimal allocation of resources. The conditions
necessary for a perfect market are absurdly demanding. Everything in
the economy must be transparent. Managers must have perfect information
about worker productivity and consumers must have perfect information
about product quality. There can be nothing that gives an advantage to
a firm with a large market share. There cannot be any benefits or costs
of any market activity that spill over beyond that market.

argument between Chicago and MIT seems to be over whether perfect
markets are a "good approximation" or a "bad approximation" to reality.
Masonomics goes along with the MIT view that perfect markets are a bad
approximation to reality. But we do not look to government as a
"solution" to imperfect markets.

Masonomics sees market
failure as a motivation for entrepreneurship. As an example of market
failure, let us use a classic case described by a Nobel Laureate,
which is that the seller of a used car knows more about the condition
of the car than the buyer. Masonomics predicts that entrepreneurs will
try to address this problem. In fact, there are a number of
entrepreneurial solutions. Buyers can obtain vehicle history reports.
Sellers can offer warranties. Firms such as Carmax undertake
professional inspections and stake their reputation on the quality of
the cars that they sell.

Masonomics worries much more
about government failure than market failure. Governments do not face
competitive pressure. They are immune from the "creative destruction"
of entrepreneurial innovation. In the market, ineffective firms go out
of business. In government, ineffective programs develop powerful
constituent groups with a stake in their perpetuation.

I’m proud to be a Masonomist.


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