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Quotation of the Day…

… is from page 92 of the 2012 revised and updated edition of Steven Landsburg’s classic 1993 book, The Armchair Economist (original emphases):

Individual rationality, coupled with competition and prices, leads to efficient outcomes; that is, outcomes in which there remain no unexploited opportunities to improve everybody’s welfare.  This is so even though individual rationality and competition without prices rarely leads to such desirable outcomes.

Market-set prices are utterly essential.  Such prices are much more essential than most people understand them to be.  Such prices are more essential than even many economists understand them to be.  This key economic understanding isn’t grasped, for example, by those economists who support minimum wages (or who deny that minimum wages generally price some low-skilled workers out of jobs or out of hours of employment).  These economists, by supporting minimum wages, support a policy that prevents the operation of the single most powerful force for bringing into as-close-as-possible alignment the multitude of physical constraints and personal preferences on the employers’ side with the multitude of physical constraints and personal preferences on the workers’ side.

These economists, in short, have a poor understanding of price theory.  And no amount of knowledge and facility with statistics and econometrics can make up for a failure to grasp price theory.


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