≡ Menu

Quotation of the Day…

… is from pages 57-58 of Arnold Kling’s excellent new book, Specialization and Trade: A Re-introduction to Economics:

Ironically, one important factor leading to changes in patterns of specialization and trade is market imperfections.  After half a century in which MIT economics has penetrated our culture, many educated people automatically think that when markets produce bad outcomes, the only solution is some government intervention.  In fact, most of the solutions to market imperfections are launched by private entrepreneurs, who identify shortcomings of existing products and services and who start new businesses or who launch new ideas within existing businesses in order to address those shortcomings.

Yes. Yes.  A thousand times yes.

A huge divide separates Arnold Kling and other market-process economists (for example, Adam Smith, F.A. Hayek, Milton Friedman, Jim Buchanan, Armen Alchian, Harold Demsetz, Ronald Coase, Deirdre McCloskey, Vernon Smith, Lin Ostrom, Ludwig von Mises, Israel Kirzner, and Bruce Yandle) from most other economists, be they mainstream neoclassical, “heterodox,” behavioral, or whatever.  Market-process economists understand that most of today’s market imperfections are also today’s profit opportunities and, hence, are the sparks for tomorrow’s improved products, services, and pattern of specialization and trade.  Non-market-process economists – which, alas, are most economists today – do not understand this reality.  Unlike the reaction of market-process economists, when non-market-process economists see (or think they see) a market imperfection, the only ‘solution’ they can conceive of is brute force: have the state barge in to fix matters.  There’s neither subtlety nor depth in these economists’ understanding of reality; it’s all quite simplistic and shallow.  Not only do these non-market-process economists generally engage in magical thinking about the motives and knowledge of government officials, these economists do not adequately understand the spontaneous nature of the economy and the society about which they are allegedly expert.