… is from pages 24-25 of Deirdre McCloskey’s excellent manuscript “The Two Movements in Economic Thought, 1700-2000: Empty Economic Boxes Revisited” ; in this paper Deirdre properly scolds economists who, upon discovering (surprise!) that markets in reality seldom work as ‘perfectly’ as do markets as modeled in textbooks, caper to the conclusion that government must or should intervene to improve matters:
What is peculiar about the history of imperfection-finding, and, from the left, the proposed statist corrections, is that almost never does the economic thinker feel it necessary to offer evidence that his proposed state intervention will work as it is supposed to, and almost never does he feel it necessary to offer evidence that the imperfectly attained necessary or sufficient condition for perfection is large enough in the actual world such that its imperfect fulfillment reduces by very much the performance of the economy in aggregate. Meanwhile since 1848 the real income of many of the wretched of the earth was increasing by a factor of thirty.
As the amiable Joe Stiglitz, prize student of the amiable Paul Samuelson … put it: “Whenever there are externalities – where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated – markets will not work well. But recent research has shown that these externalities are pervasive, whenever there is imperfect information or imperfect risk markets—that is always”. The ‘recent research’ Joe has in mind showing that imperfect information is relevantly ‘pervasive’ is ‘research’ on the blackboard. No one has offered a criterion short of perfection for ‘not work well’.