Richard Thaler deserves the Nobel Memorial Prize in economics. But media treatments of Thaler’s work, and of behavioral economics more generally, suggest that it provides a much-deserved comeuppance to conventional microeconomics. Well . . . Not quite.
In this Sunday’s New York Times Book Review Leon Wieseltier has polemicized against the digital age. While beautifully written, its major propositions are either wrong or not wholly coherent. All have been heard before in previous ages of technological change. While it is difficult to isolate all the sources of Wieseltier’s distemper, here are four in ascending order of their claim to be taken seriously.
1. Wieseltier claims that “the greatest thugs in the history of the cultural industry” (by which he means Amazon and the like) have destroyed bookstores and record shops. Similarly, journalists now earn less money because of competition from digital platforms. These complaints are the whining of producers displaced by competition that helps consumers. The Amazon and Barnes and Noble websites allow me faster access to a much wider variety of books than the independent bookstores of my youth. And unlike some of these stores, they do not discriminate against books on political grounds. Journalists have no greater claim to be insulated from competition than other professions. And again the web has given range to much more variegated opinion and analysis than the mainstream media of old.
Wieseltier’s complaint resembles nothing so much as those of French publishers of the late eighteenth century who complained to the National Assembly about competitors with cheaper means of production:
It may only be rock and roll, but Alan Krueger, the outgoing chairman of the President’s Council of Economic Advisors, likes it, not least because it is economically illuminating. Among the ways in which the economy and the recording industry are alike, he said in a recent address at the Rock and Roll Hall of Fame in Cleveland, is that outcomes in both depend substantially on luck. The suggestion is that distributions dictated by chance are arbitrary, problematic and—this last point is unstated but seemingly latent—fair game for rearranging. The typical conservative response is to deny that luck rather than merit is at play. But were the point ceded just for fun—and luck stipulated as a potent force in economic affairs—an interesting question might result: So?
Policy makers and economists of various stripes have had a field day since the onset of the last financial crisis blaming the downturn on market failures and proclaiming new regulatory fixes. Never mind that most of the mainstream either did not anticipate the collapse or had even preached perpetual boom, they were brimming with solutions. That fact has set a few members of the economics profession on edge and in one case, has inspired an important new contribution to thinking about markets. What is the right way of conceiving the relation of public policy and law to economics?
In my previous post, Statism I, I defined statism as an excessive and harmful embrace of the power of the state. Today, as a means of showing how prevalent statism is, I want to show how statism has over time infected the standard models of economics – a discipline that is regarded as one of the most pro-market in the academy. My argument as to economics is simple. One of the basic questions in economics is whether matters should be addressed by the market or the government. In comparing these two institutions, one should obviously do so in a fair way…