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Friday, October 09, 2015

'Faith in an Unregulated Free Market? Don’t Fall for It'

Robert Shiller continues to phish for book sales:

Faith in an Unregulated Free Market? Don’t Fall for It: Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone. ...
The problem is that these ideas are flawed. Along with George A. Akerlof ... I have used behavioral economics to plumb the soundness of these notions. ...
Don’t get us wrong: George and I are certainly free-market advocates. In fact, I have argued for years that we need more such markets, like futures markets for single-family home prices or occupational incomes, or markets that would enable us to trade claims on gross domestic product. I’ve written about these things in this column.
But, at the same time, we both believe that standard economic theory is typically overenthusiastic about unregulated free markets. It usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception. ...
Current economic theory does recognize that if there is an “externality” — say, a business polluting the air in the course of producing the goods it sells — the outcome won’t be optimal, and most economists would agree that in such cases we need government intervention.
But the problem of market-incentivized professional manipulation and deception is fundamental, not an externality...

    Posted by on Friday, October 9, 2015 at 09:25 AM in Economics, Market Failure | Permalink  Comments (17)


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