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Friday, July 29, 2016

Why Does Economics Reject New Thinking?

Hadn't heard this story before:

Why Does Economics Reject New Thinking?, by Rick McGahey: The Economist magazine is running a series on six big economic ideas that have shaped the field in recent decades, and they start with one of the best—George Akerlof’s 1970 “The Market for Lemons.”
The concepts in the paper were groundbreaking insights about the price distortions that come about when one party has more information than the other, and influence economics and regulation to this day. ...
Akerlof shared his Nobel with Joe Stiglitz and Michael Spence. All three economists questioned a basic premise of standard microeconomic theory—that parties to market transactions have equal and perfect information, and that information equality helps produce market-clearing prices (covering not only commodities, but labor and finance) resulting in fair competition between equally informed parties ... [and] ...optimal overall social returns. ...
But there is another essential part of the Akerlof story—the narrow-minded nature of academic economics. The paper was rejected from several major economics journals. His graduate students at Berkeley had to read the paper in mimeographed form, as Akerlof had trouble getting it published. He testifies that the American Economic Review and The Review of Economic Studies both rejected the paper on the grounds that the subject was trivial.
But the paper’s rejection from the Journal of Political Economy was the most telling. According to Akerlof, one reviewer recognized the profound issues in the paper, and rejected it on the basis that “if this paper was correct, economics would be different.” ...
...while it is good that The Economist and others recognize the power of Akerlof’s ideas, the story of “The Market for Lemons” also must remind us about how hard it was—and still is—for new economic thinking to be heard and accepted by most economists.

    Posted by on Friday, July 29, 2016 at 03:25 PM in Economics, Market Failure | Permalink  Comments (62)


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