Brad DeLong and the true nature of neoclassical economics
January 18, 2015 Leave a comment
Another clear piece from Lars, drawing on previously published work
I think that modern neoclassical economics is in fine shape as long as it is understood as the ideological and substantive legitimating doctrine of the political theory of possessive individualism. As long as we have relatively-self-interested liberal individuals who have relatively-strong beliefs that things are theirs, the competitive market in equilibrium is an absolutely wonderful mechanism for achieving truly extraordinary degree of societal coordination and productivity. We need to understand that. We need to value that. And that is what neoclassical economics does, and does well.
Of course, there are all the caveats to Arrow-Debreu-Mackenzie:
1 The market must be in equilibrium.
2 The market must be competitive.
3 The goods traded must be excludable.
4 The goods traded must be non-rival.
5 The quality of goods traded and of effort delivered must be known, or at least bonded, for adverse selection and moral hazard…
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