[PEN-L:8304] Re: Re: Bengali famine

[Brad De Long <delong@xxxxxxxxxxxxxxxxx>]

>There are two separate issues.
>1. Is the market economy desirable?
>2. Is neoclassical economics usefull in analysing a market economy?
>
>Neoclassical economists confuse the issues.

No we don't--at least those of us in the
Samuelson-Arrow-Sen-Stiglitz-Summers tradition don't.

A market economy is--with no externalities, no increasing returns, no
market power, et cetera, et cetera--a very nice and effective way of
achieving the goal of maximizing a particular objective function that is
weighted sum of individual utilities, where each individual's weight is a
function of wealth: as Mr. Orr said, if you don't have any wealth your
preferences are simply not registered in the marketplace.

Thus a market economy is desirable if and only if its distribution of
income is such that the particular objective function that the market
maximizes is close to the true social welfare function (and if
externalities, increasing returns, market power, et cetera, et cetera, can
be minimized or compensated for).

Is neoclassical economics useful in analyzing a market economy? It's a
useful tool but it's not the only useful tool. I would argue that it is
more useful than other tools (I have a hard time thinking of a great
Marxist economist more recent than Hilferding, for example, in large part
because I think that the toolbox isn't so great). But I wouldn't recommend
that anyone throw their other tools away: the social world is big,
complicated, and confusing...

Brad DeLong


-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
"Now 'in the long run' this [way of summarizing the quantity theory of
money] is probably true.... But this long run is a misleading guide to
current affairs. **In the long run** we are all dead.  Economists set
themselves too easy, too useless a task if in tempestuous seasons they can
only tell us that when the storm is long past the ocean is flat again."

--J.M. Keynes
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
J. Bradford De Long; Professor of Economics, U.C. Berkeley;
Co-Editor, Journal of Economic Perspectives.
Dept. of Economics, U.C. Berkeley, #3880
Berkeley, CA 94720-3880
(510) 643-4027; (925) 283-2709 phones
(510) 642-6615; (925) 283-3897 faxes
http://econ161.berkeley.edu/
<delong@xxxxxxxxxxxxxxxxx>