All right! That was excellent! That was good enough to make me put some money into the violin case. See: there is a Hayekian price signal to try to encourage you to keep on doing this.
But I cannot help but notice that you stopped just when things were about to get really interesting.
The next paragraph should have said something like: Economists' understanding of this lack of bandwidth problem in the Hayekian system is almost exclusively limited to (a) concessions about the existence of Pigovian externalities, (b) Coaseian declarations that firms needed to be allowed to grow organically wherever it turns out that hierarchy and bureaucracy are superior to arms-length market exchange (often with a reference to Marty Weitzman's "Prices and Quantities"), (c) grudging admissions that wealth inequality makes the Negishi social-welfare weights implicit in the market's solution to its optimization problem insanely far away from the proper weights needed to achieve anything that could even pretend to be a good society, and (d) vague and woolly discussions of "macroeconomic externalities" leave the speaker satisfied, but that give the audience, nothing substantial that they can grab it with their teeth, and then feed upon.
And were I writing the piece, the paragraph after that would have said something like: the only significant events beyond that I am aware of in my lifetime was something Larry Summers said to me back in 1985: That there is a huge difference between a financial market that is "efficient" in the sense that there is no way to nearly risklessly make huge amounts of money in a short period of time, and a financial market that produces asset prices that are good guides to investment and other resource-use decisions in the real economy; and that a good third of academic finance and two-thirds of the errors of academic finance are based on a willful decision to close one's eyes and failure to acknowledge the distinction between the two.
Thanks very much! Some (but my god, not all) of these points are returned to in the forthcoming book next year but I think the main issue is that economics, like medicine, often has to solve problems in the order in which they arrive rather than the logical order of discovery and the time when it was really important to have an idea about whether a planned economy would work was the 1920s. Since then, they've been coming back to the question again and again, but there's so much existing work built up that it's very hard to integrate Shannon/Wiener information theory in a rigorous way. (Someone pointed me to this rather good exception to the rule http://sims.princeton.edu/yftp/RIplus/RatInattPlus.pdf ).
I'm not surprised that Larry Summers realised there was an issue here - policy economists tend to reinvent about as much of management cybernetics as they need, in order to solve the problems in front of them. I have a huge amount of wasted research material on transaction cost economists and the neoclassical theory of the firm, though, which I thought was going to provide a really useful post-Coase tradition and it really doesn't.
All right! That was excellent! That was good enough to make me put some money into the violin case. See: there is a Hayekian price signal to try to encourage you to keep on doing this.
But I cannot help but notice that you stopped just when things were about to get really interesting.
The next paragraph should have said something like: Economists' understanding of this lack of bandwidth problem in the Hayekian system is almost exclusively limited to (a) concessions about the existence of Pigovian externalities, (b) Coaseian declarations that firms needed to be allowed to grow organically wherever it turns out that hierarchy and bureaucracy are superior to arms-length market exchange (often with a reference to Marty Weitzman's "Prices and Quantities"), (c) grudging admissions that wealth inequality makes the Negishi social-welfare weights implicit in the market's solution to its optimization problem insanely far away from the proper weights needed to achieve anything that could even pretend to be a good society, and (d) vague and woolly discussions of "macroeconomic externalities" leave the speaker satisfied, but that give the audience, nothing substantial that they can grab it with their teeth, and then feed upon.
And were I writing the piece, the paragraph after that would have said something like: the only significant events beyond that I am aware of in my lifetime was something Larry Summers said to me back in 1985: That there is a huge difference between a financial market that is "efficient" in the sense that there is no way to nearly risklessly make huge amounts of money in a short period of time, and a financial market that produces asset prices that are good guides to investment and other resource-use decisions in the real economy; and that a good third of academic finance and two-thirds of the errors of academic finance are based on a willful decision to close one's eyes and failure to acknowledge the distinction between the two.
But what comes in the paragraph after that?
Thanks very much! Some (but my god, not all) of these points are returned to in the forthcoming book next year but I think the main issue is that economics, like medicine, often has to solve problems in the order in which they arrive rather than the logical order of discovery and the time when it was really important to have an idea about whether a planned economy would work was the 1920s. Since then, they've been coming back to the question again and again, but there's so much existing work built up that it's very hard to integrate Shannon/Wiener information theory in a rigorous way. (Someone pointed me to this rather good exception to the rule http://sims.princeton.edu/yftp/RIplus/RatInattPlus.pdf ).
I'm not surprised that Larry Summers realised there was an issue here - policy economists tend to reinvent about as much of management cybernetics as they need, in order to solve the problems in front of them. I have a huge amount of wasted research material on transaction cost economists and the neoclassical theory of the firm, though, which I thought was going to provide a really useful post-Coase tradition and it really doesn't.