Economist vs economist

Economists are often misrepresented and misconstrued as being crazy, right-wing, free-market ideologues. However, economists themselves aren’t above painting each other in to a corner. This article about peoples’ views of economists quotes Joseph Stiglitz on Milton Friedman:

[his] belief in the perfection of market economies, on models that assumed perfect information, perfect competition, perfect risk markets… [was] never based on solid empirical and theoretical foundations.

This view is apparently held by many prominent economists. Dani Rodrik puts their views succinctly when he says

The First Fundamental Theorem of Welfare Economics is proof, in view of its long list of prerequisites, that market outcome can be improved by well-designed interventions.

Unfortunately, this interpretation is inaccurate: the First Theorem give sufficient, but not necessary, conditions for market efficiency. As Alex Tabarrok explains,

…the fact that the theorem’s conditions are not satisfied does not prove that market outcomes can be improved, even by “well-designed” interventions… We know from Vernon Smith’s work, for example, that markets can be competitive with only a handful of traders; nor do the traders have to be perfectly rational. In fact, markets can be very efficient with zero-intelligence traders.

The free-marketeers may not always be correct but it does the debate no good to misrepresent their arguments. Doing so only foments antipathy and creates rivalries which inhibit the quality of the discussion.

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