Tuesday, May 19, 2009

The Neoclassical Fallacy of Government as Deus ex Machina (Chris Brown)

Chris Brown uses the neoclassical model, which I recall being hammered home in my econ classes in college, to show that the government itself is the worst type of "pure monopoly" in existence:

Austrian economists have long been critical of the static, unrealistic models of neoclassical economics and instead take a dynamic, causal-realist approach. Similarly, the role of government, while receiving heavy analysis from Austrians, is taken as a given in most neoclassical models and textbooks, used today in almost all university economics courses.

Laying aside the Austrian critique of neoclassical models, an analysis of the role and characteristics of government — within the neoclassical framework — will show that this institution most closely resembles the model viewed as least efficient in terms of production and allocation of scarce resources.

The government is not a deus ex machina. The question of where the government fits into the neoclassical framework demands an answer. It cannot just be assumed that any market "inefficiencies" (in the neoclassical sense) could be limited or eliminated by government, when government itself is arguably the most inefficient of all institutions.

Read the rest

No comments: