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What Happens When Economics Doesn't Reflect the Real World?

(15:14)  http://www.youtube.com/watch?v=qIlhSSL3gbY

Anwar Shaikh, Professor of Economics at the New School, explores alternatives to economic orthodoxies, and the findings of his book 'Capitalism: Competition, Conflict, Crises'.
 http://www.youtube.com/watch?v=qIlhSSL3gbY

What Happens When Economics Doesn't Reflect the Real World?

72,230 views Jan 15, 2020

New Economic Thinking
78K subscribers

Anwar Shaikh, Professor of Economics at the New School, explores alternatives to economic orthodoxies, and the findings of his book Capitalism: Competition, Conflict, Crises.

Category
Education

homepage: homepage: http://www.youtube.com/watch?v=qIlhSSL3gbY


It is not EXACTLY that theory doesn't match reality 23.Jan.2020 07:24

Mike Novack

It is more like a matter of "religious" faith vs reality.

Those of you who have ever had to take an Economics 101 course perhaps remember that it began, when explaining the wonders of capitalism and the free market, a set of "rules of thumb", a set of conditions under which the "free market" was supposed to be efficient. Things like none of the "players" representing more than ~2% of the market, equal access tom information, the ability to get into or leave the market rapidly, etc.

Let's call this "the theory of capitalism and free markets". Now it is moot to argue about whether or not this theory is valid in a world where those conditions were true. You can if you want to, but the real problem is that the world we live in usually does NOT meet those conditions.

The religion/faith matter comes in because capitalist economists insists that the market is efficient in spite of that, even though the math does not show that << yes, math was involved showing it was so in the (imaginary) world where the conditions held >>

It is easy to give examples where one or more of the "necessary" conditions are violated. Take dairy farming vs pig farming. It is impossible for dairy farmers to adjust production upward very much except over the long term (many years). It takes time for extra heifer calves to grow to maturity and begin producing milk, and only a percentage of heifers turn into good milkers. Compare with pig farming. Easy to keep back extra gilts, they mature more quickly, and most breeds of pigs can be breed twice a year instead of just once. There my be other reasons (other "rules" broken) why pig farming also does not meet "free market" conditions, but it should be clear that dairy farming does not.

And the 2% rule of thumb? (that non of the players is large enough that their individual decisions move the market). That is a JOKE Throughout most of our economy there are areas of endeavor where a couple players by themselves are 90% of the market.

It may be true to claim "if the sky is clear, cloudless, it will not be raining". But that theory does NOT make a case for "it will not be raining" << no matter how dark and threatening the clouds may be >>