Thursday, April 12, 2012

Straw man clunker

Many things are attractive but tricky (even dangerous).   After fast cars and fast company, there are all of the extreme sports and also theorizing.  I mention this in reaction to Eric Weiner's "Not their father's economics" in yesterday's LA Times.  He rightly criticizes economics as (still) taught in some quarters. "Do people ever have 'perfect information' ...?" 

No, of course not. They routinely avail themselves of information markets.  In the "information age", these grow as we speak.  Who, these days, makes a major purchase without an internet search?  As ubiquitous are branding and reputation.  Buyers and sellers seek trust realtionships because they all understand the game.

But views like Weiner's are widespread.  One can argue that (ever popular) "doomsday" is not imminent because prices are there to elicit on the supply side and ration on the demand side.  But that often gets a knowing response to the effect that "economics" is suspect because of all the silly assumptions -- including everyone has "perfect information." 

The straw man has great utility in many circles.  How many learned papers have been written to challenge the neo-classical straw man?  What would some people do without him?  It's a serious question.

Austrian economics (regularly exposited by Peter Boettke and colleagues at Coordination Problem) shows that one can jettison many of the silly assumptions and still have useful things to say.  In fact, one does not have to be an Austrian to abandon any talk of "perfect information" -- and focus instead on all of the interesting information markets that are all around.  Let's get rid of this clunker.