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Economics has an ideological assumption that equilibriums exist and that “markets” will tend towards them. Although this has some predictive capacity in a class
by vegetablepotpie 3y ago
Economics has an ideological assumption that equilibriums exist and that “markets” will tend towards them. Although this has some predictive capacity in a class of specific cases, it fails to explain observed phenomena in our world.
* Rise of social media. Classical economics would predict, that through low barriers to entry, there should be a nearly unlimited variety of social media platforms to choose from. In reality a few platforms dominate. Classical economics fails to account for network effects.
* Technological innovation. Classical economics treats technological innovation as a Deus ex Machima proofing into existence from nowhere. It has no predictive capacity over what and how people choose to develop new technology, such as the personal computer, networking, and smartphones.
* California energy crisis. After energy deregulation Enron, correctly realized, that if they shutdown one electricity generation plant, the demand for electricity would be so high, the profit margins on the remaining plants would overcome the profits lost from shutting the one plant down. Although this caused people to lose power, it made Enron substantial profits. Classical economics would predict that the higher demand would stimulate more production through higher prices. Classical economics does not account for long feedback loops.
As a result, we have entire subfields of economics devoted to the things that classical economics cannot deal with, such as Behavioral economics, or environmental economics. At a certain point this feels like the Ptolemaic model trying to make geocentrism work in the face of new astrological observations by making planets rotate within spheres in their orbits. By the time you get to 9 embedded spheres, each rotating within each other, you have to say the earth is not the center of the solar system and go with a different model.
- adolph 3y agoCalifornia energy crisis. . . . Classical economics would predict that the higher demand would stimulate more production through higher prices. But since retail prices were capped, there no market method to stimulate more production, of which even unlimited demand could not stimulate construction due to regulatory delays. https://en.wikipedia.org/wiki/2000%E2%80%932001_California_electricity_crisis https://en.wikipedia.org/wiki/2000%E2%80%932001_California_e...
- prewett 3y agoRegarding social media, there are rather a lot of social media platforms: FB-Instagram-WhatsApp, TikTok, Reddit, Snapchat, LinkedIn, StackOverflow, plus platforms like the neighborhood app whose name I can't remember. A new social media platform can get rapid adoption, too, like TikTok. So I'm not sure that the barriers to entry are actually all that high, even with the network effect. The barrier to entry to building New FB is pretty high even without the network effect (knowledge, code, and worldwide servers to maintain a high reliability, always-available worldwide app, along with the sales/marketing to support the ad revenue). But even in an industry with obviously low barriers, soft drinks, nobody makes New Coke, you make a drink with a different flavor. (Even Coke could get New Coke to work!)
- JumpCrisscross 3y ago> Economics has an ideological assumption that equilibriums exist and that “markets” will tend towards them No? You're describing DSGEs [1]. They're useful because they're solvable. But the word stochastic is right there in the name. > Classical economics would predict that the higher demand would stimulate more production through higher prices No, it would call out market failure due to insufficient producer heterogeneity. This is like complaining about the equation for a line because a vertical line is causing a divide by zero error: you're out of scope. [1] https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equ...