John Quiggin — Economics in Two Lessons

I’ve finally committed to delivering a manuscript of my long-overdue book Economics in Two Lessons. As part of the process, I’m going to post the chapters, one at a time, and ask for comments, criticism, encouragement and so on. To begin at the beginning, here’s the Introduction.

Crooked Timber
Economics in Two Lessons
John Quiggin | Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government

John Quiggin — Bastiat anticipates climate science denialism

… on Googling Bastiat + pollution, I came across a remarkable package in which Bastiat anticipates the climate change debate and takes the denialist side in advance.…

What’s striking, though, is [Bastiat's] a priori faith that everything will be OK because of Divine Providence [compare with "spontaneous natural order"], which ensures that human activity tends towards harmony. If that fails, and a laissez-faire economy does in fact produce unsustainable pollution, his whole case collapses.

Of course, it’s possible to salvage a version of laissez-faire in the way suggested by Coase, using newly created property rights. But this requires the admission that property rights are a socially constructed set of rules, enforced by coercion, rather than a category inherent in the natural relationship between people and things. It’s precisely this admission that propertarians have been unwilling/unable to make, and why they still rely on magical thinking like that displayed by Bastiat.

John Quiggin's Blog
Bastiat anticipates climate science denialism
John Quiggin | Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government

John Quiggin — Economics in Two Lessons

I’ve been promising for a long time to write a new book, framed as a reply to a free-market tract Economics in One Lesson by Henry Hazlitt, published in 1946, but still in print and popular among free market advocates. Its popularity reflects the fact that it’s a reworking of Bastiat’s “What is Seen and What is Not Seen”, still one of the best statements of the case for free markets.... 

But as a general statement, Hazlitt’s One Lesson is false, which is why my working title is Economics in Two Lessons”.

I've been wondering when someone was going to write this.

Lesson Two is “Market prices do not reflect all the opportunity costs we face as a society”

To someone trained in mainstream economics, as I have been, the immediate examples of this Lesson are “market failures”, such as externality, monopoly and information asymmetries. I originally planned my book to focus on these market failures, making it a somewhat idiosyncratic take on what is usually called public economics. But I kept feeling that I was missing out too much that was important: unemployment, income distribution and many other issues.

John Quiggin
Economics in Two Lessons

"Adam Smith and the Myth of Laissez Faire"

Free, unregulated markets -- those absent government oversight of any kind -- are not the same as the ideal competitive markets found in textbooks, those that produce optimal outcomes. In a free market, producers are free to organize, for example, "in some contrivance to raise prices," and this takes us away from the optimal outcome free market enthusiasts are trying to defend. Government oversight and regulation are needed to stop producers from engaging in behavior that is harmful to consumers, excessive market power and the associated political power that come with it are both problematic, a point Smith's so-called disciples ought to take to heart.

And no, Adam Smith never used the phrase "laissez-faire," even though it knew of it. Gavin Kennedy shows that the narrative of Adam Smith embracing laissez-faire is myth whose origin is traceable to Jean-Baptiste Say and Fredric Bastiat. Kennedy is the authority on Adam Smith so let's put that myth to bed.

Read it at Economist's View
"Adam Smith and the Myth of Laissez Faire"

by Mark Thoma, with a long quote from Gavin Kennedy

Frederic Bastiat on fraud

French economist, Frederic Bastiat, perfectly summed up the concept of fraud and how it is perpetuated with this quote:

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it" - Fredric Bastiat.

(h/t Roger Erickson)