Dollars and Jens
Sunday, July 31, 2005
The third comment here caught my attention. Frankly, most of the popular fallacies about economics that I see could be helped by assuming the traditional (Walrasian) supply/demand model assuming a perfectly-functioning market. But I'm also reminded of an incident from a few years back.
A friend of mine mentioned that she thought economists were unrealistic. I felt a bit defensive and more than a bit confused, so I asked her to elaborate. It came down to the fact that she had taken one class in economics, and it had focused on the behavior of perfectly competitive markets. She apparently assumed that was all there was to the field. The perfect competition model is undoubtedly the right model to start with, just as it's right to start a new student of physics with perfect billiard balls on frictionless surfaces. But I don't think anyone assumes, after their one physics class, that physicists believe in frictionless surfaces, and I never really figured out why she had assumed that economists believe in frictionless markets.
Coincidentally, today is Milton Friedman's 93rd birthday.