Friday, August 11, 2017

A weapon against the nation-state

Economic Theory: Limitations and Biases at Conversable Economist, 6 July 2017:

Arnold Kling tackles the hardy perennial topic "How Effective is Economic Theory?" in the Summer 2017 issue of National Affairs. His overall approach is to focus on "five interlocking subjects in particular: mathematical modeling, homo economicus, objectivity, testing procedures, and the particular status of the sub-discipline of macroeconomics." He then compares and contrasts what economists were saying about those subjects in 1966 and 1980, compared with his views on current patterns. For details, read the essay! But here are few excerpts that caught my eye and may give some flavor of his discussion:

"Economists are not without knowledge. We know that restrictions on trade tend to help narrow interests at the expense of broader prosperity. We know that market prices are important ...

There is a lot more, excerpts from Kling and thoughts on the excerpts. I want to cut it off right at the start and deal with the first piece of knowledge presented: Restrictions on trade tend to help narrow interests at the expense of broader prosperity.

It is a general statement, offered as something more than a rule of thumb. A lot more than a rule of thumb: Restrictions on trade are costly. Period, end of story.

It is presented as a given. Something economists know, and know for sure.

I have trouble with the period, the given, the certainty. But most of all, I have trouble with the incompleteness of that particular piece of knowledge. When the "narrow" interests are those of nations and the "broader" prosperity is that of global corporations, that harmless little piece of knowledge becomes a weapon against the nation-state.

How do the world's biggest companies compare to the biggest economies?

How will they compare when government is small enough you can "drown it in a bathtub"?

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