DOCSLIB.ORG

Market Structures and Market Failures 125

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Market Structures and Market Failures 125 .5 Market market structure The organization of a market, Structures based mainly on the degree of competition. There are four basic mai ket structures. and Market perfect competition A market structure in which many producers supply an identical product. This is the most efficient Failures structure, with prices set by supply and demand. monopoly A market structure in which a single 7.1 Introduction producer supplies a unique product that has no close substitutes. In an unregulated monopoly, the producer If you have a cell phone, at some point in the past you sets prices. may have thought about changing your service pro vider. Perhaps you wanted to get a new phone that oligopoly your company did not oiler, or maybe you wanted A market structure in which a to switch to a cheaper plan. Or perhaps you were an few firms dominate the market and noyed because your provider had raised your rates or produce similar or identical goods. This structure is more competitive altered other terms of your contract. But changing than a monopoly. companies might have meant breaking your contract and paying a stiff penalty. So most likel) you swal monopolistic competition lowed your frustration and did nothing. A market structure in which many Sound familiar? Ifso, you were not alone. As producers supply similar but varied Bob Sullivan, an investigative reporter specializing products. This structure is the closest in technology and business, has observed, millions to perfect competition. of Americans have found themselves stuck in “cell market failure phone jail” with no easy way out. In this situation, A situation in which the market fails says Sullivan in Gotcha Capitalism (2007), to allocate resources efficiently. You don’t act like a rational consumer in a nor externality mal,functioning market economy. You don’t go A cost or benefit that arises from buy the new phone, or get the cheap new plan. production or consumption of a good You don’t reward the more efficient company or service that falls on someone other with your business. You can’t. You’re in jail. than the producer or consumer. Imagine ifyou couldn’t switch coffee shops or grocery stores without paying h tin dreds of public goods dollars in penalties. Preposterous? No—not in Goods and services that are used the world of cell phones. collectively and that no one can be excluded from using. Public goods are not provided by markets. Examples in dude national The cell phone service market is structured differently from defense and clean air. other markets. 119 CeU phone providers and clothing manufacturet s operate in distinctly dif ferent markets, Wireless service providers offer consumers few choices and require binding contracts. In contrast, clothing companies give shoppers many choices, with no strings attached. What is going on here? Flow could cell phone for example. If you go shopping for a T-shirt, you companies operate differently from, say, coffee shops will find hundreds of colors, styles, and designs to or grocery stores or car dea1erships? The cell phone choose from, in a wide range of prices. The T-shirt companies defended their behavior by arguing that industry is very competitive, with many different they provided phones to their customers at low, sub producers. It is apparent that cell phone service sidized rates. Thus, the companies had to cover the providers and T-shirt producers operate in different costs of these phones it people were to break their markets, with different levels of competition. What contracts. Although there is some truth to this argu accounts for these differences? ment, it is not the real reason people found them selves trapped in cell phone jail. The real reason was The Characteristics That Define Market Structure that in 2007 a few major companies dominated the An economist would answer those questions by point cell phone industry, and these companies all acted ing out that the T-shirt and cell phone industries have pretty much the same. different market structures. Market structure refers What about the freewheeling competition that is to the organization of a market, based mainly on the the hallmark of a market economy? What about the degree of competition among producers. laws of supply and demand? Well, the truth is that Economists define market structure according to even in a free market economy, not all industries and four main characteristics. markets are equally competitive. And when they are Number ofproducers. The number of producers in not eqLtal, it is usually the consumer who suffers. a market helps determine the level of competition. In this chapter, you will read about various types Markets with many producers are more competitive. of markets and how and why they differ. You will also learn about the effects of imperfect and inefficient Similarity ofproducts. The degree to which products markets on our economy and society. in a market are similar also affects competition. The more similar the products are, the greater the com petition among their producers. Ii 7.2 What Is Perfect Competition, and Ease of entry. Markets differ in their ease of entry, Why Do Economists Like It So Much? which is a measure of how easy it is to start a new business and begin competing with established Fortunately, most businesses are more consumer businesses. Markets that are easy to enter, with friendly than cell phone companies were when Sul few restrictions, have more producers and are thus livan wrote his 2007 book. Take ‘f-shirt producers, more competitive. 120 Unit 2 Hon Markets Work Control over prices. Markets also differ in the degree anlong producers of agricultural products, such as to which producers can control prices. Che ability to wheat, corn, tomatoes, and milk, Other examples ot in! luence prices —usually by increasing or decreas perfect lv competitive markets include commercial ing the supply of goods—-is known as market power. fishing and the wood pulp and paper industry. The more competitive the market, the less market Perfect competition has four main characteristics. power any one producer will have. Maii’ producers and conSumers. Perfect lv competi Based on these characteristics, economists have tive markets have many producers and consumers. identified tour basic market structures: perfect Having a large number of participants in a market competition, monopol, oligopoly, and monopolistic helps promote competition. competition. These structures are shown on the Identical products. Products in perfectly competitive spectrum below, from most competitive to least markets are virtually identical. As a result, consumers competitive. you read, keep in mind that these Idur As do not distinguish among the products of different models are not always easy to identify in the actual producers. A product that is exactly the same no economy. In some cases, a market will have mixed matter who produces it is called a commodity. features, making it hard to tell how competitive it is. Examples include grains, cotton, sugar, and crude oil. Easy entry into the market. In a perfectly competi Pertect Competition: tive market, producers face few restrictions in enter— Many Producers, Identical Products ing the market. Ease of entry ensures that existing The most competitive market structure is perfect producers will face competition from new firms and competition. In a perfectly competitive market, a that a single producer will not dominate the market. large number of firms produce essentially the same product. All goods are sold at their equilibrium No control over prices. Under conditions of perfect price, or the price set by the market when quantity competition, producers have no market power. They supplied and quantity demanded are in balance. cannot influence prices because there are too many Economists consider perfect competitIon to be the other producers offering the same product. Instead, most efficient market structure in terms of allocat— the market forces of supply and demand determine ing resources to those who value them most. the price of goods. Producers are said to be price Although many markets are highly competitive, takers because they must accept, or take, the market perfect competition is relatively rare. It exists mainly price for their product. Perfect Competition The four basic market structures are defined mainly by how competitive they are Perfect competition is the most competitive, with many producers offering identical products. Many producers Identical products Easy entry No control less over prices competitive Chapter 7 Market Structures and Market Failures 121 In addition to these characteristics, one other Barriers to Entry Can Limit Competition lature distinguishes highly competitive markets: Our look at dairy farming hints at some of the easy access to information about products and obstacles that can restrict access to a market and prices. A person shopping for a car, for example, can limit competition. Such obstacles are known as easily find out the range of models, features, and barriers to entry. prices available. Such information is readily acces One possible barrier is start-up costs, or the ini sible at car dealerships, in published reports, and on tial expense of launching a business. It is much less the Internet. Information gathering involves trade expensive, for example, to open a bicycle repair shop offs, however. Consumers must balance the time than it is to open a bicycle factory. An entrepreneur and expense of gathering such intdrmation with the with little financial capital might find it difficult to money saved by finding a good deal. get into bicycle manufacturing because of the high Economists refir to the costs of shopping arouiid cost of building a factory. for the best product at the best price as transaction The mining industry offers an example of anoth costs. The Internet has helped reduce transaction er barrier to entry: control of resources.
Load more

Recommended publications
  • Three Dimensions of Classical Utilitarian Economic Thought ––Bentham, J.S
    July 2012 Three Dimensions of Classical Utilitarian Economic Thought ––Bentham, J.S. Mill, and Sidgwick–– Daisuke Nakai∗ 1. Utilitarianism in the History of Economic Ideas Utilitarianism is a many-sided conception, in which we can discern various aspects: hedonistic, consequentialistic, aggregation or maximization-oriented, and so forth.1 While we see its impact in several academic fields, such as ethics, economics, and political philosophy, it is often dragged out as a problematic or negative idea. Aside from its essential and imperative nature, one reason might be in the fact that utilitarianism has been only vaguely understood, and has been given different roles, “on the one hand as a theory of personal morality, and on the other as a theory of public choice, or of the criteria applicable to public policy” (Sen and Williams 1982, 1-2). In this context, if we turn our eyes on economics, we can find intimate but subtle connections with utilitarian ideas. In 1938, Samuelson described the formulation of utility analysis in economic theory since Jevons, Menger, and Walras, and the controversies following upon it, as follows: First, there has been a steady tendency toward the removal of moral, utilitarian, welfare connotations from the concept. Secondly, there has been a progressive movement toward the rejection of hedonistic, introspective, psychological elements. These tendencies are evidenced by the names suggested to replace utility and satisfaction––ophélimité, desirability, wantability, etc. (Samuelson 1938) Thus, Samuelson felt the need of “squeezing out of the utility analysis its empirical implications”. In any case, it is somewhat unusual for economists to regard themselves as utilitarians, even if their theories are relying on utility analysis.
    [Show full text]
  • Market Failure Guide
    Market failure guide A guide to categorising market failures for government policy development and evaluation industry.nsw.gov.au Published by NSW Department of Industry PUB17/509 Market failure guide—A guide to categorising market failures for government policy development and evaluation An external academic review of this guide was undertaken by prominent economists in November 2016 This guide is consistent with ‘NSW Treasury (2017) NSW Government Guide to Cost-Benefit Analysis, TPP 17-03, Policy and Guidelines Paper’ First published December 2017 More information Program Evaluation Unit [email protected] www.industry.nsw.gov.au © State of New South Wales through Department of Industry, 2017. This publication is copyright. You may download, display, print and reproduce this material provided that the wording is reproduced exactly, the source is acknowledged, and the copyright, update address and disclaimer notice are retained. To copy, adapt, publish, distribute or commercialise any of this publication you will need to seek permission from the Department of Industry. Disclaimer: The information contained in this publication is based on knowledge and understanding at the time of writing July 2017. However, because of advances in knowledge, users are reminded of the need to ensure that the information upon which they rely is up to date and to check the currency of the information with the appropriate officer of the Department of Industry or the user’s independent advisor. Market failure guide Contents Executive summary
    [Show full text]
  • Social Insurance: Connecting Theory to Data
    CHAPTER 3 Social Insurance: Connecting Theory to Data Raj Chetty*,† and Amy Finkelstein†,‡ *Harvard University †NBER ‡MIT Contents 1. Introduction 112 2. Motivations for Social Insurance 114 2.1. Adverse Selection: Review of the Basic Theory 115 2.1.1. A Stylized Model 116 2.1.2. The Textbook Case 118 2.1.3. Departures from the Textbook Environment: Loads and Preference Heterogeneity 123 2.2. Empirical Evidence on Selection 127 2.2.1. Testing for Selection 128 2.2.2. Evidence on Selection 131 2.2.3. Welfare Consequences 134 2.2.4. Directions for Future Work 139 2.3. Other Motivations 140 3. Design of Public Insurance Programs 143 3.1. Optimal Benefit Level in a Static Model 145 3.2. Sufficient Statistics Implementation 148 3.2.1. Consumption Smoothing 148 3.2.2. Liquidity vs. Moral Hazard 157 3.2.3. Reservation Wages 159 3.3. Generalizing the Static Model 163 3.3.1. Dynamics: Endogenous Savings and Borrowing Constraints 163 3.3.2. Externalities on Private Insurers 168 3.3.3. Externalities on Government Budgets 170 3.3.4. Other Externalities 172 3.3.5. Imperfect Optimization 174 3.4. Other Dimensions of Policy 176 3.4.1. Liquidity Provision and Mandated Savings Accounts 176 3.4.2. Imperfect Takeup 178 3.4.3. Path of Benefits 180 4. Challenges for Future Work 182 Acknowledgments 186 References 186 Handbook of Public Economics, Volume 5 © 2013 Elsevier B.V. ISSN 1573-4420, http://dx.doi.org/10.1016/B978-0-444-53759-1.00003-0 All rights reserved.
    [Show full text]
  • Breaking the Mould: an Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State Ha-Joon Chang, May 2001
    Breaking the Mould An Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State Ha-Joon Chang Social Policy and Development United Nations Programme Paper Number 6 Research Institute May 2001 for Social Development The United Nations Research Institute for Social Development (UNRISD) thanks the governments of Denmark, Finland, Mexico, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom for their core funding. Copyright © UNRISD. Short extracts from this publication may be reproduced unaltered without authorization on condition that the source is indicated. For rights of reproduction or translation, application should be made to UNRISD, Palais des Nations, 1211 Geneva 10, Switzerland. UNRISD welcomes such applications. The designations employed in UNRISD publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of UNRISD con- cerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The responsibility for opinions expressed rests solely with the author(s), and publication does not constitute endorse- ment by UNRISD. ISSN 1020-8208 Contents Acronyms ii Acknowledgements ii Summary/Résumé/Resumen iii Summary iii Résumé iv Resumen v 1. Introduction 1 2. The Evolution of the Debate: From “Golden Age Economics” to Neoliberalism 1 3. The Limits of Neoliberal Analysis of the Role of the State 3 3.1 Defining the free market (and state intervention) 4 3.2 Defining market failure 6 3.3 The market primacy assumption 8 3.4 Market, state and politics 11 4.
    [Show full text]
  • Does Monetarism Retain Relevance?
    Economic Quarterly—Volume 98, Number 2—Second Quarter 2012—Pages 77–110 Does Monetarism Retain Relevance? Robert L. Hetzel he quantity theory and its monetarist variant attribute significant reces- sions to monetary shocks. The literature in this tradition documents T the association of monetary and real disorder.1 By associating the oc- currence of monetary disorder with central bank behavior that undercuts the working of the price system, quantity theorists argue for a direction of causa- tion running from monetary disorder to real disorder.2 These correlations are robust in that they hold under a variety of different monetary arrangements and historical circumstances. Nevertheless, correlations, no matter how robust, do not substitute for a model. As Lucas (2001) said, “Economic theory is mathematics. Everything else is just pictures and talk.” While quantity theorists have emphasized the importance of testable implications, they have yet to place their arguments within the standard workhorse framework of macroeconomics—the dynamic, stochastic, general equilibrium model. This article asks whether the quantity theory tradition, which is long on empirical observation but short on deep theoretical foundations, retains relevance for current debates. Another problem for the quantity theory tradition is the implicit rejection by central banks of its principles. Quantity theorists argue that the central bank is responsible for the control of inflation. It is true that at its January 2012 meeting, the Federal Open Market Committee (FOMC) adopted an in- flation target. However, the FOMC did not accompany its announcement with The author is a senior economist and research adviser at the Federal Reserve Bank of Rich- mond.
    [Show full text]
  • Market Failure in Context: Introduction Alain Marciano and Steven G
    Market Failure in Context: Introduction Alain Marciano and Steven G. Medema Market failure, conceived of as the failure of the market to bring about results that are in the best interests of society as a whole, has a long lin- eage in the history of writings on matters economic. As Steven G. Medema has shown in The Hesitant Hand, much of the history of economics can be read as a discussion of whether, and the extent to which, the self- interested actions of private agents, channeled through the market, will redound to the larger social interest. For much of this history, the answers given were negative, and it was assumed that the corrective hand of the state was needed as a constant and consistent regulating force. Thus we find Plato and Aristotle arguing for a wide range of legal restrictions to guard against macroeconomic (to use the modern term) instability; Aqui- nas making the case for rules that promote a measure of Christian justice in economic affairs; mercantilist writers lobbying for restrictions on vari- ous forms of trade (and support for others), as well as for regulations on Correspondence may be addressed to Alain Marciano, University of Montpellier, Department of Economics, Rue Raymond Dugrand, CS 79606, F-34960 Montpellier, France (e-mail: alain [email protected]); and to Steven G. Medema, Department of Economics, University of Colorado Denver, CB 181, PO Box 173364, Denver, CO 80217-3364 (e-mail: steven.medema @ucdenver.edu). The editors wish to thank Paul Dudenhefer for his diligent shepherding of this project from conference to published volume.
    [Show full text]
  • Welfare State in the Twenty-First Century Joseph E
    The Welfare State in the Twenty-First Century Joseph E. Stiglitz1 Designing the twenty-first-century welfare state is part of a broader debate redefining the role of the market, the state, and “civil society”—non-state forms of collective action. One of the tenets of the Reagan-Thatcher revolution was questioning the welfare state. Some worried that the financial burdens of the welfare state would drag down growth. Some worried about the effect of the welfare state on the sense of individual responsibility, others that the welfare state provides an opportunity for the lazy and profligate to take advantage of hardworking citizens. A sense of social solidarity had united citizens around the world during World War II. Some thirty years after that global conflict, that solidarity was eroding, and economic arguments quickened its disintegration. Even two decades after the doctrines of the Reagan-Thatcher revolution of the 1980s had taken root—and long after its shortcomings had become obvious—others argued that the welfare state had contributed to the euro crisis.2 This paper argues that these arguments criticizing the welfare state are for the most part fallacious and that changes in our economy have even increased the importance of the system. The paper then describes some of the key elements of a twenty-first-century welfare state. I. Basic Precepts of the Welfare State To understand the principles and philosophy of the welfare state, it is useful to contrast it with the “neoliberal” or market-oriented state.3 The central economic doctrine of neoliberalism is that markets are efficient.
    [Show full text]
  • Do Ends Justify Means? Feminist Economics Perspectives on the Business Case for Gender Equality in the UK Labour Market
    e-cadernos CES 05 | 2009 As fundações institucionais da economia Do Ends Justify Means? Feminist Economics Perspectives on the Business Case for Gender Equality in the UK Labour Market Emily Thomson Electronic version URL: http://journals.openedition.org/eces/298 DOI: 10.4000/eces.298 ISSN: 1647-0737 Publisher Centro de Estudos Sociais da Universidade de Coimbra Electronic reference Emily Thomson, « Do Ends Justify Means? Feminist Economics Perspectives on the Business Case for Gender Equality in the UK Labour Market », e-cadernos CES [Online], 05 | 2009, Online since 01 September 2009, connection on 30 April 2019. URL : http://journals.openedition.org/eces/298 ; DOI : 10.4000/eces.298 DO ENDS JUSTIFY MEANS? FEMINIST ECONOMICS PERSPECTIVES ON THE BUSINESS CASE FOR GENDER EQUALITY IN THE UK LABOUR MARKET EMILY THOMSON DIVISION OF PUBLIC POLICY GLASGOW CALEDONIAN UNIVERSITY Abstract: This paper intends to explore a feminist economics perspective on business case arguments for gender equality in the UK labour market, where there are significant inequalities between men and women. Policy discourse on gender equality has moved from one which emphasises ‘equal opportunities’ and notions of fairness and equal treatment to one which focuses on increasing economic efficiency in the wider economy and viewing female employees as a competitive advantage for individual firms. Developments in the policy discourse of gender equality in the labour market have been heavily influenced by mainstream, neoclassical economics. An example of this is the current UK government aim to encourage private sector employers to take action on gender equality voluntarily on the basis of ‘business case’ arguments. The business case itself has been critiqued by many authors but has yet to be considered from an explicitly feminist economics perspective.
    [Show full text]
  • Economics GR 12 MEMO Paper 2
    PROVINCIAL ASSESSMENT GRADE 12 ECONOMICS P2 JUNE 2019 MARKING GUIDELINES MARKS: 150 TIME: 2 hours MARCH 2019 This marking guideline consists of 13 pages. Demo NW/JUNE/ECOM/ EMIS/6******* 2 SECTION A (COMPULSORY) QUESTION 1 1.1 MULTIPLE QUESTIONS 1.1.1 C - fixed 1.1.2 B - quantity demanded is equal to quantity supplied 1.1.3 C – negatively 1.1.4 D - conglomerates 1.1.5 A - public goods 1.1.6 B - failure 1.1.7 D - feasibility study 1.1.8 A - monopoly (8 x 2) (16) 1.2 MATCH ITEMS 1.2.1 D occurs when total costs are greater than total revenue 1.2.2 C value of inputs owned by entrepreneur and used in the production process 1.2.3 F When resources are not allocated in the right proportions and product mix does not match consumers’ tastes 1.2.4 B products are similar but slightly different 1.2.5 A the time is long enough for variable and fixed factors to change 1.2.6 H are the costs that consumers pay when they buy goods ( price) 1.2.7 E situation in which two suppliers dominate the market for service or a product 1.2.8 G the item that is sacrificed when a choice is made (8 x 1) (8) 1.3 GIVE THE CONCEPT. 1.3.1 Demerit goods. 1.3.2 Externalities 1.3.3 Price Ceiling 1.3.4 Average revenue 1.3.5 .Sunk costs 1.3.6 South African Bureau of Standards (6 x 1) (6) [30] TOTAL SECTION A: 30 SECTION B Answer any TWO of the three questions from this section in your ANSWER BOOK QUESTION 2: MICRO ECONOMICS 40 MARKS – 30 MINUTES 2.1 Answer the following questions: 2.1.1 Name any TWO examples of perfect competition.
    [Show full text]
  • Twelve Market and Government Failures Leading to the 2008–09 Financial Crisis
    Twelve Market and Government Failures Leading to the 2008–09 Financial Crisis Guillermo de la Dehesa Occasional Paper 80 30 Group of Thirty, Washington, DC About the Author Guillermo de la Dehesa is Chairman of the Centre for Economic Policy Research. The views expressed in this paper are those of the authors and do not necessarily represent the views of the Group of Thirty. ISBN I-56708-149-5 Copies of this paper are available for $10 from: The Group of Thirty 1726 M Street, N.W., Suite 200 Washington, D.C. 20036 Tel.: (202) 331-2472 Fax: (202) 785-9423 E-mail: [email protected] WWW: http://www.group30.org Occasional Paper No. 80 Twelve Market and Government Failures Leading to the 2008–09 Financial Crisis Guillermo de la Dehesa Published by Group of Thirty© Washington, DC 2010 Contents Introduction 5 Homeownership 9 Subprime Mortgages 11 Securitization 15 Investors 17 Rating Agencies 19 Banks 21 Regulation 27 Supervision 33 Risk Management 35 Over-the-Counter Derivatives Markets and Credit Default Swaps 37 Basel II 39 Systemic Risk 41 Conclusion 45 Group of Thirty Members 47 Group of Thirty Publications since 1990 51 Introduction There is a market failure when the market fails to allocate its resources in an efficient manner. This assumes one of four things: it did not consider the external costs and benefits (social efficiency), it failed to produce the goods and services at a minimum cost demanded by the consum- ers (allocation efficiency), it has not utilized the minimum quantity of resources possible in the production of goods and services (technical efficiency), or it has not produced the goods and services at the lowest possible manufacturing costs (industrial efficiency).
    [Show full text]
  • Childcare Market Failure Meredith Johnson Harbach University of Richmond School of Law
    Utah Law Review Volume 2015 | Number 3 Article 3 2015 Childcare Market Failure Meredith Johnson Harbach University of Richmond School of Law Follow this and additional works at: http://dc.law.utah.edu/ulr Part of the Legal Remedies Commons, and the Legislation Commons Recommended Citation Harbach, Meredith Johnson (2015) "Childcare Market Failure," Utah Law Review: Vol. 2015 : No. 3 , Article 3. Available at: http://dc.law.utah.edu/ulr/vol2015/iss3/3 This Article is brought to you for free and open access by Utah Law Digital Commons. It has been accepted for inclusion in Utah Law Review by an authorized editor of Utah Law Digital Commons. For more information, please contact [email protected]. CHILDCARE MARKET FAILURE Meredith Johnson Harbach* Abstract In the United States, family law norms and childcare policy have long reflected the view that childcare is a private, family matter. But childcare has crossed the private-public divide. In the absence of parents at home providing care, a substantial childcare market has emerged. And that market is failing. Our law, policy, and legal scholarship have yet to recognize and account for this new reality. This Article confronts the problem on its own terms, using economic analysis to diagnose our childcare crisis as a market failure, and makes the case for more active and explicit government intervention in the childcare market. Economic theory not only helps us understand why the market is failing, but also recommends specific law and policy levers—subsidies, regulation, and information—to mitigate market failure, enabling us to craft more responsive reforms.
    [Show full text]
  • New Labour, New Monetarism Philip Arestis and Malcolm Sawyer
    soundings issue 9 summer 1998 New labour, new monetarism Philip Arestis and Malcolm Sawyer New Labour's economic policies share much in common with old-fashioned monetarism, particularly in their narrow focus on interest rates as an instrument of policy. The notion that economic policy follows a coherent strategy drawn from a clear economic analysis of capitalist economies would be laughable. But it is often possible to discern some general tendencies and to see the influence of economic ideas on economic policy. We would not go as far as Keynes when he wrote that: the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economists. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.1 Indeed, we would acknowledge that a politician's adoption of ideas from economists can arise from those ideas leading to policy conclusions which the politician wanted to follow for other reasons. The early years of the Thatcher government illustrate the influence of economic ideas, usually described as monetarism, and how the interpretation of those ideas could be used to promote 1. See J.M. Keynes, The General Theory of Employment, Interest and Money, Macmillan, London 1936, p383. 24 New Labour, new monetarism policies which the government wished to pursue anyway.
    [Show full text]