Increasing Marginal Utility

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Bleg for Progressives – Which Micro Arguments Am I Missing?

An undergraduate majoring in economics will come across a number of potential market failures that may or may not demand government intervention. Setting aside macroeconomics, these sources of market failure would include,

  • Externatilities
  • Public Goods / Public Bads
  • Stiglitz/Akerlof things
  • Market power

And so on.

Then there are the free market responses which I saw (at most) in a very limited way in undergrad but constitute the modern responses to arguments for intervention.

  • Coase theorem
  • Public Choice
  • The UCLA approach to micro
  • Hayek/Kirzner view of markets

And so on.

My question is this – what are the equivalent to these arguments from the left? One that comes to mind is behavioral economics, which I am familiar with because I’m more or less a behavioral economist, and in any case it has been fashionable for the better part of a decade at this point.

Are there “novel” theoretical arguments that I haven’t come across? Without going too far left (e.g. Steve Keen) or getting tied into knots over equity concerns, what is missing from my analysis?

11 responses to “Bleg for Progressives – Which Micro Arguments Am I Missing?

  1. Hedlund December 22, 2012 at 3:47 pm

    I’d like to help but I’m not sure I understand: you want a leftist perspective, but not “too” left. You single out Steve Keen, which leads me to believe that you’d prefer that Post Keynesian critiques be excluded, and from there I am left to surmise that Marxian analysis is probably also not your cuppa. (How about Yanis Varoufakis?) Equality, one of the primary concepts defining the political left, is explicitly removed from consideration for some reason. So, to be clear, where are you trying to draw this line, exactly?

    Omitting Keen seems odd to me; his book is more of a lit review than anything, since relatively few of his critiques are original, and some come straight from mainstream heavy-hitters like Stigler. Could it be his rhetorical style put you off before you hit the substantive points? (You wouldn’t be the first to report as much.)

  2. Daniel Kuehn December 22, 2012 at 8:26 pm

    Does “left” mean critical of the market? I don’t get it. I know I am not necessarily typical on the left, but then again others that are considered “left” among economists aren’t really anti-market either.

    • rhmurphy December 23, 2012 at 2:59 am

      Yes, I mean critical of the market. I want to know theoretical reasons why the textbook is wrong from the perspective of those critical of the market. I know many such reasons from the perspective of those in favor of the market. I’m blind spot hunting.

  3. Hedlund December 23, 2012 at 12:55 am

    Huh. In that case, I’m not sure “the equivalent … from the left” fits, since the examples you’ve given are probably already on the menu for the narrow slice of the left in consideration.

    Part of the trouble with finding critical viewpoints within the marginalist framework is that critiquin’ types seem to find that marginalism itself is part of the problem for a variety of reasons (marginal productivity theory is incoherent, aggregate production functions are screwy, complications arise from capital reswitching, etc). But then, those are criticisms of the framework itself, not “the market” (though often the two can go hand in hand, given the importance of theory to our very criteria of efficiency).

    Also, I’m not sure if you’re looking for criticisms of any market versus a capitalist market in particular. Assuming the latter, by excluding macro from consideration I guess we’re also leaving out the tendency towards crisis, which is probably the most powerful criticism of capitalism on efficiency grounds.

    Albert and Hahnel’s Quiet Revolution in Welfare Economics covers a lot of ground, but I’m certain you’re familiar with the thrust of many of its arguments. The chapter summaries should narrow it down. Based on what I recall reading here, I guess you’re probably already down with implications of endogenous preferences?

    I dunno. I’ll ask around, see if anyone else can find stuff better tailored to your specific requirements. Hope this is at least a little helpful, in the meantime.

    • rhmurphy December 23, 2012 at 3:01 am

      Endogenous preferences is something I haven’t seen clearly articulated. Thanks. I’ve had the sense that things similar to that are problems, but hadn’t seen them systematized.

  4. Unlearningecon December 23, 2012 at 10:29 am

    First, I’ll offer some quick, off the cuff responses to your particular points:

    Coase theorem – this only really seems to work for small things. The response is quite simply: well, the most important externalities like pollution and global warming are still happening.

    Public Choice – you say you don’t want to go to leftist, though I will say the obvious response is that public choice begs a ton of questions about capitalism. Another point is that public services do actually work pretty well when you think about it: public servants aren’t all rent seeking parasites.

    Hayek/Kirzner view of markets – for me Hayek’s essay is an exercise in armchair thinking. The fact is that corporations are top down hierarchies, so they conceptually should suffer from the same problems he identifies.

    As Hedlund says, think the way your question is posed – deliberately excluding criticisms of the framework itself – rules out most criticisms, as they generally take issue with the framework.

    The best bet, however, would be institutionalist perspectives. A short, readable book is ‘How Markets Work: Supply, Demand and the ‘Real World.” It makes the point that there’s no reason to believe in ‘a’ theory of the market that can be applied to every circumstance, and develops various theories of different markets – most notably the labour market – using roughly the same methodology as marginalism. Effectively it argues that supply and demand curves can be many shapes depending on the market, and therefore there is scope for government action to ‘knock’ the market into a superior equilibrium.

  5. Unlearningecon January 1, 2013 at 1:28 pm

    I just stumbled across this on the Coase Theorem:

    • rhmurphy January 1, 2013 at 4:22 pm

      Nice find… it’s more a strike against Chicago than the circles I travel in, which do focus on the institutions.

      • Unlearningecon January 1, 2013 at 4:36 pm

        In all honesty I should have watched the second half before linking it to you. For some reason it seems to be more about this guy’s career than anything else.

        But I think that insofar as he actually deals with the Coase Theorem, not too much more needs to be said. In the real world, how many cases of bargaining are there? Particularly for anything that really matters.

      • rhmurphy January 1, 2013 at 4:41 pm

        That isn’t really how it is used. It is used “rhetorically” by pointing out that transaction costs are higher in politics than in markets, so you shouldn’t expect externalities to be fixed with politics (the externalities that are “fixed” are just rent-seeking).

        The practical way to fix public goods and externalities, in the minds of ardent free market advocates, is Ostrom-style institutions.

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