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Myth Busting and Economic Theory

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|Peter Boettke| I started reading John Quiggin’s Economics in Two Lessons, and its basically a critique of the proposition that market prices fully reflect opportunity costs. So the second lesson for Quiggin, as it was for Samuelson, teaches about externalities, monopoly power, business cycles, etc. in short, market failure theory. But much of the great advances in economic science during the 1960s-1990s was blowing up the mythology of market failure and the idea of government as a corrective. But the resurrection of market failure theory is not limited to Quiggin, but was evident already in writings earlier in the 2000s such as the books of Ho-Joon Chang The trend is also evident in recent trends from behavioral economics to the sort of arguments one finds in Eric Posner and Glen

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I started reading John Quiggin’s Economics in Two Lessons, and its basically a critique of the proposition that market prices fully reflect opportunity costs. So the second lesson for Quiggin, as it was for Samuelson, teaches about externalities, monopoly power, business cycles, etc. in short, market failure theory.

But much of the great advances in economic science during the 1960s-1990s was blowing up the mythology of market failure and the idea of government as a corrective.

But the resurrection of market failure theory is not limited to Quiggin, but was evident already in writings earlier in the 2000s such as the books of Ho-Joon Chang

The trend is also evident in recent trends from behavioral economics to the sort of arguments one finds in Eric Posner and Glen Weyl’s Radical Markets.  Obviously, there is a ton to learn by engaging these works. But hopefully part of what is learned is the theoretical and empirical weaknesses reflected in these positions and how price theory is actually the best prophylactic against popular fallacies as Henry Simons argued for years in his introduction to U of Chicago graduate students.  It is time for economists to take economics seriously again, and critically engage this literature that has exploded in the last two decades.  

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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