More Ritchie

Oh dear, Richard Murphy has come back with more of his thoughts on economics. Here\’s what I left in his comment box.

“To take an example of the first, and to highlight an issue which underpins the whole of neoliberal economics which is based entirely upon this mistaken philosophy and methodology, it is assumed that markets, and markets alone, allocate resources efficiently within society.”

No it isn’t, don’t be so absurd! There are vast areas where we know (and insist quite vehemently) that markets will not produce an optimal resource allocation. Public Goods for example. The fact that markets will not produce such an optimal allocation is why “neo-liberals” (in the main) support things like copyrights and patents, because for non-rivalrous and non-excludable goods (ie, Public ones) we agree that market allocations are non-optimal.

The difference here between neo-liberal and US style liberals is only over which areas markets do or do not provide that optimal allocation. We all agree that sometimes they do and sometimes they don’t, the trick is in knowing which is which.

“This logic that well-being is maximised when profit is maximised is, however, entirely untrue. ”

Entirely a straw man. Monopolies maximise profits yet we rail against monopolies from the neo-liberal pulpit. We rail against them because we can prove that those maximised profits come at the expense of the well being of the consumer (and or labour force in some circumstances). We are clearly therefore not arguing that well-being is maximised by profit maximisation.

“Second, the model only works on the basis of revealed preferences i.e. that if I prefer A to B and B to C I will prefer A to C. Everything that I know about human behaviour suggests that this is an entirely inappropriate conclusion.”

This is not revealed preferences. It is consistent preferences. Revealed preferences is something quite different: don’t listen to what people say they want, watch what they actually do. This will reveal their preferences to you much better than what they might say out of politeness or social or political conformity.

“Third on the basis of this idea it presumes that there is always a downward sloping demand curve for any product and always an upward sloping supply curve meaning that a single, discreet and permanent equilibrium state for the economy can be achieved.”

We most certainly do not think that a permanent equilibrium state can be reached. We are the people who insist that because technology continually changes no permanent equilibrium can be reached. As to supply and demand curves we say that in general they slope those ways and acknowledge that sometimes they do not (as in the case of Giffen Goods and to some extent for Veblen Goods as well).

“relatively simple to prove that demand curves can be upward sloping and supply curve downward sloping for the same product at different points”

Indeed, so simple that it’s used as a demonstration. When you’re limited to half a litre of water a day your demand curve for it is almost vertical. When you’re drowning in it you’ll happily pay someone to take it away, making your demand curve slope upwards. This is a triviality….the insistence is that almost all of the time with economic goods then curves do indeed go the way we say they do.

As before, your critique fails because you don’t in fact understand what it is that you’re trying to critique. You quite literally do not know what you are talking about.

9 comments on “More Ritchie

  1. Actually, given how most economies run on pure guesswork, assumptions and highly subjective decisions, I am often pleasantly surprised at how well they work, despite massive gummint interference left, right and centre.

    The problem is that there are some people who think that they are so much cleverer and more knowledgeable than the collective guesswork, assumptions and subjective decisions of six billion individuals.

  2. “Revealed preferences is something quite different: don’t listen to what people say they want, watch what they actually do.”

    *cough*Polly Toynbee*cough*

  3. I have finally checked his credentials – he got a degree in Economics and Accountancy from Southampton University. Giv en his age, this means he dates from the time when people only went to that university to smoke dope and go sailing. His brain is obviously showing the long-term signs of so much exposure to weapons-grade dope. All in all, he is not a great advertisement for the English education system.

  4. He’s a churchgoer and collects bus tickets. Perhaps those two nuggets of information go some way to explaining the obsessive nature of his ramblings!

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