This might be a problem

I have no doubt that he, like most of his political persuasion, believes in the microeconomics theory of the firm, where each entity is economically insignificant and can be replaced by a new market entrant at any point in time, not least because everyone has, according to this theory, access to capital to promote any viable business that they might conceive of. As a consequence, according to this theory, business failure is not a problem. It does instead make space for new opportunists. However, this theory is wrong.

Given that that’s not the microeconomic theory of the firm I’m not sure how many people do believe this.

It’s remarkable how much arguing he does with his own misunderstandings really.

5 thoughts on “This might be a problem”

  1. It looks as if he is confusing perfect competition with the theory of the firm but it is hard to say. As wiki says, the theory of the firm started to be thought about once people realised that simply looking at markets was inadequate as a way of describing economic activity and that perfect competition was not an explanation. Spud seems to waltz around the subject area like a drunken toddler in a minefield. At every step he takes, a mine explodes

  2. It sounds like the Murphmeister has come across Gabaix’s 2011 Econometrica on the granular origins of aggregate fluctuations.

    “This paper proposes that idiosyncratic firm-level shocks can explain an important part of aggregate movements and provide a microfoundation for aggregate shocks. Existing research has focused on using aggregate shocks to explain business cycles, arguing that individual firm shocks average out in the aggregate. I show that this argument breaks down if the distribution of firm sizes is fat-tailed, as documented empirically. The idiosyncratic movements of the largest 100 firms in the United States appear to explain about one-third of variations in output growth.”

    Clever paper, well written. It had been a while since anything like this was in Econometrica.

    Of course, the spudmeister has not understood this has nothing to with the theory of the firm or indeed microeconomics models of competition.

  3. Good find Ken, it might go somewhere towards explaining Spud’s brainfart earlier this week on public interest entities

  4. This character invents some quite elaborate straw men and then uselessly attempts to destroy them. That he and his strawmen are both wrong seems to escape his purview.

  5. Barks said:
    “This character invents some quite elaborate straw men and then uselessly attempts to destroy them.”

    Murphy wrestling with straw men? It sounds like a nightmare episode of Wurzel Gummidge.

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