My microeconomics professor, while not an outright socialist, said that the free market by itself cannot function because consumers do not have “perfect knowledge” about their actions, and will therefore make bad economic decisions. I didn’t say this, but here are my thoughts: even if there were a bureaucracy full of the brightest technocrats, not even they would have perfect knowledge - though I’m sure it would be argued that they at least have better knowledge. What’s the best way to refute the claim that a laissez-faire economy could only work if consumers have perfect knowledge?
I just don’t understand how it follows that because economic actors don’t have perfect knowledge that somehow someone else can have perfect knowledge. Know what I mean? They jump from an observation (which is obviously true in some cases) to an extreme conclusion.
It’s like we have this problem therefore this problem must be solved by government. It’s a pretty big jump.
The only thing worse then monetary cranks are microeconomic cranks.
The market process itself is a process of discovery for that same knowledge, which in the absent of markets, doesn’t even come into existence.
What a waste of money, energy, and time, to have to go to such classes.
A waste indeed; I’ve already read “Human Action” and a number of Austrian works! I would say that my micro/macro classes are easy except I’m learning pseudo-economics, which is much more complicated and abstract…
Quoting myself:
There is a cost involved in getting more information. The buyer made the evaluation to go ahead with it based on his personal values. This includes his valuation of the price of getting more information for a lowered risk. Now if the deal turns out to be bad, that doesn’t mean he made a bad trade. That would simply be results oriented.
Now when someone else takes over your decision making power then they are screwing with your personal valuation of the price of getting more information.
Tell me how a technocrat is going to have better knowledge of my preferences than me and better knowledge of production the the producers from whom I intend to buy from.
The amazing part is that we have any information at all, and if we deem it necessary, we can choose to take action to get more.
You have the correct response. People claim we need regulations because “economic agents” are irrational. That makes bureaucrats just as irrational.
A similar argument, which is much stronger, claims that we need certain regulations (e.g. corporate law) in order to make deal with problems with assymetric information (e.g. insider trading) and principal-agent problems (e.g. managers vs. stockholders). Although this is all well and good, a free market court system (think: merchant law) would deal with such problems. A free market court system also would have the advantage of being less influenced by special interests than legislatures or bureaucrats.
So who has perfect knowledge to make the right decisions?
Where do you study this shit? Even in Sweden I haven’t come across nonsense like this in microeconomics. If I heard if from my macro professor I wouldn’t be surprised at all but in micro we actually learn sensible stuff. Such as that price controls distorts information and lead to sub-optimal value and so forth…
Obviously they never say regulations are wrong. They show that there is always a cost involved in regulating, but that regulations can be used to achieve political goals. Then for instance we might get to compare a price-control and tax and calculate there affect on consumption (the political goal) and the loss of generated value in the market. These calculations rather then the principles themselves is what is so ridicules with micro. If you have the demand equation and know supply and demand amounts that well maybe you should go into business and become a millionaire instead ehh?