Help Wanted: Economists Who Understand the Economy
Ronald Coase, the 101-year old, Nobel Prize-winning economist from whose essay, “The Lighthouse in Economics” the Independent Institute takes its logo, is at it again: tweaking his fellow economists for being out of touch with reality in a new piece in the December 2012 Harvard Business Review (HBR), “Saving Economics from the Economists.”
Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.
Coase is well known for—gasp—venturing out of the ivory tower to go see how people and firms actually operate in the real world. Terribly unorthodox and anti-academic, but he is English, after all, and everyone knows they’re somewhat eccentric.
Just as Coase blew the lid off the myth of the pure “public good” (lighthouses), he also revolutionized understanding of why firms exist, as well as showing that understanding economics negates much of the perceived need for government regulation.
Unfortunately, as he points out in his current HBR piece, his brand of economics rooted in the real world is increasingly rare, with the result:
Government is increasingly seen as the ultimate solution to tough economic problems, from innovation to employment.
Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates.
Yet the current era, with an explosion of increasingly complex and diverse economic relationships, is precisely when the field of real-world economics could provide the information desperately needed for markets to work well.
We’re glad Dr. Coase is still going strong, and greatly appreciated his serving as Honorary Co-Chair of our 25th Anniversary Gala last year, honoring Robert Higgs, Mario Vargas Llosa, and Lech Wałęsa. It would be wonderful to celebrate his upcoming 102nd birthday on December 29th by seeing a strong response to his plea to his profession:
It is time to reengage the severely impoverished field of economics with the economy. Market economies springing up in China, India, Africa, and elsewhere herald a new era of entrepreneurship, and with it unprecedented opportunities for economists to study how the market economy gains its resilience in societies with cultural, institutional, and organizational diversities. But knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists.
Tags: Austrian School of Economics, Business, Economics, Entrepreneurship, Free Market, free rider effect, Innovation, Nobel Prize in Economics, Property Rights, Regulation, Ronald H. Coase, The Lighthouse in Economics, Theory of Social Cost